An Oracle Thought Leadership White Paper September 2009

Business and IT Alignment: An Oracle View

Business and IT Alignment: An Oracle View

Executive Summary............................................................................. 1 Introduction.......................................................................................... 2 The Perspective of Management Excellence....................................... 4 Management Excellence and the Role of IT.................................... 5 Operational Excellence Paves the Way............................................... 7 Operational Excellence and the role of IT........................................ 9 Technology Excellence Enables It All................................................ 10 How Oracle Can Help........................................................................ 13

Business and IT Alignment: An Oracle View

Executive Summary
In this paper we present an Oracle view on Business and IT Alignment. As part of that view, we introduce three elements; management excellence, operational excellence and technology excellence. Most people are familiar with the term operational excellence; optimi ing cost, !uality, and speed. It has "ecome a prere!uisite to fuel the next level of competitive differentiation ## management excellence ## which is characteri ed "y three other attri"utes; smart, agile, and aligned. $either can "e achieved without technology excellence; an IT strategy that focuses on "eing complete, open, and integrated. %igure & descri"es our view on Business and IT Alignment.

Figure 1: Business/IT Alignment

This paper, written for 'IOs and IT strategists, presents a conceptual view that helps with designing and evaluating IT strategies, and helps "uild "usiness cases for IT.

Business and IT Alignment: An Oracle View

Introduction
It is with hesitation that we write this white paper. (o much has "een said a"out "usiness and IT alignment )BIA*, what could possi"ly "e added+ There are IT governance principles, IT architectural concerns, areas of IT innovation, IT ,ey performance indicators, and IT cost saving elements. -owever, as, ten people for a definition of what "usiness and IT alignment means, and you will get twelve answers. But, what a"out the "usiness side+ Although the "usiness often challenges IT to show their "enefits and overall value, most of the BIA discussions ta,e place within IT. Alignment can only "e successful if it comes from "oth sides. Is there an e!ually structured discussion ta,ing place on the "usiness side a"out how to receive the "enefits from IT+ Is there a discussion on the "usiness side on how to adapt corporate strategy to IT#driven innovation+ Most 'IOs have plenty of "usiness performance indicators on their scorecards, "ut how many "usiness executives manage their "usiness with IT performance indicators+ BIA doesn.t seem to "e as reciprocal as it should "e. And, while we are at it, what a"out "usiness#to#"usiness alignment+ IT can only "e efficient and successful in the long term if it is "ased on a decent architecture. /ong term success is difficult to achieve if the "usiness treats IT in a stove#piped way, forcing "usiness cases to focus on departmental "enefits only. 0ou could even argue that BIA should "e a discussion from the past anyway. Organi ations routinely outsource activities; they rely on many partners throughout the value chain creating what is often called an extended enterprise. A successful "usiness today is "ased on a performance networ, of all sta,eholders, such as channel partners, suppliers, innovation partners, investors, customers and even competitive relationships. In other words, sta,eholder alignment should "e front and center to organi ations today. In this paper, we present our view on BIA "ased on the goal of alignment; running an excellent organi ation. 1e distinguish three areas of excellence2 operational excellence, management excellence, and technology excellence.

Business and IT Alignment: An Oracle View

The three pillars of operational excellence& are cost, !uality, and speed. 'ost#efficient organi ations have higher margins, and therefore more investment capacity. A focus on !uality gives them competitive advantage, offering a superior price#!uality ratio, and speed is of the essence in a "est#in#class supply chain. Operational excellence has a focus on an organi ation3s "usiness processes such as order#to#cash or procure#to#pay. Management excellence4 is "ased on three characteristics as well2 "eing smart, agile, and aligned. (mart organi ations have deeper insight into what is happening in the mar,et and in their organi ation as compared to their competitors. They have the agility to act upon those insights "etter than their competition as well. These improvements should "e shared across the entire value chain as alignment is needed to prevent su"#optimi ations from occurring. Management excellence focuses on management processes such as plan#to#act and analy e#to#ad5ust. %inally, technology excellence is also "est descri"ed using three ,eywords2 complete, open, and integrated. A complete IT strategy is part of an overall "usiness strategy, in a reciprocal way. 'orporate strategy aligns with IT, as much as IT strategy focuses on reaching the strategic goals. As we cannot predict tomorrow.s needs, an excellent IT strategy also needs to "e open, anticipating the use of applications, technologies and devices that are not in use at the moment, that users may "ring to the ta"le, or that do not even exist today. As no organi ation stands alone, it must interact with many sta,eholders; therefore, an IT strategy needs to "e integrated. Technology excellence is needed to achieve operational excellence and management excellence, while operational excellence is needed to "e successful with management excellence.

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Business and IT Alignment: An Oracle View

The Perspective of Management Excellence

Operational :xcellence should "e a primary goal for all organi ations; however, the source of competitive advantage decreasingly comes from "eing the cheapest, or the fastest to respond to the mar,et. There is always a competitor who is willing to offer even lower prices, and consumers have come to expect an immediate response. %urthermore, over time it "ecomes increasingly difficult and expensive to improve cost, !uality and speed, to the point where the investment does not provide a good return anymore. 'ompetitive differentiation today comes from "eing smarter than the competition; "eing a"le to see what is happening in the mar,et, and within the organi ation, with a deeper understanding than anyone else. Most of the innovation today comes from technologies you didn.t invent yourself. Most "usiness opportunities now come from new political, economical, social, technological, environmental or legal= trends and changes, and not simply from your own mar,eting campaigns. Today.s economic pressures, in many cases, are not caused "y mismanagement, "ut are inflicted "y the glo"al economy. Business success is not always within our circle of control, or even our circle of influence. Being smart is "eing a"le to understand change, and what that means to you. But, "eing smart can only help you if you are a"le to act on it. The life#cycle of products and services is decreasing dramatically, so capturing the first#mover advantage, or "eing a fast# follower, is crucial to "usiness success > until the competition catches up and a new cycle "egins. (trategies, plans, processes, and organi ational structures need to "e flexi"le, so that they can "e fine#tuned as you go along. That is why agility is the second source of competitive differentiation. Agility only wor,s if it can "e copied and applied throughout the complete value chain. If you are more agile than the rest of the value chain, you have created a su"#optimal organi ation. Others can.t follow, and new smart insights never ma,e it to the "ottom line. Being smart and agile hinges on the third element of "usiness success; "eing a"le to align the complete value chain. Being smart, agile, and aligned are the three attri"utes of what we call management excellence. 1here operational excellence usually focuses on optimi ing operational processes to create

a so#called 9:(T:/#analysis )political, economical, social, technological, environmental, legal* reveals those opportunities

Business and IT Alignment: An Oracle View

competitive advantage, management excellence aims to create "etter management processes to differentiate from the competition?.

Management Excellence and the Role of IT

Technology can play an important ## even leading ## part in "eing smart. In Competing on Analytics5, Thomas 8avenport descri"es the four common characteristics of analytical competitors. %irst of all, the analytics deployed in the organi ation support the organi ation.s strategy and distinctive capa"ilities. This can "e a"out customer intimacy, product innovation, post#merger integration, mastering the "rand, or any other strategy. %or analytical competitors, technologies such as data mining, multidimensional analysis, and simulation are at the forefront of strategic success. The second characteristic is that these technologies are spread enterprise#wide, and are not 5ust in the hands of a small group of ,nowledge wor,ers. All levels of management and all lines of "usiness have access to the technology, yet it is managed in a central way to avoid fragmentation and improve alignment. Third, there is a strong commitment from senior management to ma,e sure enterprise#wide adoption is reali ed, that there will "e one version of the truth, and that new insights, touching multiple parts of the "usiness, are indeed implemented. The last characteristic is to have a high level of am"ition. Analytics are not a controlling activity for the "ac,#office; they are seen as the ,ey to strategic success. They can transform the organi ation, the "usiness itself, and ultimately the mar,et. Most organi ations do not suffer from a lac, of "usiness intelligence )BI* and other types of analytics. In fact, in most cases, there is too much and it is too fragmented including different tools, incoherent data, and conflicting definitions. In order to get smart, organi ations should rationali e their management systems first. This is needed to filter out the noise, and to clearly and immediately see any exceptions, opportunities, trends at the edge, or wea, signals, In order for organi ations to "ecome agile, their operational systems and management systems need to "e integrated. In most cases, operational "usiness processes are not very well connected to the tactical and strategic management processes. Operational plans and financial "udgets are "ased on different grounds. 'hanging conditions are often detected first in operational processes )order#ta,ing, campaign response, payments*, "ut there are multiple layers "efore these signals reach the top. Meanwhile, this information is often "eing filtered "y the various levels of management on its way to the top.
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Business and IT Alignment: An Oracle View

1hen enterprise performance management ):9M* systems are connected to other "usiness applications, such as enterprise resources planning ):C9* and customer relationship management )'CM*, strategic course#changes and tunings are implemented instantly, and operational feed"ac, is escalated immediately. 1hen 'CM, :C9 and supply chain management )('M* systems are connected, changes in demand or supply can immediately "e translated to the "est use of our resources, through a new operational plan. Information is the ,ey to creating alignment. Business processes are often originally designed with the organi ational "oundaries in mind. -owever, today.s "usiness is organi ed as a performance networ,. Information and processes cross multiple organi ations. Information and processes are the only things that connect all elements in the performance networ,. And information needs to lead the way to avoid any surprises in the value chain. Messaging, reports, dash"oards, analytics, and other forms of operational and management information need to "e availa"le not only in the vertical sense ## within the organi ation )aimed at top management*, "ut should "e actively deployed between organi ations. In many cases, the ma5ority of information exchange ta,ing place "etween organi ations is a reality already. In short, an IT strategy ena"ling management excellence should rationali e existing management systems, tightly integrate management systems with operational systems, and provide open access to relevant information to all sta,eholders throughout the performance networ,.

Business and IT Alignment: An Oracle View

Operational Excellence Paves the Way

Achieving operational excellence is a primary goal for all organi ations. In a competitive world where customers have high expectation levels, without efficient processes and systems, and without a lean organi ation, no one can survive. Operational excellence is "uilt upon three main drivers; cost, !uality and speed. Ta"le & highlights the ,ey aspects of operational excellence.

THE KEY DRIVERS OF OPERATIONAL EXCELLENCE

Cost Quality Speed

Higher margins increase investment capacity Deliver best price quality ratio Establish best in class value chain, transforming from lean to agile

Table 1: The key drivers of operational excellence

Operational excellence has two goals; first, to ena"le the organi ation to operate on the efficiency frontierD; and second, to free up resources )such as time, money and people* to invest in management excellence. Operational excellence has "ecome a Elicense to playE. 'ompanies need to operate on the productivity frontier. This frontier is the sum of all existing "est practices at any given time, or the maximum value that a company can create at a given cost using the "est availa"le technologies, s,ills, management techni!ues, and purchased inputs. In other words, Eget the most out of what you haveE. 'ost, !uality, and speed each needs to "e optimal. Cegardless of strategy, driving down the cost per transaction or per "usiness process is important. It ena"les offering the "est price<value ratio. Optimi ing wor,ing capital ena"les you to increase the investment "udget to strengthen the company.s competitive position. Improving the !uality to "e a"le to offer the "est price<!uality ratio is essential to ensure customer satisfaction, retention, and loyalty. Ceducing the failure rate cross all transactions and "usiness processes re!uires continuous attention. 8efects or deficiencies can "e detected instantly, and corrective actions can "e ta,en immediately.
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Business and IT Alignment: An Oracle View

Increasing the speed is crucial to not only "uild lean supply and demand chains, "ut in particular to move from a lean value chain to an agile value chain. This is critical to "e a"le to adapt to or create "est practices in the performance networ, today. Integrating a new supplier or channel partner must not ta,e months; it should "e done in a few days. Along the performance networ,, the information has to wor, seamlessly allowing all constituents to "e up to date. The second goal of operational excellence is to ena"le and support management excellence. The ta"le "elow outlines how.
OPERATIONAL EXCELLENCE CONTRIBUTION TO MANAGEMENT EXCELLENCE

Cost
MANAGEMENT EXCELLENCE

Quality

Speed

Smart Agile

Lower price of information Higher turnover rate of change

Reliability, relevance Lower failure rate of change (higher first time right percentage)

Timeliness, early warning Improved time-to-act

Aligned

Higher user/information reach per dollar

Higher accuracy and followup on commitments

Improved time-to-benefit

Table 2: Operational excellence contributing to management excellence.

In order to "e smart, an organi ation needs to have insight into what is happening. If non# efficient operations ma,e it impossi"le or too expensive to extract information, new insight will remain hidden in the mar,et and within the operations. The operations should "e trustworthy ## in today.s "usiness operations; there are often still many different versions of the truth. The data used to detect patterns and spot change needs to "e relia"le. A speedy operation is needed to ma,e sure new insights are timely so that the organi ation can act on them early. Operational excellence supports agility "y ena"ling a more rapid rate of change ## current processes and systems should not "e "ottlenec,s to strategy ad5ustments. 'hanges should only "e made once to "e effective throughout the complete organi ation so change must also "e flawless. The process of change needs to "e relia"le too. (peed in operations also improves the time#to#act, which is the elapsed time "etween discovering a new insight and implementing it.

An operationally excellent environment ma,es it efficient to collect and share information. It "ecomes possi"le to provide access to critical information to all sta,eholders in the value chain,

Business and IT Alignment: An Oracle View

for the same investment. There is an a"undant amount of research that shows that a shared view creates more alignment in the value chain, instead of what is often called the E"ull whip effectE. (peedy operations ma,e sure that the time it ta,es to "enefit from improvements, driving them all the way down to the customer, is optimi ed.

Operational Excellence and the role of IT

Business applications and middleware improve "usiness processes in three ways. %irst, "usiness processes must "e automated as much as possi"le, with the least amount of human interaction. This ensures a situation that is cost#efficient, and provides high !uality and fast processes. 1or,flows steer the human input and sign#offs. (econd, "usiness processes must "e standardi ed, so that changes made are immediately availa"le across the enterprise and wider value chain. (ingle#instance "usiness applications provide a lower total cost of ownership, higher !uality )less errors "y processing a change only once*, and higher speed. /astly, "usiness processes must "e integrated. (upply chain )('M* and demand chain )'CM* must "e connected with the organi ation.s resource management ):C9*, in order to operate on the productivity frontier. An efficient set of "usiness processes frees up the resources and the time to focus on other processes that provide competitive differentiation, mainly those around management excellence. 'hange management is a crucial competence to "e a"le to change IT systems smoothly and !uic,ly, in order to ,eep up with the pace of "usiness change.

Business and IT Alignment: An Oracle View

Technology Excellence Enables It All

As "usiness innovation "ecomes increasingly dependent on technology, the IT needs of the "usiness users continue to evolve and change. This also impacts the area of responsi"ility for IT. To provide technology excellence, the responsi"ility of IT appears to "e evolving from choosing and supporting complete applications, to choosing an ecosystem of technology which will support the functionality and capa"ilities needed "y each "usiness area. IT is moving from a state of "eing the custodians of applications and infrastructure # providing what participants need currently # to "eing a supplier of tools and technology to ena"le the participants needs now, and into the future. As "usiness moves at a faster pace, and "usiness users "ecome more technology savvy, IT must aniticpate the needs of participants, and ena"le them. An effective IT strategy, fueling technology excellence, needs to "e complete, open, and integrated. A complete IT strategy supports all elements of the "usiness; not only administrative systems, "ut also colla"oration, decision#ma,ing, mo"ile needs, sta,eholder relationship management, and "usiness innovation. Moreover, a complete IT strategy goes "eyond the IT department and is included in the "usiness strategy. It descri"es for each "usiness function how the "usiness value of IT is "eing received, used, and is "eing leveraged "y the "usiness. The governance structure, as part of a complete IT strategy, goes "eyond a mere steering committee, ma,ing technology excellence a 5oint responsi"ility. Business and IT are mutually aligned. The value of IT has changed from 5ust removing technological "arriers to doing "usiness, to "eing part of a strategy that creates options to fuel "usiness re!uirements that are not even ,nown yet. That is why an excellent IT strategy also needs to "e open, anticipating the use of applications, technologies and devices that are not in use at the moment, or that users "ring to the ta"le, or that do not even exist today. Technology excellence cannot "e measured "ased on return on investment on a pro5ect#"y#pro5ect "asis, or on multi#year programs, "ut must "e measured on real options7.
7

A Ereal optionsE#"ased view on the valuation of anticipated future performance of the company )as part of assessing shareholder value*, does not focus evaluating whether the company has the right strategy or not, "ut evaluates if the company is flexi"le enough to adapt to changing mar,et circumstances. An organi ation.s IT strategy is crucial in having that flexi"ility. IT strategy in this sense should "e seen as a portfolio of investment opportunities that can "e delayed, expanded, switched or contracted<a"andoned when needed.

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Business and IT Alignment: An Oracle View

-aving legacy systems interact with modern systems creates new challenges in "uilding systems that are flexi"le. There are different ideas on how to "est create the desired open and flexi"le environment. One idea introduced is to adopt (OA )(ervice Oriented Architecture* and wor, with services as opposed to pre"uilt applications. Others include adopting 'loud 'omputing, using (oftware as a (ervice )(aa(*, grid computing, using a suite of applications with customi ations as re!uired, or possi"ly include Mashups, and 'rowdsourcing. The good news is that using some of these options will reduce the financial worries of owning the infrastructure, platform, and software );rid 'omputing, (OA, and (aa(*; the issue with not owning it is how to exercise FcontrolH. $ew information from com"ining data and services in new ways should "e shared with sta,eholders. Technology excellence occurs when you can leverage what you have to create new, never#"efore#seen, decision support information throughout the value chain. Therefore, an IT strategy needs to "e integrated. All components throughout operational processes and management processes need to "e a"le to tal, to each other. This fuels operational excellence )lower costs, higher !uality, faster processes*, and it drives management excellence. (eeing cause# and#effect relationships "etween processes provides new insights, agility is ensured "y lin,ing operational processes and management processes, and alignment is driven throughout a single set of data, meta data and master data. In addition, "y using a well constructed, service oriented architecture, standards are employed, and when implemented properly, ensure components are reusa"le. Typically, this means that users can get the functionality and information that they need, when they need it, at a lower cost. If all services are drawing from the same data, then there will "e less conversation a"out data !uality, and more a"out new information.

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Business and IT Alignment: An Oracle View

The following ta"le summari es how technology excellence ena"les operational and management excellence. %rom left to right, the three attri"utes of technology excellence are listed and, from top to "ottom, the three elements of operational excellence and the three elements of management excellence are listed.
TECHNOLOGY EXCELLENCE COMPLETE MANAGEMENT EXCELLENCE OPEN INTEGRATED

Smart

Provide insight in internal and external data and events, create a wider radar screen

Grant access and collect data from a variety of internal and external sources Relate data and processes on the strategic, tactical, and operational level Share with all stakeholders

Disclose cause and effect relationships throughout the value chain

Agile

Provide processes and technology to drive integral change

Provide an action framework for all relevant constituents

Aligned

Provide the one version of the truth, and the complete version of the truth

Provide a standardized way of working; apply best practices throughout the value chain

OPERATIONAL EXCELLENCE

Cost

A complete system offers economy of scale and a good cost/value ratio

Provide ability to leverage the systems you have already Offer ability to make use of best-of-breed technology components

Lower transaction costs between all stakeholders

Quality

A complete system, compared to a patchwork of local systems, provides less complexity

In an integrated system, there are less conversion steps, and lower risk for errors

Speed

A complete system manages optimal throughput throughout the complete process

Leverage pre-built components, and speed up impementation time of new functionality

Integrated systems support the full process. Integrated processing instead of a batch for each system

Table 3: Technology Excellence enables Operational Excellence and Management Excellence

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Business and IT Alignment: An Oracle View

How Oracle Can Help

-aving middleware that is the most complete, open, and integrated fuels future options. Middleware is the software layer that connects services, components, or applications and allows multiple processes, running on one or more machines, to interact across a networ,. Ising middleware ma,es it possi"le to not only lin, your own systems, "ut also the systems of your suppliers, partners, customers and other sta,eholders. Middleware helps create options for the future, "eing ready to connect to systems and lin, in functionality currently not even ,nown to the organi ation. Oracle %usion Middleware &&g is the J& application infrastructure foundation. It comprises a wide range of capa"ilities, including application server, "usiness intelligence, "usiness process management, colla"oration, content management, data integration, identity management, and transaction processing. Oracle %usion Middleware &&g ena"les enterprises to create and run agile and intelligent "usiness applications, and maximi e IT efficiency "y exploiting modern hardware and software architectures. Oracle %usion Middleware &&g is the only middleware availa"le from any vendor that offers the following uni!ue design principles2 CompleteK1or, with a single, strategic partner for all middleware re!uirements. 'hoose from "est#of#"reed offerings across every product line. OpenK:nhance your existing infrastructure and applications with interopera"ility that goes "eyond industry standards. IntegratedK'ertified integrations with Oracle %usion Middleware, Oracle 8ata"ase, and Oracle Applications provides confidence and reduces costs. Oracle %usion Applications are using Oracle %usion Middleware &&g. Oracle %usion Applications leverage industry standards and technologies to transform organi ations into next#generation enterprises. Oracle %usion Applications are service#ena"led enterprise applications that can "e easily integrated into a service#oriented architecture, and are made availa"le as (oftware as a (ervice )(aa(*.

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Business and IT Alignment: An Oracle View

Oracle Fusion Applications Next-generation adaptability :asier application integration Adapta"le "usiness processes Applications tailored to your "usiness

Next-generation productivity Optimal operational decisions :mpowered information wor,ers (eamless colla"oration

Next-generation manageability Improved IT productivity Better run applications 8ata governance and controls

Oracle is the largest enterprise software company in the world. Oracle offers the complete stac,, from storage to scorecard.

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Business and IT Alignment: An Oracle View September 2009 Author: Frank Buytendijk, Toby Hatch, Thomas Oestreich Oracle Corporation World Headquarters 500 Oracle Parkway Redwood Shores, CA 94065 U.S.A. Worldwide Inquiries: Phone: +1.650.506.7000 Fax: +1.650.506.7200 oracle.com 0909 Copyright 2009, Oracle and/or its affiliates. All rights reserved. This document is provided for information purposes only and the contents hereof are subject to change without notice. This document is not warranted to be error-free, nor subject to any other warranties or conditions, whether expressed orally or implied in law, including implied warranties and conditions of merchantability or fitness for a particular purpose. We specifically disclaim any liability with respect to this document and no contractual obligations are formed either directly or indirectly by this document. This document may not be reproduced or transmitted in any form or by any means, electronic or mechanical, for any purpose, without our prior written permission.

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