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Using Business Improvement Metrics To Drive Information Technology Requirements

Preventing Long-Fuse Failures

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What we will cover…

Introduction: Rethinking business 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 Long-term forecasts still show US demand for IT skills

outstripping supply American IT professionals must focus on differentiated

value skills Requirements Management is one such skill

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What CAN We Do Better?

Whether or not we actually use these skills, they help us Better understand customers’ business needs Ensure that customers understand which technology

investments make sense and which do not Get the right investments off the ground with a better

chance of success In other words, Requirements Management helps

prevent Long-Fuse Failures

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When Failure Looks Like Success…

Defining 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 EITHER!!!

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The Problem with Great Ideas…

Most aren’t.

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Where They Fail…

Poor requirements are the source of most project failures For all the usual reasons, plus… Instead of enabling better investment decisions in the

first place, Requirements Management usually begins after the decision has been made. The results: Requirements are not tied to any business improvement

metrics, or 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

First step: understand the business goal that requirements must support, stated in terms of business improvement metrics

Instead, metrics are often used after the fact to ratify success

This is a really bad 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 success for 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 for the business process and IT

requirements that will drive 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

Not having a “touchstone” for requirements complicates Knowing what ultimate goal all requirements should

support Filtering out requirements that do not contribute to that

ultimate goal Knowing when you have identified all of the critical

requirements to meet that goal Knowing 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 – External Factors 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 Erosion of 401(k) values Trends in transportation costs Trends in health care costs Trends in security

Examples of technology drivers Technology saturation Trends in energy and environment costs

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 intelligence for Requirements Management They identify what will help us (enablers) They identify what may limit our freedom of action

(constraints) This intelligence can point to the Business Improvement

Metrics that will drive Requirements

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Sources of Business Improvement Metrics That Can Drive Requirements

We can find Business Improvement Metrics 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

(The right answers to the wrong questions)

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Financial Metrics…

Liquidity, leverage, operating performance ratios, e.g.: 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

Indicators of how well we meet customer needs, e.g. 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 R&D Investment in and effectiveness of training Investment in and effectiveness of compensation

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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 (R&D, 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, costs dropping 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 customer’s 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

We need to redefine what we do to add value that offshore competition cannot easily match

The ability to use business improvement metrics to prevent Long-Fuse Failures can differentiate American IT professionals

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Questions…

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Contact Us

For more information, contact us by:

Telephone, at 609 977-6214 Email, at Info@GreenWords.net