MCK-Splitting Demand From Supply in IT 2007

Splitting Demand from Supply in ITSplitting Demand from Supply in IT

David Mark and Diogo RauMcKinsey & CompanyDavid Mark and Diogo RauMcKinsey & Company

Presentation to ComputerworldPresentation to Computerworld

August 22, 2007August 22, 2007

CONFIDENTIALCONFIDENTIAL

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AgendaAgenda

• What is the demand-supply model?

• How should IT and the business engage?

• How should IT supply interact with demand?

• How should IT demand be structured?

• What are common approaches and pitfalls?

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AgendaAgenda











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A A structurestructure that is that is clearly articulated clearly articulated and widely appliedand widely applied

An IT An IT leadershipleadership mandate that is mandate that is widely agreed widely agreed

upon, understood, upon, understood, and respectedand respected

Well defined and Well defined and consistently consistently

followed followed decision-decision-making processesmaking processes

IT staff who are IT staff who are motivated and motivated and possess the possess the

desired desired mindsets mindsets and skillsand skills

Incentives and Incentives and metricsmetrics that are that are

effective at driving effective at driving desired behaviorsdesired behaviors

Organization structure is one element of good governance modelsOrganization structure is one element of good governance models

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Demand-supply model is a design structure where IT mirrors the businessDemand-supply model is a design structure where IT mirrors the business

IT demand organizations mirror the business structure, driving process improvement and project design

IT supply organizations focus on delivery and are organized by capability, not business line

Business

CEO

Pet food CerealDairy products

Pet food CerealDairy products

E.g., CRM

E.g., ERP

IT supply

IT demand

Demand-supply IT modelDemand-supply IT model

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Demand organizations focus on maximizing the business value from ITDemand organizations focus on maximizing the business value from IT

• Define technical architecture• Manage application portfolio• Design, build, test and deploy• Maintain applications• Provide infrastructure services

• Set technical strategy• Deliver projects• Deliver services

Supply org

• Define business requirements• Build project portfolio• Source and manage suppliers• Manage project delivery

• Prioritize and track IT investments

• Commission projects and services

• Select and manage suppliers

Demand org

Source: McKinsey

• Set the business strategy and execute

• Define business vision• Identify business/IT issues• Sponsor business/IT improvement

programs• Establish IT governance framework

Business

Typical responsibilitiesPrimary role

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Both demand and supply can be centralized or decentralizedBoth demand and supply can be centralized or decentralized

Who decides projects and architecture?

MixedBusiness unit Group

Group

Mixed

Businessunit

Who deliversapplicationsand infra-structure? S

up

ply

Captive vendor

Product factory

Centralized

Shared coreRegulated

marketSplit supply

Decentral-ized

Purchasing club

Prescriptive buyer

Demand

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AgendaAgenda











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How should IT and business engage?How should IT and business engage?

Source: McKinsey

Three choicesThree choices

BU-led

BU and IT engage directly

Demand-supply

Demand orgs manage IT supply for BUs

IT-centralized

IT funnels demand through one person or body

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BU-led: for innovationBU-led: for innovation

Source: McKinsey

Business and IT groups engage directlyBusiness and IT groups engage directly

BU BU

IT Group

IT Group

IT Group

How it works• BUs solicit IT groups directly to

deliver projects

Benefits• “No middleman” can mean faster

delivery and more flexibility

Issues• Redundant systems may be built

to support each business• The BU that “screams the loudest”

may get priority• Poor supplier management can

take projects over budget and off schedule

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IT-centralized: for efficiencyIT-centralized: for efficiency

Source: McKinsey

IT manages demand through one bodyIT manages demand through one body

How it works• The CIO or a governance board

reviews all requests

Benefits• IT spend is scrutinized and

efficient• IT supply can be focused on

delivery• BUs have a single point of contact

Issues• Central body can be a “middle

layer” bottleneck• BUs may lack influence in funding

decisions

BU BU

IT supply

IT supply

IT supply

IT governance body

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Demand-supply: for responsivenessDemand-supply: for responsiveness

Source: McKinsey

Demand orgs represent IT to BUsDemand orgs represent IT to BUs

IT demand

IT demand

IT supply

IT supply

IT supply

BU BUHow it works• BU-aligned IT demand prioritizes

projects, drafts requirements, and oversees delivery

Benefits• BUs have an advocate within IT• Demand organizations can

prioritize projects effectively• Supply organizations can focus on

efficiency

Issues• Demand can be an “order taker”

rather than thought partner• Supply can treat demand as a

“middle layer”

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AgendaAgenda











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How does supply interface with demand?How does supply interface with demand?

Source: McKinsey

Three choicesThree choices

Tower

Applications and infrastructure each engage demand

Competency

Infrastructure is a provider to capability groups (e.g., marketing)

Lifecycle

Applications, infrastructure are mixed by design, build, run

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Tower: for efficiencyTower: for efficiency

Source: McKinsey

Applications and infrastructure engage demand separatelyApplications and infrastructure engage demand separately

IT demand

IT demand

Applications Infrastructure

How it works• Each IT demand organization

coordinates separately with application and infrastructure

Benefits• Demand has full oversight over

delivery• Supply can efficiently deploy

funds and staff

Issues• Demand may not be sufficiently

skilled to oversee both applications and infrastructure delivery

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Competency: for responsivenessCompetency: for responsiveness

Source: McKinsey

Infrastructure is a provider to capability groups (e.g., marketing)Infrastructure is a provider to capability groups (e.g., marketing)

IT demand

IT demand

Capabi-lity

Capabi-lity

Capabi-lity

Infrastructure

How it works• Supply groups are organized into

capabilities (e.g., marketing, manufacturing)

• Infrastructure is a separate layer

Benefits• Supply groups can build cross-

business competencies• Infrastructure group can

standardize platforms

Issues• Some capabilities may have only

one demand group, risking a “middleman”

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Lifecycle: for innovationLifecycle: for innovation

Source: McKinsey

Applications, infrastructure are mixed by design, build, runApplications, infrastructure are mixed by design, build, run

IT demand

IT demand

Design Build Run

How it works• Supply is organized by SDLC

phase• Each supply group owns

application and infrastructure decisions

Benefits• Technical skills are well-

developed, especially design• IT demand can easily segment

new projects from enhancements

Issues• Architecture can lack standards,

causing platform proliferation in “run”

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AgendaAgenda











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How should IT demand be structured?How should IT demand be structured?

Source: McKinsey

One structure, two optionsOne structure, two options

Basic structure

The solution managers counsel business and draft requirements

Strategy option

A strategy role actively manages the project portfolio

Delivery option

The delivery manager ensures projects are on time and on budget

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AgendaAgenda











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Define the demand organization in four stepsDefine the demand organization in four steps

• Benchmark IT org size against staff and spend• Compile pain points and

goals from business• Assess IT strategy and

performance

DiagnoseDiagnose Design DeliverDrive benefits

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• Size total IT staff, then size demand as ~1/10• Choose org structures• Place decision-making

for project portfolio and architecture

Diagnose DesignDesign DeliverDrive benefits

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• Track demand against value-based metrics• Publicize improvements to

the business• Adapt model, changing

structure, leaders, metrics

Design DeliverDeliverDrive benefits

Diagnose

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• Select strong leaders from IT or business for demand• Engage business execs in

transformation• Detach supply and hold to

existing commitments

Design DeliverDrive benefitsDrive benefits

Diagnose

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“Monday morning plan”: start now with diagnosis . . . “Monday morning plan”: start now with diagnosis . . .

• Gather organization data: spend and staff levels by location, reporting structure, and tenure

• Compile external spending and staffing benchmarks

• Set up feedback sessions from the business customer on IT’s operating model

• Solicit feedback from IT staff on organization pain points

• Assess the IT strategy against value delivered, cost efficiency, and risk management

• Assemble the top 10 priorities for IT in one place

DiagnoseDiagnose Design DeliverDrive benefits

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• IT projects miss deadlines or budget targets• Everything is insourced

Poor supplier management

• Supply and business view demand as a “middle layer”• Demand thinks it is an “order taker”

Wrong leadership and staff

• IT projects are consistently over budget• Prioritization process is a mystery

Reluctance to challenge business

• Supply builds similar systems for different businesses

• Limited “chatter” and debate across demand groups

Siloed demand groups

. . . and avoid five common pitfalls in design and delivery. . . and avoid five common pitfalls in design and delivery

• Business complains IT does not do what they need• Demand org priorities are unclear

Mismatched structure

SymptomsProblem

MCK-Splitting Demand From Supply in IT 2007

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