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    CENTER FOR

    INFORMATION

    SYSTEMS

    RESEARCH

    Massachusetts

    Institute of

    Technology

    Sloan Schoolof Management CambridgeMassachusetts

    The IT Unit of the Future:Novel Approaches to Delivering Value to the Enterprise

    Barbara H. Wixom, Karthic Kosgi, Jeanne W. Ross, andCynthia M. Beath

    October 2014

    CISR WP No. 397

    2014 Massachusetts Institute of Technology. All rights reserved.

    Research Article:a completed research article drawing on one ormore CISR research projects that presents management frameworks,findings and recommendations.

    Research Summary:a summary of a research project withpreliminary findings.

    Research Briefings:a collection of short executive summaries of keyfindings from research projects.

    Case Study:an in-depth description of a firms approach to an ITmanagement issue (intended for MBA and executive education).

    Technical Research Report:a traditional academically rigorousresearch paper with detailed methodology, analysis, findings andreferences.

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    CISR Working Paper No. 397

    Title: The IT Unit of the Future: Novel Approaches to Delivering Value

    to the Enterprise

    Authors: Barbara H. Wixom, Karthic Kosgi, Jeanne W. Ross, and Cynthia M. Beath

    Date: October 2014

    Abstract: The October 2014 MIT CISR research briefing, Demand Shaping: Changing the

    Conversation About IT, communicates how a set of IT management practiceswhichwe call demand shaping practicesand IT governance change the nature of

    conversations regarding IT investment, and ultimately result in better firm performance.

    The briefings message is informed by a large-scale survey that was completed byexecutives from 195 organizations. This research summary provides detailed survey

    results, and can be used to benchmark IT management practices at your organization

    against those reported by the sample.

    Keywords: Demand management

    9 Pages

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    The MIT Center for Information Systems Research (CISR) surveyed 195 executives in Q1 2014 regarding or-ganizational practices that positively influence the quality of the IT portfolio. The practiceswhich we refer to

    as demand shaping practicesfacilitate ongoing negotiation and learning about a companys most valuable and

    achievable business change opportunities. The survey results suggest that demand shaping practices generatehigher levels of executive IT understanding and more strategic IT investment portfolios, which in turn influence

    firm-level outcomes, including net profitability.

    Our analysis found that IT portfolio quality is related to executive perceptions of financial performance. For the

    106 companies in our sample with publicly available financial results, perceived performance was correlatedwith actual industry-adjusted profitability. Our research suggests that executive IT understanding, demand

    shaping practices, and IT governance processes create a virtuous learning cycle that leads to consistent improve-

    ments in the IT portfolio, and ultimately, improved financial performance.1These findings are communicated in

    the October 2014 MIT CISR research briefing2by Jeanne W. Ross, Cynthia M. Beath, and Barbara H. Wixom,

    Demand Shaping: Changing the Conversation About IT.

    Massachusetts Institute of Technology

    Sloan School of Management

    Center for Information Systems Research

    The IT Unit of the Future:

    Novel Approaches to Delivering Value to the Enterprise

    These survey results were prepared by Barbara H. Wixom of the MIT Sloan Center for Information Systems Research, Karthic Kosgiof the MIT School of Engineering and the Sloan School of Management, Jeanne W. Ross of the MIT Sloan Center for Information

    Systems Research, and Cynthia M. Beath of the University of Texas at Austin. Rajiv Kohli of The College of William & Mary also

    contributed to this work. The authors would like to acknowledge and thank survey respondents for their participation.

    2014 MIT Sloan Center for Information Systems Research. All rights reserved to the authors.

    1The survey research confirms relationships among the three factors listed here and between those factors and IT portfolio quality.While the survey research cannot confirm causality, MIT CISR has conducted five case studies and interviews with twenty-six ITleaders that support the causal relationships discussed here.

    2See also related publication J.W. Ross and C.M. Beath, Demand Shaping: The IT Units New Passion,MIT CISR ResearchBriefing Volume XIV, No. 1, January 2014.

    http://cisr.mit.edu/blog/documents/2014/10/16/2014_1001_demandshaping_rossbeathwixom.pdf/http://cisr.mit.edu/blog/documents/2014/10/16/2014_1001_demandshaping_rossbeathwixom.pdf/http://cisr.mit.edu/blog/documents/2014/10/16/2014_1001_demandshaping_rossbeathwixom.pdf/http://cisr.mit.edu/blog/documents/2014/01/16/2014_0101_itsd_rossbeath.pdf/http://cisr.mit.edu/blog/documents/2014/01/16/2014_0101_itsd_rossbeath.pdf/http://cisr.mit.edu/blog/documents/2014/01/16/2014_0101_itsd_rossbeath.pdf/http://cisr.mit.edu/blog/documents/2014/01/16/2014_0101_itsd_rossbeath.pdf/http://cisr.mit.edu/blog/documents/2014/10/16/2014_1001_demandshaping_rossbeathwixom.pdf/
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    Figure 1

    195 Executive Responses

    Survey respondents included 100 Enterprise CIOs, 19 Division or Business Unit CIOs, and executive leaders

    from Strategy (16), IT Development (47), or other areas (13). The majority (85%) answered the survey from the

    perspective of the entire organization, while the remaining executives responded based a single business unit.

    Figure 2

    Industries Represented

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    Figure 3

    Perceived Firm Performance Correlates with Actuals

    We analyzed actualindustry-adjusted net

    profitability for 106 publicly

    traded companies in our

    sample. Of those companies,

    42% performed better than

    industry average, and all

    scores were significantly

    correlated with respondent

    reports of profitability andROA. The mean industry-

    adjusted net profitability for

    the 106 firms was -2.7%.

    Executives provided their personal assessment of firm performance by rating how their company compared to

    other firms: (1) Performing significantly below competitors, (2) Performing below competitors; (3) Performing

    about industry average, (4) Performing above industry average, and (5) Performing far better than competitors.

    Correlations exist (a) between the above four measures of IT portfolio quality and with respondent reports of profitability and ROA, and (b) respondent

    reports of profitability and ROA and actual industry-adjusted profitability.

    Figure 4

    Senior Executive IT Understanding Is Associated with IT Portfolio Quality

    On average, companies that

    received scores in the top quartile of IT

    portfolio quality had

    a significantly higher percentage of

    senior executives who understood IT.

    For example, IT portfolio

    quality top quartile companies

    responded that on average 68%

    of their senior executives understood

    how their companys

    IT investment process works.

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    Figure 5

    IT Understanding, IT Portfolio Sample Means

    IT Understanding: The percentage of senior executives who understand enterprise IT and IT-enabled change

    from (1) Strongly Disagree to (5) Strongly agree.

    IT Portfolio: Executives provided their personal assessment of IT Portfolio by rating their organizations from

    (1) Strongly Disagree to (5) Strongly Agree.

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    Figure 6

    Demand Shaping Is Associated with Key Outcomes

    Figure 7

    Business Relationship Management

    Demand Shaping Practices

    Executives provided their personal assessments of six demand shaping practices, using the following scale: (1)

    We dont do the practice at all; (2) Just experimenting; (3) We do it sporadically, to some extent; (4) Standard,

    pervasive practice; and (5) Ours is a best practice.

    In the following exhibits, we provide means for the items that represent the six practices.

    There was some variation in maturity across practices, with most companies more pervasively adopting

    business relationship management and roadmapping.

    Post-implementation value assessments had the lowest adoption rates.

    Alignment between the IT unit and its business customers, usually involving an individual with formal responsibility

    to both an IT leader and a business leader. A BRM individual understands the customers business processes and busi-

    ness goals and provides technology guidance to ensure maximum return on investment in information technology.

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    Figure 8

    Roadmapping

    Development of a plan that lays out both short-term and long-term steps for changing IT-enabled capabilities

    from an as-is state to a future desired state. The plan communicates how initiatives should be sequenced to

    meet some objective.

    Figure 9

    Agile Methods

    An incremental method of software development. Applications are developed in short sprints at the end of

    which some level of functionality is delivered to users, customers feedback is obtained, and priorities are reevalu-

    ated and used to drive the next iteration.

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    Figure 10

    Strategic Program Management

    A group of interdependent projects that serve the same strategic goal are overseen by a senior executive who

    has sufficient insight and authority make decisions about the projects and tradeoffs among them so as to

    achieve the strategic goal.

    Figure 11

    Operating Cost Transparency

    Organizing to manage the total cost to deliver and maintain the infrastructure services offered to the business

    (e.g., help desk, email, data center, network). It usually involves integrating financial information and opera-

    tional data to provide a single, integrated view of IT costs for specific infrastructure services.

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    Figure 12

    Post-implementation Value Assessment

    A particular type of post-implementation audit that focuses on application usage or adoption, customer satis-

    faction, and whether the business case for the investment was achieved or the desired business value was de-

    livered (not whether the project was delivered on time, on budget, and with expected functionality).

    Figure 13

    Top Performers Vs. Low Performers

    Across all demand shaping practices, top-performing companies had means above the average, and they more

    often classified their practices as standard/pervasive and best practice. Low performers more often rated them-

    selves as not doing the practice or as just experimenting.

    The sample was divided into

    quartiles based on

    IT Understanding scores.

    The means between top and

    bottom quartile companies

    were statistically different

    across all demand shaping

    practices.

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    Figure 14

    IT Governance

    IT governance also influences the quality of the IT portfolio and other outcomes. Executives provided their person-

    al assessment of IT Governance by rating their organizations from (1) Strongly Disagree to (5) Strongly Agree.

    Figure 15

    Influences on IT Understanding, Portfolio Quality

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