Key Factor Analysis

horizontal rule

Introduction

According to all the surveys, aligning an organisation’s IT to its corporate objectives is essential if the organisation is to succeed (or in some cases survive) in the marketplace. The Society of Information Management global survey of senior management reports that the alignment of IT to the corporate objectives has continued to be one of the major concerns of senior management since the first studies were undertaken in the early 1980s. One of the reasons for this concern is that organisations spend between 1% and 6% of their annual revenues on IT. In the average medium to large organisation this can represent anywhere from $20 million to $100 million, or more. What makes it worse is that most organisations have become so reliant on IT today that if it stops so does the organisation. And so does their revenue.

Its now also been proven that companies who do successfully align their IT to their corporate objectives perform better than those that don’t align their IT. However its not just a matter of spending money on IT. Like any other investment the organisation has to spend it in the right areas. And therein lies the real problem.

With all this dependence on IT the question arises: Is the money invested in IT well spent, or does it disappear down the black hole of technology with little benefit to the organisation? How much should the organisation spend on IT? More importantly where should it spend its IT dollar? The real problem is that very few organisations really do know whether their IT dollars are being spent wisely i.e. are they getting a good return on their IT investment? 

What is the solution?

One solution is to ensure that IT is aligned to the corporate objectives of the organisation. But how can organisations align their IT? And what must organisations do to ensure it not only happens but is successful?

Since the mid 1990s we have been carrying out extensive research into identifying what organisations use or at least have present in the organisation to help them align IT to their corporate objectives. Our research revealed that there is a set of key factors that organisations use for IT alignment, and that not only are they important but they form a hierarchy, where certain key factors are dependent on the presence of other key factors if they are to be successful in assisting the organisation. In addition we found that certain key factors have a close inter-dependency, i.e. they both must be present and the success of each is dependent on the success of the other.

The key factors can be logically grouped into three types – management oriented, business oriented and technology oriented. The three groups are hierarchically related i.e. the technology oriented key factors are dependent on the business oriented key factors which in turn are dependent on the management oriented key factors.

Its not enough however for the key factors to just be present – they must conform to a certain set of characteristics. For example every CIO will have a certain management style, but if the organisation wants to have its IT aligned successfully with its corporate objectives our research has shown that the CIO should have a particular management style. As part of our research we have developed a set of characteristics for each key factor. An organisation can be evaluated against the key factor characteristics to determine areas of weakness or inappropriate IT spending.

 

How can organisations benefit?

If organisations want IT to contribute to their bottom line their IT must be aligned successfully to their corporate objectives. To align IT to their corporate objectives organisations must ensure all the key factors are not only present and fit the characteristics for successful IT alignment, but also the inter-relationships between key factors must be present and fit the characteristics. If the key factors are present and correct the organisation has a far greater chance of ensuring that their IT dollars are being spent wisely.

To assist organisations in achieving the alignment of IT with their corporate objectives methodology has been developed called Key Factor Analysis (KFA). The first step of KFA is to carry out a review of the organisation and its operations to ascertain whether the key factors are present. An analysis is carried out for each key factor to see whether it is present and if so how is it present or used in the organisation.

Next the key factor is ranked against these characteristics on a scale from ‘Not Present” to “Very High” and therefore according to how well it assists the organisation in aligning its IT. This process is repeated for all key factors. Once the analysis has been completed and all key factors ranked, those key factors which are absent or ranked low can be targeted for implementation and/or improvement to match the key factor definition characteristics. Using Key Factor Analysis an organisation can ensure that its IT is aligned to its corporate objectives, and thus contributing towards its bottom line.