Predefining Success

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Predefining Success
Using Business Improvement Metrics To Drive
Information Technology Requirements
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What we will cover

• Introduction Rethinking our value
• When failure looks like success
• Why requirements fail
• How business improvement metrics can help
• Sources of business improvement metrics
• Picking the metrics that make the most sense
• Incorporating Business Improvement Metrics into
  Requirements practices

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Introduction Rethinking Our Value

• The US market for IT skills has permanently
  changed
• American IT professionals cannot compete against
  offshore professionals with comparable skills
• At the same time, forecasts still show the US
  demand for IT skills is likely to outstrip the
  supply for the next several years
• To stay competitive in this still dynamic market,
  American IT professionals need to focus on skills
  that offer differentiated value
• Requirements management is one such skill

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What CAN We Do Better?

• Whether or not we actually use these skills,
• We can more easily understand the subtleties of
  our customers business needs
• We can help our customers understand which
  technology investments make sense and which do
  not
• We can help get the right investments off the
  ground with a better chance of success
• In other words, we can prevent Long-Fuse Failures

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When Failure Looks Like Success

• The long-fuse failure
• The problem with Great Ideas
• Where do they fail
• IT Metrics and Great Ideas

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The Long-Fuse Failure

• A GREAT IDEA!
• On time
• Within budget
• Meeting customer requirements
• No serious defects, but
• NO BUSINESS IMPROVEMENT!!!

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The Problem with Great Ideas

• Most arent.

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Where They Fail

• Requirements are the source of most project
  failures
• For all the usual reasons, plus
• The Requirements process usually begins after the
  investment commitment has already been made,
  instead of enabling better investment decisions
  in the first place. The results
• Requirements are not tied to any business
  improvement metrics
• Requirements are not tied to the right business
  improvement metrics. In other words
• No matter how well executed, the Requirements
  Management Process often give us the right
  answers to the wrong questions

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A New Way Of Thinking About Requirements

• A realistic Requirements Process begins at the
  beginning
• This means first understanding the business goal
  that requirements must support, stated in terms
  of business improvement metrics
• The metrics in question are more often used after
  the fact to measure the success of a project
• This is not necessarily a good idea

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Misapplying Business Improvement Metrics

• Business Improvement Metrics CAN focus
  investments on the future needs of the business.
• Business Improvement Metrics CAN provide a
  touchstone that can keep Information Technology
  requirements in focus and help prevent scope
  creep, BUT

Business Improvement Metrics are unreliable
after-the-fact measures of the success of an IT
investment.
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Why?
Except in the short-term, Business Improvement
Metrics have too many independent drivers than
can be controlled or tracked with confidence.
This makes it almost impossible to determine the
extent to which an IT investment has caused a
positive change.
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So Why Bother?

• In an imprecise world, Business Improvement
  Metrics CAN
• Enable us to identify the principal drivers of
  our business
• Enable us to pre-define the targets we are trying
  to hit
• Enable us to avoid going after the wrong targets
• Provide a touchstone to keep us focused on the
  business process and IT requirements that will
  contribute to the improvements we want

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According to the Dictionary
Touchstone - n a basis for comparison a
reference point against which other things can be
evaluated "they set the measure for all
subsequent work"
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Why This Is Important

• Without a touchstone for requirements
• It is hard to know what ultimate goal all
  requirements should support
• It is hard to filter out the requirements that do
  not contribute to that ultimate goal
• It is hard to know when you have identified all
  of the critical requirements to meet that goal
• It is hard to know which of many possible
  directions is the right one to follow

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What Kind of Metrics Can Serve as Touchstones for
Requirements?

• Senior Management Understands Financial Metrics
• Talk to Shareholder Value
• Can be subject to creative accounting
• Non-financial metrics often make more sense
• Tell what is really going on under the hood
• Harder to fudge
• Picking the metrics you need to improve starts
  with understanding the metrics over which you
  have LESS influence, such as
• Five Forces
• Environmental Drivers of Change

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The Five Forces Model Generic Metrics That
Influence YOUR Metrics

• Supplier metrics
• Raw materials costs
• Energy costs
• Buyer metrics
• Availability of multiple suppliers
• Rate of obsolescence of capital assets
• Barriers to new entrants
• Market dominance of current vendors
• Switching costs
• Substitution metrics
• Brand appeal vs. generics
• Differentiation of products or services
• Competitive rivalry metrics
• How badly do they want to beat you?

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Environmental Drivers of Change

• Examples of business drivers
• Trends toward part-time workforce
• Trends in public policy on privacy
• Evaporation of 4019(k) values
• Examples of technology drivers
• Technology saturation
• Trends in energy and environment costs
• Trends in transportation costs
• Trends in health care
• Trends in security
• Lots of overlap with Five Forces Model

(They can really gang up on you)
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But Seriously

• Environmental drivers (and Five-Forces drivers)
  give us critical prerequisite information for a
  more robust requirements process
• They identify forces will help us (enablers)
• They identify forces that may limit our freedom
  of action (constraints)
• Armed with this intelligence, we can start
  selecting the Business Improvement Metrics that
  will best drive Requirements

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Sources of Business Improvement Metrics That Can
Drive Requirements

• Business Improvement Metrics can be found in
• Financial models
• Non-financial models
• Organizational performance models
• Business modeling methods

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Notice What We Left Out?

• Project metrics
• Can only tell us how closely we met time, size,
  cost, effort, defects-found-and-fixed goals
• Cannot tell us if these project goals addressed
  the right business goals in the first place
• (We may have gotten the right answers to the
  wrong questions)

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Financial Metrics

• Liquidity, leverage, operating performance
  ratios, such as
• Current ratio (current assets/current
  liabilities)
• Debt ratio (total liabilities/total assets)
• Average Inventory Turnover (cost of goods sold
  annually/average annual inventory)
• Average collection period ratio
• Return on Sales (net profit after taxes/net
  sales)
• Quarter-to-quarter sales growth

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Non-Financial Metrics

• Operational performance indicators, such as
• Employee turnover
• Account turnover
• Trends in market share
• Trends in customer retention
• Trends in product returns
• Trends in warranty service incidents

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Alternative Sources of Metrics

• Commonly-accepted performance models
• Balanced Scorecard
• Baldrige Performance Award
• Business modeling methods
• SWOT Analysis

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Balanced Scorecard

• Financial perspective, plus
• Customer perspective
• Internal Business perspective
• Innovation and Learning perspective

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Customer Perspective Metrics

• Things that indicate how well we meet customer
  needs
• Customer loyalty and retention indicators
• Drivers of overall customer satisfaction and
  value

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What They Tell Us

• Customer behavior indicates customer satisfaction
• Applications can track customer behavior data and
  organize it into customer satisfaction metrics

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Examples

• Visitor-to-customer conversion percentages
• Abandonment rates for shopping carts
• Completion rates for checkouts
• Conversions of wish list items to shopping cart
  items
• Positive and negative email
• Trends in new accounts per month
• Trends in cancelled accounts per month
• Trends in median customer revenue per month

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Internal Business Perspective Metrics

• Measures of process efficiency, effectiveness,
  and adaptability
• Measures of asset utilization
• Based on operations data

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What They Can Tell Us

• How well we use our assets
• What we should be benchmarking against external
  norms

NOT whom we should punish!
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Examples

• Late or incorrect orders
• Reworked products
• Submitted orders
• Approved orders
• Planned throughputs
• Actual throughputs
• Equipment utilization

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Innovation and Learning Perspective Metrics

• Measure results related to people and
  infrastructure, e.g.
• Investment in and effectiveness of RD
• Investment in and effectiveness of training
• Investment in and effectiveness of compensation

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What They Tell Us

• If we are thinking more than one quarter ahead

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Examples

• Patents awarded
• Employee professional certifications earned
• Organizational awards and certifications
• New products and services launched
• New product and service lead times
• Employee suggestions

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Baldrige Performance Award Criteria

• Measures organizational performance in
• Leadership
• Human resources focus
• Strategic planning
• Process management
• Customer and market focus
• Business results
• Information and analysis

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Baldrige Performance Award Criteria - Example

• Strategic planning
• customer-driven quality is a strategic view of
  quality. The focus is on the drivers of customer
  satisfaction, customer retention, new markets,
  and market share key factors in
  competitiveness, profitability, and business
  success
• Implied metrics
• Customers retained vs. customers lost
• Growth in new customers in new market segments
• Industry estimates of market share

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Business Modeling - SWOT Analysis

• Strengths
• General advantages (size, reach, patents, etc.)
• Things we do well and also NEED to do well (RD,
  sales, etc.)
• Weaknesses
• General disadvantages (shallow pockets, aging
  products, etc.)
• Things we really need to do better (retain
  employees and customers, train salespeople, etc.
• Opportunities
• Trends that work to our favor (emerging markets
  for current products, dropping costs for
  components, etc.)
• Threats
• Trends that work against us (increasing cost of
  ownership for products, aging market base,
  shrinking product lifecycles, etc.)

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Measurable Business Improvements

• Every metric identifies an improvable business
  attribute
• Every improvable business attribute represents a
  potential project goal or objective
• Each project goal or objective is a top-level
  requirement that drives all those below it.

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Incorporating Business Improvement Metrics Into
Requirements Practices

• Begin with a Goal Statement of Principal Drivers
  or Business Purposes, stated in terms of business
  improvement metrics
• Drill down by identifying the Principal Strategy
  to achieve that Goal Statement
• State the Boundary for IT requirements in terms
  of the Goal Statement
• Use the Boundary Statement to verify and validate
  that any requirement contributes to the Goal
  Statement

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Example 1

• Goal Improve the cost of sales ratio for
  products that generate repeat sales.
• Strategy Use web technology to have customers
  initiate, process, complete, track, and repeat
  orders without the intervention of a salesperson
• Boundary Only requirements critical to improving
  the cost of sales ratio for products that
  generate repeat sales are included
• Sample requirement The system shall enable
  one-click checkout for all or selected items in
  the customers shopping cart.
• Sample NON-requirement The system shall track
  purchase histories for each customer

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Example 2

• Goal Increase revenue per customer.
• Strategy Link complementary products, track
  customer purchasing patterns, and give incentives
  to customers to buy complementary products
• Boundary Only requirements critical to improving
  to increasing revenue per customer are included
• Sample requirement Whenever a customer adds a
  product to the shopping cart, the system shall
  display a pop-up notice indicating complementary
  products for which a purchase incentive exists
• Sample NON-requirement Whenever a customer
  completes a purchase, the system will debit the
  inventory system for the items in the checkout
  list

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Example 3

• Goal YOU pick one.
• Strategy
• Boundary
• Sample requirement
• Sample NON-requirement

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Prioritizing Business Improvement Goals

• Key questions
• What are MY critical business and technology
  drivers?
• What business improvement goals best address my
  critical business drivers?
• What is the true cost to achieve them?
• When and how can I achieve them?
• How do I need to manage the risks?

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Simple Tools

• Net present value analysis
• Pareto analysis
• Force Field Analysis
• Root-Cause analysis

Repeat SIMPLE tools
"Rube Goldberg is the (R) and (c) of Rube
Goldberg Inc.
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Wrapping Up

• Changes in the demand for technology skills are
  permanent and far reaching and not over yet!
• New ways of thinking about requirements are
  important not only to our customers, but to us
• We need to redefine what we do to add value that
  offshore competition cannot easily match
• Understanding the business issues that underlie
  and influence technology decisions is a key
  differentiator for IT professionals
• If we want to be part of the future, we may very
  well have to let go of the past

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Questions
?
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Thank you!