Every CIO knows the drill. You’ve got a ton of projects on the go, your people are starting to get bug-eyed from all the crazy hours they’re working, the business is in your grill for missing deadlines and not delivering what they asked for, and yet they’re still after you to squeeze in another piece of work that just has to get done. It’s enough to make you burn your Blackberry, cash in your frequent flyer miles, and find a nice beach to comb, preferably somewhere where high-tech means running water and the ability to make fire.
But for those of you not quite ready to toss in the towel, the alternative is to find a better way of working with the business. Over the years, many have tried and many have failed. But happily, there are also some who appear to have genuinely found a better way. One of them is Kumud Kalia, CIO of Toronto-based Direct Energy, a subsidiary of Centrica plc. and North America’s largest integrated non-utility energy and services company.
Kalia has not discovered a ‘magic bullet’ to business alignment. His approach is a holistic one, encompassing a variety of important areas such as governance, project prioritization, process engineering, and execution. This article looks briefly at Kalia’s initiatives in several of those areas.
Effective governance and project prioritization
At Direct Energy, effective governance and project prioritization go hand in hand.
At the top of the IT governance pyramid is the Investment and Change Management Committee, which is chaired by Kalia and includes the company’s U.S. and Canadian presidents, the Head of Strategy, and the CFO. This committee meets quarterly and governs allocation of capital to change initiatives across the company, including programs, which span multiple business units, and projects, which serve individual business units.
So far, the company has made the most progress in the projects area. Each business unit (BU) has a Business Advisory Committee, which ranks all change initiatives within the unit by priority. It also identifies and resolves priority conflicts between the BU and cross-functional program goals. This committee is typically chaired by the unit’s president along with his or her direct-report team, and although it is, in effect, an IT process, the committee is seen as a business governance entity.
According to Kalia, the strict ranking of project priorities is vital to establishing a successful working relationship with business partners.
“We have some rules of engagement,” he said. “People are not allowed to come in and say things like ‘it needs to happen, just get it done’. They have to say things like ‘this is more important than that’. Typically there’s a frequency around this — maybe every two weeks or once a month — so that as new things come in they can take precedence. But no new thing can be asked for unless it’s gone through this mechanism. That means there’s no back-dooring of IT work now. People can’t get favours done. If it’s not on the list, it doesn’t get worked on.”
Kalia admits there was quite a lot of pushback to this approach. “Initially, people had to let go of cherished projects in order to do something for the common good of the team,” he said. “In principle that doesn’t sound difficult, but in practice it was harder than people had anticipated. Focus isn’t always easy.”
This method of prioritizing projects has been in place about a year now and extends across all the company’s business functions. And the results have been impressive. No longer are IT resources being stretched too thin across too many projects. Now the department does fewer things, gets them done, and moves on to the next batch of priorities.
The governance body overseeing programs — initiatives that span multiple business units — is the Program Executive Steering Committee (ESC). It is responsible for key decisions, escalations, arbitration between competing priorities, and early detection of trouble signs.
Programs are a real challenge to manage effectively. It’s easy to start such initiatives, but difficult to see them through, and companies can only handle a limited number of them at a given time.
Kalia has addressed this problem by putting in some limiting factors around program initiation. He stipulated that they require the participation of two members of the Executive Committee, which has only nine members, so this effectively limits the number of initiatives that can be undertaken. He also stipulated that the program sponsor must be part of the senior executive group, and as those individuals have limited time to spare, this also cuts down on the number of initiatives to “the vital few”.
Currently, Direct Energy has about ten programs that it wants to undertake. Roughly half have gained traction and are getting a lot of attention, while the rest are either in the early stages of development or ‘parked’, awaiting sufficient resources to move forward.
As Kalia noted, “If we try to do everything, we fail. Things will start breaking or we’ll overrun our budgets.”
In order to ensure that IT is focussed on the right solutions, Kalia has a three-person process engineering team scrutinizing the company’s business processes. It’s a complex job that includes such tasks as examining and analyzing a process end to end, exploring the cost of making adjustments to it, running simulations to find out the impact of those changes, and drafting a redesign of the process. Once changes have been implemented and people have been reskilled, the process team measures the results to find out if the anticipated improvements have been achieved, or if not, why not?
“The team is now looking at the lead-to-cash process across some of our business units, from the initial lead generation through order fulfillment and billing,” said Kalia. “And along the way they’re identifying quite a few opportunities for tactical improvements.”
This involves finding the answers to such questions as: What’s our efficiency in this area? How does it impact our customers? What’s the cycle time from initial contact with the customer to the arrival of payment?
There are many variables that can impact the efficiency of the process. Poor leads, for example, can slow the sales process; so attention needs to be paid to generating better leads. Sales people may be so heavily focussed on converting leads to sales that they neglect to complete all the necessary fields when they take the customer order, thereby impacting downstream processes. Accurate bills can’t be sent if account numbers are missing, and invoices may go astray if location addresses are incomplete or incorrect. In the energy business, another critical part of the lead-to-cash process is enrolments — switching a customer from a utility to an energy company like Direct Energy. If the utility involved in the transaction doesn’t get the right information, the switch may be delayed and this could result in loss of the customer.
As the end-to-end process is so complex, it is difficult for those within it to properly gauge their performance. People may think they’re doing a great job within their own silo, but they may be slowing things down in other parts of the process. Hence the need for the process engineering team, which is taking the holistic view and saying ‘Are we doing the right thing for the company and for our customers end-to-end?’
One of the jobs of the team is to train people embedded within business units on how to analyze and improve what they’re doing. “They’re trying to make themselves into more than the power of three,” said Kalia. “I think this is crucial because if we do that first, then we’re going to get a real payback from our IT investment. We can be more predictable about the results we’re getting from IT investments. We’ll have some certainty now in saying ‘Within this band, here’s the expected value we’re going to create from this IT investment’.”
Once processes have been fine-tuned, the question of architecture can be properly addressed.
“In effect, what we’re doing through this process work is designing a business architecture. We’re saying ‘Here are the business components we should have, and here is how they should link together’. If that then gets supported by systems and data flowing in the right places, then we’ve effectively translated our business architecture into an IT architecture. What we haven’t done is taken some kind of nebulous SOA approach and reverse-engineered it onto our business,” explained Kalia.
This approach is being driven by the future state the company is trying to build, and Kalia believes its adoption can result in a step change in business performance for Direct Energy.
Many IT departments undermine their credibility by being unreliable when it comes to execution. They don’t have effective governance and discipline around the work they take on, and so they feel pressured to do everything, even though their budgets are capped. As a result of their inability to say ‘no’, work piles up and IT staff get overloaded. And at the end of the day, IT hasn’t built up any real trust with its business partners because they think that’s just how IT works. They’ve been trained to treat IT that way.
Kalia believes that if IT departments are to break out of this mold, they need to get very disciplined about execution. They need to attain a level where they won’t fail on their commitments, and won’t slip on projects and deadlines.
“The business has to be able to depend on us. If we want to have a go-to-market strategy for a new product and schedule TV time for a certain date, then we should be able to book it for the day after IT says it’s going to come in,” he said. “Our business partners shouldn’t have to say, ‘We don’t think IT will be on time, so let’s do it a month later’. The company will have lost a month of value in that time. So IT must have a level of execution that’s repeatable and predictable. Fortunately, this is not something I lose sleep about — we’re pretty good at delivery.”
One of the ways Direct Energy is shortening the cycle time on IT projects is through agile programming methods, which truncates the process.
“We don’t have a big requirement specification now. We get together in a room for two or three days and try to get an end-to-end view of the thing we’re trying to do,” said Kalia.
A mechanism is established for capturing ‘user stories’ over a short two or three day period. In a couple of sentences, the user describes pieces of the required functionality — this could be the need to process a sales order in a certain way, or a change in the way customers are tracked. Once these tasks have been specified, an iteration timetable is set up — for example, IT will deliver something every two weeks. So every two weeks a piece of work will be delivered, and the business users won’t have to wait three or six months to see what has been done.
How does this work in practice? “First of all, we require our business partners to show up every day,” explained Kalia. “Every morning we have what’s called a scrum meeting. The key business users or stakeholders turn up every morning for 15 minutes or sometimes a half hour, and we talk about what’s been done and what technical decisions need to be made.”
IT explains the design choices they are facing and describes the business consequences of making one choice over another. This gives the end users an appreciation for how complicated and intricate the IT work is, and they get a good understanding of how much impact some decisions can have.
“Now what IT works on and delivers isn’t going to be out of scope or out of sync with business requirements, because they’re discussed every day, and every two weeks there’s a deadline,” said Kalia. “And at the end of three months, you’ve delivered what you’ve agreed. And after that, you decide if you need to have a phase two and repeat the process.”
According to Kalia, there are many benefits to this approach. You get incremental rather than big-bang delivery, and in the end there are no surprises. This leads to a discipline of repeatable execution, and it helps focus end users on successfully executing the project because they have more skin in the game. As well, there’s less risk, because the work is done in small chunks.
“Finally, no one requires that big contract document any more,” said Kalia. “Before, it used to take a minimum three months to put the document together. Now we’ve done the whole project in that time. And it’s been done as a team, without ‘us and them’ baggage.”
Direct Energy adopted this execution methodology about a year ago and has used it on about fifty projects. But Kalia cautions that you can’t get to this stage overnight.
“We have over a year of experience now and we’re only just starting to get some traction in terms of having a lot of our business units embracing this way of working,” he said. “We still have a lot of skeptical people to overcome, so we’ve got to continue the momentum. I think it’ll be another year before we’ve got that kind of maturity in place, but at least people have heard of it and are now thinking maybe they should do it that way.”
But the approach certainly has won its converts, and Kalia doesn’t have to get out and sell the idea any more. People who have tried it this way will sell it for him; they wouldn’t do projects any other way now.
In the end, seamless alignment between IT and business units may be one of those unachievable ideals, but by taking a holistic approach to reaching that goal, Direct Energy is finding effective ways to narrow the divide.
David Carey is a veteran journalist specializing in information technology and IT management. Based in Toronto, he is editor of CIO Canada.
A unique I.S. leadership team
You could hardly describe the IS leadership team at Direct Energy as typical. It is composed of eight members, including Kalia. Among those eight, three have MBAs and one a PhD, two are chartered accountants, two are chartered engineers, and two are former Wall Street traders. As for nationality, four are Canadians, three are British, and one is American. Among them, they speak 11 languages other than English, and as a group they’ve worked in about a dozen countries outside of Canada.
“Typically, if you talk to a CIO, you find they’ve done a lot of IT jobs as they rose to the top. They started off doing jobs like cutting code or working the help desk, and at some point they managed a data centre. Some of these people don’t have that typical background,” said Kalia. And for good reason — he believes there is strength in diversity, and that IT staffers benefit from business experience. “This is a high performing business leadership team.” “If you have people that are too alike, then you get very skewed decisions. If you have diverse skill sets and diverse outlooks, and you can get these people to work together so they trust one another and they’re willing to challenge one another, then the level of debate and the decisions you produce as a result of that will be of a high quality. The mix of business skills and IT savvy is a winning combination — for any leadership team,” he said.
Pulling the plug on I.T. strategy
Many organizations have a formal IT strategy in place, but no such thing exists at Direct Energy.
“We deliberately don’t have a document called the IT strategy. We believe the company should have one strategy, the business strategy. IT derives what it’s doing from the business strategy,” said Kalia. “I don’t mean that in any kind of subservient way. We’re equal partners in that business strategy and we’re going to execute our piece of it to make whoever is tasked with owning a portion of the strategy successful.”
Kalia believes that taking a more service-oriented approach puts IT mentally outside the organization — more in the role of an outsourced provider or vendor.
In many companies there is the suspicion that IT has its own agenda. In order to avoid this, the workings of IT at Direct Energy are very transparent. At the beginning of 2006, the company’s executive committee identified the top seven things for the company to achieve during the year. And every item of IT work done through the Business Advisory Committees links back to whichever item on the management agenda it supports.
“We do have a way of doing things around here that is evolving — such as the governance, the process engineering, the agile methods we’re using,” said Kalia, “We just haven’t got a document we call the IT strategy. Maybe in time we will have, but it won’t be just for the IT guys, it will be something for the company. That’s where I want to start — with the company having a way of doing IT, not with IT having a way of doing things.”