governance model to align changing business needs with IT While the Business Monarchy and IT Monarchy archetypes delivery. represent a centralized decision making structure, Feudal archetype reflects a decentralized structure where business Governing the alignment of business and IT: methods and unit owners are the primary decision makers within their dominion of control. The IT Duopoly archetype, instead, approaches represents a two-party arrangement between a business Aligning IT and its business has been a top concern of IT partner and a technical partner and is more restrictive and managers for 30 years. Alignment is understood to be essential specialized than the Federal model. as a competitive weapon and a way to get a superior perfor Weill found that high-performing companies typically use mance. Alignment considers the strategic fit between strategy the IT Duopoly model. This seems to allow for creative and infrastructure as well as the functional integration between business solutions within agreed-upon constraints. Lowest- business and IT (Luftman and Brier, 1999). The 2012 annual performing companies typically use federal or feudal arrange- survey conducted by the Society for Information Management ments (Weill, 2004). (Luftman and Derksen, 2012) on the key issues facing IT Therefore, combining performance measure with type of executives finds that IT and business alignment, ranked 2nd of decisions and governance we have three different approaches all issues and has been quite stable since 2003 (after dropping as follows: to 3rd place in 2010, it was #1 in 2011, and in 2012 is #2). Alignment is considered as a continuous process that evolves Leaders in asset utilization typically use IT Duopoly through a search of a dynamic equilibrium, among the many governance for all five IT decisions and the IT group plays variables of strategy, technology, organization architecture, pro an important coordinating role. To become high perform- cesses and skills (Henderson and Venkatraman, 1990). Luftman ing companies have to: set IT principles; empower business/ and Brier (1999) suggested six enablers that help the alignment: IT relationship managers; establish a technical core of senior executive support for IT; IT involved in strategy develop infrastructure and architecture providers who plan and ment; IT understands the business; business/IT partnership: implement the enterprise's technology platform; involve IT well-prioritized IT projects; IT demonstrates leadership. architects on business unit projects to facilitate IT education In Weill's (2004) framework, pictured in Figure 1, firm of the business leaders, and develop a simple chargeback performance is the result of a combination between the system and a regular review process. typology of decisions and models of governance. Leaders on profit have a more centralized IT governance Weill describes five major IT decisions (include IT principles, approach making decisions on principles, architecture and IT architecture, IT infrastructure strategies, business application investments. These firms use senior business management needs, and IT investment and prioritization) and three perfor committees. They have to: staff an enterprise-wide IT mance measures like asset utilization, profit and revenue growth. steering committee with capable business executives and Rather than considering the traditional centralized, decentrali- the Cio, with a strong cost control; manage the firm's IT zed and middle ground designs, he suggests that there are, in and business architectures to drive down business costs; fact, six governance classifications available to IT organizations designing a clear architecture exception process to mini- based on the ideal of political archetypes. They are as follows mize costly exceptions and enable learning, create a cen- (Brown and Grant, 2005): tralized IT organization designed to manage infrastructure, architecture and shared services; use transparent processes Business Monarchy - IT decisions are made by Chief to make decisions on investments; implement simple Officers (CxOs). chargeback and service-level agreement mechanisms to IT Monarchy - Corporate IT professionals make the IT allocate IT expenses. decisions. Leaders in revenue growth try to balance the entrepreneurial Feudal - Decision by autonomous business units. needs of the operational units with the firm-wide business Federal - Hybrid decision making. objectives. More often a Business Monarchy' or a 'Feudal IT Duopoly - IT executives and one business group. approach is used to set mainly the IT principles. Successful Anarchy - Each small group makes decisions. firms in this category have to: empower the business units to drive IT investment; place IT professionals into operational units to focus on customers' needs; create operational-unit- based IT infrastructure capabilities tailored to local needs; enable a technical core of infrastructure providers. Models of Grace In conclusion, managers have to minimize situations that inhibit alignment and conversely, maximize activities that booster alignment. All this towards the high-performing goal: improving the relationships between the business and IT Type of decision: functional areas enables visibility, efficiency and profitability. Fir performan -A - Hver growth Business Monarchy - Monarchy -Feudal -ITY Ich - IT architecture structure -Business application de Investments and porn Octo Telematics: company background Two former senior managers of Viasat founded Octo Tele- matics in 2002, an Italian company specialized in car satellite security. Fabio Sbianchi and Giuseppe Zuco, the founders, are today, respectively, Octo's CEO and CIO. They have Figure 1 Weill's framework of analysis on IT governance. 0 Introduction cto Telematics S.p.A. is a large telematics provider and stakeholders. Different stakeholders have joined forces to specialized in the provision of telematic services and design the technology, share information and work as a systems for the insurance and automotive market. Octo dynamic meta-business system to build a valuable asset based its growing business on partnerships with large auto without having to merge. insurers in Italy and in other countries. This approach yielded In this case, the systems integrator - Octo - played the role a new and profitable customer value proposition for insurers of market facilitator and enabler, it set up and refined the based on a customer's driving and risk profiles.' Italian network of installers, OBU manufacturers, telecom The heart of the system is a small telematic device (OBU - providers and insurance companies. On Board Unit) installed in a vehicle, which captures and In managing this role of system integrator Octo has had to transmits data about where, when and how the vehicle is being reshape the organization and the link between the IT function driven. Telematic information has reduced auto insurance and the business, in terms of decision rights, committees, premiums for drivers, reduced claims and fraud for the processes and roles. To date, the alignment between the IT insurer, while at the same time creating other social benefits. function and the business, which should be a critical capability The technology has created an entirely new ecosystem of for Octo, is still not stable. various stakeholders, including installers of tracking devices, When 10 pioneers set up the company in 2002, IT was security operation centers, data analyzers, government, info almost the entire business. But today, with the success in mobility providers, telco providers and other third parties international market and the growing power of other providing value-added services. This ecosystem restructuring internal functions such as Sales, Finance and Operations, creates opportunities for new value innovation as a result of the IT function is seen more as a provider of specialized alignment of data, functions, price and cost positions. technology, emphasizing the vision of IT as being separate Octo developed IT infrastructure and software to support from the business and the role of the CIO as that of a the telematics business, and since 2003, when it set up a pilot technical expert. program for its first 2500 OBUS, Octo has continuously tried This teaching case describes the continuing attempt of the to align the information architecture and services to its stake CIO to forge a dual identity: the IT function as a strategic holder needs, to generate and distribute the large amounts of partner of the business, critical for value creation, and the Cio data that form the basis of value-adding analytics. Technology as a business problem solver. The case describes the challenges is at the heart of a new ecosystem of services, resources, data faced by the CIO and the organization in designing a new IT maintained 10% of the stocks to date. Fabio and Giuseppe are crash recorder technology; while an in-vehicle tracking system the two central characters in our case. We will refer to them by has become a strong weapon to fight car theft. The car itself their first names as they are known in the company. may detect a failure and/or the need for a maintenance service. Since its startup, Octo Telematics has been considered by The tele-diagnosis system informs the dealer of the failure; in the financial press 'a machine to make money with a strong turn, the dealer can proactively call the customer and order the orientation to financial markets, with EBITDA around 50% necessary parts. and a growth rate exceeding 25% (2013) in Italy, its home In 10 years Octo acquired 50 corporate clients, over 1.2 market, as well in some international markets. million global customers (2012) and is installing an average of In 2010 the biggest private equity funds became interested 1500 OBUs per day, Octo has subsidiaries and partners in over in the high-growth sector of telematics and Charme II, a 20 countries across Europe, the US, South America and Asia. private equity fund managed by Montezemolo & Partners, took over 65%, and Amadeus Capital Partners Limited and R The infrastructure and services Capital Management 25%. In mid-2013 several private equity firms were reported looking at acquiring Octo. Reports of the Figure 3 presents the telematics infrastructure. The OBU is sale prices ranged from 500 to 600 million euros. The value of able to collect specific driving data (eg, location, crash the company increased about 500% from 2009 to 2013. statistics) and transmit them to a server for further processing. Octo can be considered, using Weill's framework from The data flow into the data exchange repository, which is the above, a leader on profits. Managers have had the capability heart of the telematics infrastructure. This repository is to balance - over time - investments, costs and revenues, maintained by Octo Telematics. Machine to machine (M2M) assuring high margins and dividends to investors. infrastructure allows the sharing of data about driving, con- Octo Telematics started in 2003 with a pilot program to tracts, policies between the insurance company and Octo via install telematic devices in Unipol's customer vehicles. After different IP protocols or via file exchange. This M2M data the successful pilot program, Unipol decided to design a exchange is required when volumes are significant (hundreds specific insurance policy for telematics users. The new insur- of mobile terminals), while an exchange via web is cheaper ance policy was named Unibox. The company offered a 10% and does not involve any direct investment. discount on premiums for accidents, and 50% on premiums Business customers are becoming better informed about for theft. This was the first telematics insurance policy in telematics and location-based services. These newer 'Smart Europe. Since 2005, Octo Telematics has offered its telematics Services' create an open communication channel with the infrastructure to other big players in the insurance industry, customer. Ongoing interaction can be established by using bringing in new customer segments. Drivers have benefited different communications technologies, such as SMS or MMS, from lower premiums and other services, such as assistance via a website or within a smartphone application. Smart after an accident services are used to enrich an existing or new telematic During the second phase of the program, around 2008, offering, or as a starting point for potential or existing Octo based its own value proposition on three services: (1) insurance clients, to be rolled out successively towards other Stolen Vehicle Tracking. (2) Automatic Crash Notification customer segments. and (3) Profiling. Octo also started to deliver services to carmakers and companies with big fleets (for details of Octo's The organization and IT dilemmas client acquisition, see Figure 2). These companies benefited Since inception Octo had a typical functional organization in from e-Call, stolen vehicle recovery services and vehicle which governance was strongly centralized. Octo used a diagnostics. e-Call has the ability to detect an accident and Business Monarchy' archetype to make IT decisions that evaluate crash history data in the most efficient way by using spanned the infrastructure and services, the core of Octo's OCTO 29 15 OSAS 6 maguiz.com SUI (PCV LINEAR MARE ZURICH Allianz avale sara 2004 2005 2006 2007 2008 Soler COLE EATA AVIVA VIVIUM 2009 2010-12 TOYOTA ANA Figure 2 Octo's key client acquisition history. Source: Octo's internal document. tracking information Infrastructure GSM awak Telce Operator Clients Figure 3 The Octo's Telematics information system. Source: Vaia et al., 2012. business. The CEO held strong control of functional areas and a feasibility study. This approach increased the number of including procurement, marketing, quality, sales, operations, customized services and changes on implemented services, and especially of IT. Before he became CEO at Octo, Fabio where the return on investment was not always positive. was the cio in Viasat, so it was natural that he designed Octo's infrastructure with Giuseppe Zuco and other found They (colleagues in the Sales Department] convinced Giu- ing firm members. Together they also designed the business seppe to develop 20 platforms for a German customer. This model. Then Fabio managed, ad interim, the Sales function huge project stopped our projects on Italian insurance for many years. companies for months. Now these German platforms has The establishment of international branches and the arrival generated just 1000 of end users and very low revenues. of new investors led to a restructuring of the company with (Quote from Octo's Sales professional) a new corporate entity and different legal entity for each country. These changes brought new managers with a more Giuseppe and his team were considered by internal collea- international approach into Octo. In particular, three new gues to be reactive. While the IT department was able to managers were appointed: for Sales (Vincent Bonnet), change priorities underway and to customize services Finance (Maria Enrica Angelone) and Operations (Federico rapidly, it was perceived as being under pressure. IT was Santini). The three implemented new managerial tools with not controlling the agenda in terms of performance, growth an eye to international growth, but the functions remained and scalability. quite isolated, like silos, and decision rights were still Giuseppe was beset by a huge series of issues. We note nine centralized. of these issues here: rework was about 30%; lack of time to By around 2009 Giuseppe Zuco, the CIO, had to face a new, analyze recurring issues; frequent downtime caused by unco- complex situation. Until then he had been in a symbiotic ordinated releases or changes; high level of workarounds; lack relationship with Fabio, the CEO, and all business and of planning for roll-out; a high number of problem tickets per technological decisions were taken together. Now Giuseppe day; long response times to fix problem tickets (sometimes had to respond to continuous requests from Finance about the months!); no formal escalation path for problem tickets; SAP implementation process, from Sales about the creation of overbooking of human resources. new platforms/services for international customers and from The CIO's frustration was not unusual. Other CIOs face Operations about the quality and effectiveness of IT services similar struggles. Giuseppe realized that Octo's people and delivered. Therfore Giuseppe's role changed from being a roles were not connected to company processes and that data strategic partner to an internal (technical) provider. In a sense, were distributed in disconnected islands. Octo managed a it was a step back in the name of growth and profit. huge amount of information without a strong methodology Since this reorganization, in 2009, Giuseppe started centra and with an overlap among functions. All this meant that Octo lizing IT decisions, including: architecture and rules for the has insufficient awareness about the financial and economic use of the IT platform and business services, priorities on impacts of decisions on projects. Business clients, such as the customers and projects, IT investments and development powerful Sales unit had no visibility onto timing for delivery Thus, Giuseppe had instituted an 'IT Monarchy' within Octo. and on project management overall. This approach helped Giuseppe to maintain power and Giuseppe, as owner of the company, was concerned about influence inside the organization. People from Sales and profitability of projects and the quality of services delivered by Operations were forced to negotiate tasks and priorities with the company. 'It's time to change he said, 'We have to work Giuseppe and he had the ability to manage different political on services vs technology, on quality vs costs, on proactivity vs coalitions. Sales and Operations, the two big units inside Octo, reactivity.... I need to rethink IT and I have to integrate my were rivals for Giuseppe's resources: requirements and prio work with corporate operations and sales, through a new rities on customer's project were defined on a direct agreement governance structure.' with Giuseppe and not on the basis of an objective analysis From that moment the journey began. "Octo" and "Telematics Vaia and Carmel 92 Getting aligned through the new governance approach To strengthen the relationship with Operations (Business], From the end of 2009 through 2013 we observed a wobbly Giuseppe introduced an inter-functional process, IM, with alignment process that could be explained in two distinct shared common objectives. Its scope was to record and track stages. During each stage Octo implemented some governance all incidents/issues raised by customers due to a platform's alternatives to reduce the gap between IT and the business, but downtime or a loss in the service, investigating the cause of the each time something went wrong. incident, to find a solution (both temporary workaround and In order to ease the understanding of the narrative, in the permanent), escalate trouble tickets and to verify customer description below each unit is noted as belonging to either IT, satisfaction. Business or a bridging unit by adding one of these tags to the In the beginning the control over the IM [Bridge process text: [IT], [Business] or [Bridge]. Bridging units in all cases was maintained by Giuseppe, but after several months Giu- here are committees or end-to-end processes staffed by both seppe switched it to Operations (Business]. IT and Operations IT and the Business - mostly Sales and Operations units. Note together managed and organized the IM process across three that the Operations unit is responsible for service delivery to levels of support. The first level of support was managed by end customers and thus has revenue responsibility (it can do corporate operations in Italy and other countries. If staff up-selling on added-value services and close contracts). trained colleagues at the first level of support to manage IT trouble tickets more easily. The second level of support was composed of expert groups from Operations, IT and Admin- istration; while the third level of support was typically IT Stage 1: from IT Monarchy' to 'Duopoly' (developers). First step - transparency Before the introduction of this new process, IT was the only Giuseppe, the CIO, wanted to institutionalize arrangements function involved in the management of trouble tickets with a with the two key business units: with Operations (Business) on huge effort in terms of classification and first resolution. The post-sales support and day-to-day quality of services; and with results of the reorganization were felt immediately: the Sales (Business) about requirements setting and projects plan number of tickets decreased and Operations people started ning. He wanted to reduce the re-work rate, to better prioritize learning more about IT work and its customer approach. A projects, to optimize projects profitability with a stronger cost bright young man within Operations was engaged as Incident control, to make infrastructure change management more Manager [Bridge]. As owner of the process he was responsible effective. for the management, improvement and review of the cross- The IT department had a simple structure: a development functional IM process [Bridge]. team, a testing and operations team, a unit focused on the Now there was a transparent chain from IT to the end OBU devices, and a group specialized on SAP. During the first customer that was more informed about the time for resolu- phase Giuseppe introduced two new functions and a new tion, people involved and more aware about the solutions process. He introduced Program & Service Management (I.T.) applied. Octo's people had the chance to be engaged in a and Demand Management (I.T.) function and the Incident structured learning process and share information through the Management (IM) process [Bridge] chain. The scope of Demand Management [LT.] was related to But both IT and Business people were not satisfied with the two needs: the collection and integration of business needs reorganization. It was not effective for three reasons: from organizational clients and the formalization of new IT initiatives (including objectives and timelines). Demand Man Demand Manager [LT.] was too isolated from the IT team. agement was also responsible for those applications already in Furthermore, sales people did not accept his support during operation and for the definition of areas of evolution and the negotiation with clients, so functional requirements transfer requests for corrective and adaptive maintenance. were not always workable; Program Management (I.T.) responsibilities included: checking Program Management [I.T.] was isolated from sales people, for consistency between business planning and Information and so the unit did not have an overall view of projects, needs Communication Technology (ICT) planning, and the definition of and planning. In addition, sales people were competitive priorities for implementation; monitoring IT projects through and thus, did not support Program Management defining periodic meetings, underlining any problems or deviations from priorities among projects and clients. the project baseline, submission for approval of any changes in the . IM was a success except within the development team [1.T.), scope of the project; definition of functional test planning post which felt controlled. The unit refused to use the proce- implementation review with the client and end user. dure and the tools for the management of tickets. Therefore Program Management was also delegated to define service trouble tickets began to rise and the Incident Manager level agreements (SLA) tailored to the needs of business, in [Business] was frustrated because he felt that Giuseppe was terms of availability and performance of the systems. Program not supportive. Management became one of the critical interfaces with the client for all kinds of issues, questions and complaints. The unit set out to improve business communication and customer Second step-sharing satisfaction. It was also the first level of escalation for the After the first steps towards alignment with business were not customer that dealt with new requests and/or about critical successful enough, Giuseppe decided to get more commitment downtime and recurrent problems. on IT from Sales for a stronger budget and cost control. Often, But Giuseppe soon backtracked on his decision to structure Sales [Business] signed contracts agreeing on delivery dates, the relationship around SLAs - and this is not implemented. effort and services without consulting with IT. IT staff were He was troubled about the unit's performance. constantly under pressure, projects were delivered past "Octo" and "Telematics" GVaia and Carmel 93 deadlines, the content of the services agreed on was not always detail the profitability of new customers/projects. In that way, workable and costs were not under control. the decision making process was subjected to a formal process Giuseppe had to act. He created a new bridge organization, based on rational data and not on political decisions. called Change Advisory Board (CAB) [Bridge] for shared At a corporate level Giuseppe proposed to introduce three decision making - especially with Sales. CAB was to be an levels of planning and three working groups, which are as enterprise-wide committee in charge of process changes on follows: platforms and services, and architecture exceptions. The goals Level I: Planning during the project design stage (Design were to minimize costs and enable learning. The committee was Team - inter-functional) [Bridge] determining investment needs together - both IT and Sales. Level II: Delivery project planning (Project Team - inter- Thus, all changes affecting the Octo platform (Web, M2M functional) [Bridge] and all other business processes) had to be reported to and Level III: Detailed operating planning after the contract coordinated through CAB. A formal change request had to be (Functional Teams in each area of Octo). submitted in writing via a new tool. Then CAB was to review Such a reshaping of program management would bring a the request, determine and review potential failures, and make loss of power for Sales (Business], thanks to a more formal and the decision to allow or delay the request. Each change request structured process for the authorization of projects and the had to receive formal approval from CAB before proceeding planning of activities. with the change. Core activities consisted of planning, con When Giuseppe showed the plan to the Vice President of trolling, managing risk, minimizing disruption, communicat Sales (Business), Giuseppe was told: ing, implementing, measuring change, monitoring costs. For each change request, the impact of changes on customer Ok, beautiful idea but business is business ... and I have to business operations was discussed, as well as the effect on the bring home as many clients as possible and all project have infrastructure and customer service, and on the capacity, to be released as soon as possible. My responsibility is to performance, reliability and resilience of the service. increase profits and yours is to deliver! Meetings were held on a weekly basis to review outstanding requests. It was the first time that people had the chance to Surprised by his response, Giuseppe started thinking about share their own knowledge, strategies and ideas about service profits and began to waver: Could this reorganization slow and cost optimization. Cost was a key driver. Once Giuseppe down Octo's performance? This hesitation led to confusion started to compute the marginal cost of each project and the and conflict. Sales (Business) tried to secure its independence profitability of each client, the number of change requests empowering the sales team (Business) with new authority on decreased dramatically and then roughly 70% of those business analysis. submitted were approved. Fabio observed the entire situation with concern. He Once the process appeared to be working, Giuseppe stepped and decided, in February 2013, to introduce a new delegated much of the coordination to middle managers function - Business Integration (BI) (see organizational and capable business executives did not staff the committee. chart Figure 4). It was a classic bridge unit between the Giuseppe made another mistake: sales people did not like business and IT. This was the rise of Business Monarchy vs the profit margin project criteria so they started to sabotage IT Monarchy. some projects to get more control over the process. Giu BI, with a strong commitment from the CEO, worked as a seppe started losing credibility when changes approved were bridge between Sales and Operations [Business) and the IT not put into planning, causing a large backlog in develop department. Led by a former IBM manager, it incorporated ment. As a result Sales (Business) started to complain to functions and roles that Giuseppe had created before: Demand Fabio, the CEO. [Bridge], Program and Project Management [Bridge], plus the responsibility for Change Management [Bridge]. BI was to support business requests, organize the IT work and support Stage 2: dis-integration: back to the Business Monarchy' improvement of services released to customers. Eight years of rapid growth forged the company culture characterized by agility and dynamism. But Octo's staff The mission of the BI unit was to: hesitated with Giuseppe's projects. The IT department was seen as disorganized. Giuseppe, still looked upon as a senior support standardized sales and effectiveness of cus- developer, was not able to project personal leadership. The tomization; first signals of this disappointment came when the Chief minimize time to market; Operations Manager (Business] brought under his control ensure logistics and IT readiness; the Program Management [Business) and Service Manage- minimize planning inefficiencies; ment [Business], mirroring functions and roles. maximize cross- and up-selling on the existing customer base; But in the middle of 2011, Giuseppe decided to implement a new inter-organizational process to manage new project maximize IP protection; set-up. In order to drive business costs down and manage ensure process effectiveness and efficiency. the IT-business architecture, Giuseppe decided to further In sum, the new organizational unit, BI, was given broad centralize much of the design phase within a steering com- authority: to make decisions about the feasibility of business mittee [Bridge] composed by IT, Operations (Business) and projects and the design of services, driving the scheduling Finance [Business]. Giuseppe proposed to integrate phases of projects, and defining priorities within the IT department. from concept, design and prototype with a better definition The IT department was relegated to the mere execution of of requirements and the use of business cases to evaluate in new projects and changes over operational services. CASE 1: Reshaping the IT Governance in Octo Telematics to Gain IT-Business Alignment - Giovanni Vaia; Erran Carmel 1. Discuss company strategy and technology orientation 2. Discuss which governance option is the best for the company 3. How did the CIO approach creating a dialog with other functions 4. Why did the CIO fail in creating a dialogue with other functions and which inhibitors played a critical role 5. Discuss about the need of a new function (Business integration) "between" IT and the business. governance model to align changing business needs with IT While the Business Monarchy and IT Monarchy archetypes delivery. represent a centralized decision making structure, Feudal archetype reflects a decentralized structure where business Governing the alignment of business and IT: methods and unit owners are the primary decision makers within their dominion of control. The IT Duopoly archetype, instead, approaches represents a two-party arrangement between a business Aligning IT and its business has been a top concern of IT partner and a technical partner and is more restrictive and managers for 30 years. Alignment is understood to be essential specialized than the Federal model. as a competitive weapon and a way to get a superior perfor Weill found that high-performing companies typically use mance. Alignment considers the strategic fit between strategy the IT Duopoly model. This seems to allow for creative and infrastructure as well as the functional integration between business solutions within agreed-upon constraints. Lowest- business and IT (Luftman and Brier, 1999). The 2012 annual performing companies typically use federal or feudal arrange- survey conducted by the Society for Information Management ments (Weill, 2004). (Luftman and Derksen, 2012) on the key issues facing IT Therefore, combining performance measure with type of executives finds that IT and business alignment, ranked 2nd of decisions and governance we have three different approaches all issues and has been quite stable since 2003 (after dropping as follows: to 3rd place in 2010, it was #1 in 2011, and in 2012 is #2). Alignment is considered as a continuous process that evolves Leaders in asset utilization typically use IT Duopoly through a search of a dynamic equilibrium, among the many governance for all five IT decisions and the IT group plays variables of strategy, technology, organization architecture, pro an important coordinating role. To become high perform- cesses and skills (Henderson and Venkatraman, 1990). Luftman ing companies have to: set IT principles; empower business/ and Brier (1999) suggested six enablers that help the alignment: IT relationship managers; establish a technical core of senior executive support for IT; IT involved in strategy develop infrastructure and architecture providers who plan and ment; IT understands the business; business/IT partnership: implement the enterprise's technology platform; involve IT well-prioritized IT projects; IT demonstrates leadership. architects on business unit projects to facilitate IT education In Weill's (2004) framework, pictured in Figure 1, firm of the business leaders, and develop a simple chargeback performance is the result of a combination between the system and a regular review process. typology of decisions and models of governance. Leaders on profit have a more centralized IT governance Weill describes five major IT decisions (include IT principles, approach making decisions on principles, architecture and IT architecture, IT infrastructure strategies, business application investments. These firms use senior business management needs, and IT investment and prioritization) and three perfor committees. They have to: staff an enterprise-wide IT mance measures like asset utilization, profit and revenue growth. steering committee with capable business executives and Rather than considering the traditional centralized, decentrali- the Cio, with a strong cost control; manage the firm's IT zed and middle ground designs, he suggests that there are, in and business architectures to drive down business costs; fact, six governance classifications available to IT organizations designing a clear architecture exception process to mini- based on the ideal of political archetypes. They are as follows mize costly exceptions and enable learning, create a cen- (Brown and Grant, 2005): tralized IT organization designed to manage infrastructure, architecture and shared services; use transparent processes Business Monarchy - IT decisions are made by Chief to make decisions on investments; implement simple Officers (CxOs). chargeback and service-level agreement mechanisms to IT Monarchy - Corporate IT professionals make the IT allocate IT expenses. decisions. Leaders in revenue growth try to balance the entrepreneurial Feudal - Decision by autonomous business units. needs of the operational units with the firm-wide business Federal - Hybrid decision making. objectives. More often a Business Monarchy' or a 'Feudal IT Duopoly - IT executives and one business group. approach is used to set mainly the IT principles. Successful Anarchy - Each small group makes decisions. firms in this category have to: empower the business units to drive IT investment; place IT professionals into operational units to focus on customers' needs; create operational-unit- based IT infrastructure capabilities tailored to local needs; enable a technical core of infrastructure providers. Models of Grace In conclusion, managers have to minimize situations that inhibit alignment and conversely, maximize activities that booster alignment. All this towards the high-performing goal: improving the relationships between the business and IT Type of decision: functional areas enables visibility, efficiency and profitability. Fir performan -A - Hver growth Business Monarchy - Monarchy -Feudal -ITY Ich - IT architecture structure -Business application de Investments and porn Octo Telematics: company background Two former senior managers of Viasat founded Octo Tele- matics in 2002, an Italian company specialized in car satellite security. Fabio Sbianchi and Giuseppe Zuco, the founders, are today, respectively, Octo's CEO and CIO. They have Figure 1 Weill's framework of analysis on IT governance. 0 Introduction cto Telematics S.p.A. is a large telematics provider and stakeholders. Different stakeholders have joined forces to specialized in the provision of telematic services and design the technology, share information and work as a systems for the insurance and automotive market. Octo dynamic meta-business system to build a valuable asset based its growing business on partnerships with large auto without having to merge. insurers in Italy and in other countries. This approach yielded In this case, the systems integrator - Octo - played the role a new and profitable customer value proposition for insurers of market facilitator and enabler, it set up and refined the based on a customer's driving and risk profiles.' Italian network of installers, OBU manufacturers, telecom The heart of the system is a small telematic device (OBU - providers and insurance companies. On Board Unit) installed in a vehicle, which captures and In managing this role of system integrator Octo has had to transmits data about where, when and how the vehicle is being reshape the organization and the link between the IT function driven. Telematic information has reduced auto insurance and the business, in terms of decision rights, committees, premiums for drivers, reduced claims and fraud for the processes and roles. To date, the alignment between the IT insurer, while at the same time creating other social benefits. function and the business, which should be a critical capability The technology has created an entirely new ecosystem of for Octo, is still not stable. various stakeholders, including installers of tracking devices, When 10 pioneers set up the company in 2002, IT was security operation centers, data analyzers, government, info almost the entire business. But today, with the success in mobility providers, telco providers and other third parties international market and the growing power of other providing value-added services. This ecosystem restructuring internal functions such as Sales, Finance and Operations, creates opportunities for new value innovation as a result of the IT function is seen more as a provider of specialized alignment of data, functions, price and cost positions. technology, emphasizing the vision of IT as being separate Octo developed IT infrastructure and software to support from the business and the role of the CIO as that of a the telematics business, and since 2003, when it set up a pilot technical expert. program for its first 2500 OBUS, Octo has continuously tried This teaching case describes the continuing attempt of the to align the information architecture and services to its stake CIO to forge a dual identity: the IT function as a strategic holder needs, to generate and distribute the large amounts of partner of the business, critical for value creation, and the Cio data that form the basis of value-adding analytics. Technology as a business problem solver. The case describes the challenges is at the heart of a new ecosystem of services, resources, data faced by the CIO and the organization in designing a new IT maintained 10% of the stocks to date. Fabio and Giuseppe are crash recorder technology; while an in-vehicle tracking system the two central characters in our case. We will refer to them by has become a strong weapon to fight car theft. The car itself their first names as they are known in the company. may detect a failure and/or the need for a maintenance service. Since its startup, Octo Telematics has been considered by The tele-diagnosis system informs the dealer of the failure; in the financial press 'a machine to make money with a strong turn, the dealer can proactively call the customer and order the orientation to financial markets, with EBITDA around 50% necessary parts. and a growth rate exceeding 25% (2013) in Italy, its home In 10 years Octo acquired 50 corporate clients, over 1.2 market, as well in some international markets. million global customers (2012) and is installing an average of In 2010 the biggest private equity funds became interested 1500 OBUs per day, Octo has subsidiaries and partners in over in the high-growth sector of telematics and Charme II, a 20 countries across Europe, the US, South America and Asia. private equity fund managed by Montezemolo & Partners, took over 65%, and Amadeus Capital Partners Limited and R The infrastructure and services Capital Management 25%. In mid-2013 several private equity firms were reported looking at acquiring Octo. Reports of the Figure 3 presents the telematics infrastructure. The OBU is sale prices ranged from 500 to 600 million euros. The value of able to collect specific driving data (eg, location, crash the company increased about 500% from 2009 to 2013. statistics) and transmit them to a server for further processing. Octo can be considered, using Weill's framework from The data flow into the data exchange repository, which is the above, a leader on profits. Managers have had the capability heart of the telematics infrastructure. This repository is to balance - over time - investments, costs and revenues, maintained by Octo Telematics. Machine to machine (M2M) assuring high margins and dividends to investors. infrastructure allows the sharing of data about driving, con- Octo Telematics started in 2003 with a pilot program to tracts, policies between the insurance company and Octo via install telematic devices in Unipol's customer vehicles. After different IP protocols or via file exchange. This M2M data the successful pilot program, Unipol decided to design a exchange is required when volumes are significant (hundreds specific insurance policy for telematics users. The new insur- of mobile terminals), while an exchange via web is cheaper ance policy was named Unibox. The company offered a 10% and does not involve any direct investment. discount on premiums for accidents, and 50% on premiums Business customers are becoming better informed about for theft. This was the first telematics insurance policy in telematics and location-based services. These newer 'Smart Europe. Since 2005, Octo Telematics has offered its telematics Services' create an open communication channel with the infrastructure to other big players in the insurance industry, customer. Ongoing interaction can be established by using bringing in new customer segments. Drivers have benefited different communications technologies, such as SMS or MMS, from lower premiums and other services, such as assistance via a website or within a smartphone application. Smart after an accident services are used to enrich an existing or new telematic During the second phase of the program, around 2008, offering, or as a starting point for potential or existing Octo based its own value proposition on three services: (1) insurance clients, to be rolled out successively towards other Stolen Vehicle Tracking. (2) Automatic Crash Notification customer segments. and (3) Profiling. Octo also started to deliver services to carmakers and companies with big fleets (for details of Octo's The organization and IT dilemmas client acquisition, see Figure 2). These companies benefited Since inception Octo had a typical functional organization in from e-Call, stolen vehicle recovery services and vehicle which governance was strongly centralized. Octo used a diagnostics. e-Call has the ability to detect an accident and Business Monarchy' archetype to make IT decisions that evaluate crash history data in the most efficient way by using spanned the infrastructure and services, the core of Octo's OCTO 29 15 OSAS 6 maguiz.com SUI (PCV LINEAR MARE ZURICH Allianz avale sara 2004 2005 2006 2007 2008 Soler COLE EATA AVIVA VIVIUM 2009 2010-12 TOYOTA ANA Figure 2 Octo's key client acquisition history. Source: Octo's internal document. tracking information Infrastructure GSM awak Telce Operator Clients Figure 3 The Octo's Telematics information system. Source: Vaia et al., 2012. business. The CEO held strong control of functional areas and a feasibility study. This approach increased the number of including procurement, marketing, quality, sales, operations, customized services and changes on implemented services, and especially of IT. Before he became CEO at Octo, Fabio where the return on investment was not always positive. was the cio in Viasat, so it was natural that he designed Octo's infrastructure with Giuseppe Zuco and other found They (colleagues in the Sales Department] convinced Giu- ing firm members. Together they also designed the business seppe to develop 20 platforms for a German customer. This model. Then Fabio managed, ad interim, the Sales function huge project stopped our projects on Italian insurance for many years. companies for months. Now these German platforms has The establishment of international branches and the arrival generated just 1000 of end users and very low revenues. of new investors led to a restructuring of the company with (Quote from Octo's Sales professional) a new corporate entity and different legal entity for each country. These changes brought new managers with a more Giuseppe and his team were considered by internal collea- international approach into Octo. In particular, three new gues to be reactive. While the IT department was able to managers were appointed: for Sales (Vincent Bonnet), change priorities underway and to customize services Finance (Maria Enrica Angelone) and Operations (Federico rapidly, it was perceived as being under pressure. IT was Santini). The three implemented new managerial tools with not controlling the agenda in terms of performance, growth an eye to international growth, but the functions remained and scalability. quite isolated, like silos, and decision rights were still Giuseppe was beset by a huge series of issues. We note nine centralized. of these issues here: rework was about 30%; lack of time to By around 2009 Giuseppe Zuco, the CIO, had to face a new, analyze recurring issues; frequent downtime caused by unco- complex situation. Until then he had been in a symbiotic ordinated releases or changes; high level of workarounds; lack relationship with Fabio, the CEO, and all business and of planning for roll-out; a high number of problem tickets per technological decisions were taken together. Now Giuseppe day; long response times to fix problem tickets (sometimes had to respond to continuous requests from Finance about the months!); no formal escalation path for problem tickets; SAP implementation process, from Sales about the creation of overbooking of human resources. new platforms/services for international customers and from The CIO's frustration was not unusual. Other CIOs face Operations about the quality and effectiveness of IT services similar struggles. Giuseppe realized that Octo's people and delivered. Therfore Giuseppe's role changed from being a roles were not connected to company processes and that data strategic partner to an internal (technical) provider. In a sense, were distributed in disconnected islands. Octo managed a it was a step back in the name of growth and profit. huge amount of information without a strong methodology Since this reorganization, in 2009, Giuseppe started centra and with an overlap among functions. All this meant that Octo lizing IT decisions, including: architecture and rules for the has insufficient awareness about the financial and economic use of the IT platform and business services, priorities on impacts of decisions on projects. Business clients, such as the customers and projects, IT investments and development powerful Sales unit had no visibility onto timing for delivery Thus, Giuseppe had instituted an 'IT Monarchy' within Octo. and on project management overall. This approach helped Giuseppe to maintain power and Giuseppe, as owner of the company, was concerned about influence inside the organization. People from Sales and profitability of projects and the quality of services delivered by Operations were forced to negotiate tasks and priorities with the company. 'It's time to change he said, 'We have to work Giuseppe and he had the ability to manage different political on services vs technology, on quality vs costs, on proactivity vs coalitions. Sales and Operations, the two big units inside Octo, reactivity.... I need to rethink IT and I have to integrate my were rivals for Giuseppe's resources: requirements and prio work with corporate operations and sales, through a new rities on customer's project were defined on a direct agreement governance structure.' with Giuseppe and not on the basis of an objective analysis From that moment the journey began. "Octo" and "Telematics Vaia and Carmel 92 Getting aligned through the new governance approach To strengthen the relationship with Operations (Business], From the end of 2009 through 2013 we observed a wobbly Giuseppe introduced an inter-functional process, IM, with alignment process that could be explained in two distinct shared common objectives. Its scope was to record and track stages. During each stage Octo implemented some governance all incidents/issues raised by customers due to a platform's alternatives to reduce the gap between IT and the business, but downtime or a loss in the service, investigating the cause of the each time something went wrong. incident, to find a solution (both temporary workaround and In order to ease the understanding of the narrative, in the permanent), escalate trouble tickets and to verify customer description below each unit is noted as belonging to either IT, satisfaction. Business or a bridging unit by adding one of these tags to the In the beginning the control over the IM [Bridge process text: [IT], [Business] or [Bridge]. Bridging units in all cases was maintained by Giuseppe, but after several months Giu- here are committees or end-to-end processes staffed by both seppe switched it to Operations (Business]. IT and Operations IT and the Business - mostly Sales and Operations units. Note together managed and organized the IM process across three that the Operations unit is responsible for service delivery to levels of support. The first level of support was managed by end customers and thus has revenue responsibility (it can do corporate operations in Italy and other countries. If staff up-selling on added-value services and close contracts). trained colleagues at the first level of support to manage IT trouble tickets more easily. The second level of support was composed of expert groups from Operations, IT and Admin- istration; while the third level of support was typically IT Stage 1: from IT Monarchy' to 'Duopoly' (developers). First step - transparency Before the introduction of this new process, IT was the only Giuseppe, the CIO, wanted to institutionalize arrangements function involved in the management of trouble tickets with a with the two key business units: with Operations (Business) on huge effort in terms of classification and first resolution. The post-sales support and day-to-day quality of services; and with results of the reorganization were felt immediately: the Sales (Business) about requirements setting and projects plan number of tickets decreased and Operations people started ning. He wanted to reduce the re-work rate, to better prioritize learning more about IT work and its customer approach. A projects, to optimize projects profitability with a stronger cost bright young man within Operations was engaged as Incident control, to make infrastructure change management more Manager [Bridge]. As owner of the process he was responsible effective. for the management, improvement and review of the cross- The IT department had a simple structure: a development functional IM process [Bridge]. team, a testing and operations team, a unit focused on the Now there was a transparent chain from IT to the end OBU devices, and a group specialized on SAP. During the first customer that was more informed about the time for resolu- phase Giuseppe introduced two new functions and a new tion, people involved and more aware about the solutions process. He introduced Program & Service Management (I.T.) applied. Octo's people had the chance to be engaged in a and Demand Management (I.T.) function and the Incident structured learning process and share information through the Management (IM) process [Bridge] chain. The scope of Demand Management [LT.] was related to But both IT and Business people were not satisfied with the two needs: the collection and integration of business needs reorganization. It was not effective for three reasons: from organizational clients and the formalization of new IT initiatives (including objectives and timelines). Demand Man Demand Manager [LT.] was too isolated from the IT team. agement was also responsible for those applications already in Furthermore, sales people did not accept his support during operation and for the definition of areas of evolution and the negotiation with clients, so functional requirements transfer requests for corrective and adaptive maintenance. were not always workable; Program Management (I.T.) responsibilities included: checking Program Management [I.T.] was isolated from sales people, for consistency between business planning and Information and so the unit did not have an overall view of projects, needs Communication Technology (ICT) planning, and the definition of and planning. In addition, sales people were competitive priorities for implementation; monitoring IT projects through and thus, did not support Program Management defining periodic meetings, underlining any problems or deviations from priorities among projects and clients. the project baseline, submission for approval of any changes in the . IM was a success except within the development team [1.T.), scope of the project; definition of functional test planning post which felt controlled. The unit refused to use the proce- implementation review with the client and end user. dure and the tools for the management of tickets. Therefore Program Management was also delegated to define service trouble tickets began to rise and the Incident Manager level agreements (SLA) tailored to the needs of business, in [Business] was frustrated because he felt that Giuseppe was terms of availability and performance of the systems. Program not supportive. Management became one of the critical interfaces with the client for all kinds of issues, questions and complaints. The unit set out to improve business communication and customer Second step-sharing satisfaction. It was also the first level of escalation for the After the first steps towards alignment with business were not customer that dealt with new requests and/or about critical successful enough, Giuseppe decided to get more commitment downtime and recurrent problems. on IT from Sales for a stronger budget and cost control. Often, But Giuseppe soon backtracked on his decision to structure Sales [Business] signed contracts agreeing on delivery dates, the relationship around SLAs - and this is not implemented. effort and services without consulting with IT. IT staff were He was troubled about the unit's performance. constantly under pressure, projects were delivered past "Octo" and "Telematics" GVaia and Carmel 93 deadlines, the content of the services agreed on was not always detail the profitability of new customers/projects. In that way, workable and costs were not under control. the decision making process was subjected to a formal process Giuseppe had to act. He created a new bridge organization, based on rational data and not on political decisions. called Change Advisory Board (CAB) [Bridge] for shared At a corporate level Giuseppe proposed to introduce three decision making - especially with Sales. CAB was to be an levels of planning and three working groups, which are as enterprise-wide committee in charge of process changes on follows: platforms and services, and architecture exceptions. The goals Level I: Planning during the project design stage (Design were to minimize costs and enable learning. The committee was Team - inter-functional) [Bridge] determining investment needs together - both IT and Sales. Level II: Delivery project planning (Project Team - inter- Thus, all changes affecting the Octo platform (Web, M2M functional) [Bridge] and all other business processes) had to be reported to and Level III: Detailed operating planning after the contract coordinated through CAB. A formal change request had to be (Functional Teams in each area of Octo). submitted in writing via a new tool. Then CAB was to review Such a reshaping of program management would bring a the request, determine and review potential failures, and make loss of power for Sales (Business], thanks to a more formal and the decision to allow or delay the request. Each change request structured process for the authorization of projects and the had to receive formal approval from CAB before proceeding planning of activities. with the change. Core activities consisted of planning, con When Giuseppe showed the plan to the Vice President of trolling, managing risk, minimizing disruption, communicat Sales (Business), Giuseppe was told: ing, implementing, measuring change, monitoring costs. For each change request, the impact of changes on customer Ok, beautiful idea but business is business ... and I have to business operations was discussed, as well as the effect on the bring home as many clients as possible and all project have infrastructure and customer service, and on the capacity, to be released as soon as possible. My responsibility is to performance, reliability and resilience of the service. increase profits and yours is to deliver! Meetings were held on a weekly basis to review outstanding requests. It was the first time that people had the chance to Surprised by his response, Giuseppe started thinking about share their own knowledge, strategies and ideas about service profits and began to waver: Could this reorganization slow and cost optimization. Cost was a key driver. Once Giuseppe down Octo's performance? This hesitation led to confusion started to compute the marginal cost of each project and the and conflict. Sales (Business) tried to secure its independence profitability of each client, the number of change requests empowering the sales team (Business) with new authority on decreased dramatically and then roughly 70% of those business analysis. submitted were approved. Fabio observed the entire situation with concern. He Once the process appeared to be working, Giuseppe stepped and decided, in February 2013, to introduce a new delegated much of the coordination to middle managers function - Business Integration (BI) (see organizational and capable business executives did not staff the committee. chart Figure 4). It was a classic bridge unit between the Giuseppe made another mistake: sales people did not like business and IT. This was the rise of Business Monarchy vs the profit margin project criteria so they started to sabotage IT Monarchy. some projects to get more control over the process. Giu BI, with a strong commitment from the CEO, worked as a seppe started losing credibility when changes approved were bridge between Sales and Operations [Business) and the IT not put into planning, causing a large backlog in develop department. Led by a former IBM manager, it incorporated ment. As a result Sales (Business) started to complain to functions and roles that Giuseppe had created before: Demand Fabio, the CEO. [Bridge], Program and Project Management [Bridge], plus the responsibility for Change Management [Bridge]. BI was to support business requests, organize the IT work and support Stage 2: dis-integration: back to the Business Monarchy' improvement of services released to customers. Eight years of rapid growth forged the company culture characterized by agility and dynamism. But Octo's staff The mission of the BI unit was to: hesitated with Giuseppe's projects. The IT department was seen as disorganized. Giuseppe, still looked upon as a senior support standardized sales and effectiveness of cus- developer, was not able to project personal leadership. The tomization; first signals of this disappointment came when the Chief minimize time to market; Operations Manager (Business] brought under his control ensure logistics and IT readiness; the Program Management [Business) and Service Manage- minimize planning inefficiencies; ment [Business], mirroring functions and roles. maximize cross- and up-selling on the existing customer base; But in the middle of 2011, Giuseppe decided to implement a new inter-organizational process to manage new project maximize IP protection; set-up. In order to drive business costs down and manage ensure process effectiveness and efficiency. the IT-business architecture, Giuseppe decided to further In sum, the new organizational unit, BI, was given broad centralize much of the design phase within a steering com- authority: to make decisions about the feasibility of business mittee [Bridge] composed by IT, Operations (Business) and projects and the design of services, driving the scheduling Finance [Business]. Giuseppe proposed to integrate phases of projects, and defining priorities within the IT department. from concept, design and prototype with a better definition The IT department was relegated to the mere execution of of requirements and the use of business cases to evaluate in new projects and changes over operational services. CASE 1: Reshaping the IT Governance in Octo Telematics to Gain IT-Business Alignment - Giovanni Vaia; Erran Carmel 1. Discuss company strategy and technology orientation 2. Discuss which governance option is the best for the company 3. How did the CIO approach creating a dialog with other functions 4. Why did the CIO fail in creating a dialogue with other functions and which inhibitors played a critical role 5. Discuss about the need of a new function (Business integration) "between" IT and the business