Brian Smith, CIO of ModMeters, was feeling frustrated as he listened to CEO John Johnson finish speaking. Johnson stated that the executive team believes there are valuable business prospects in the development of two new strategic initiatives. However, before moving forward with final approval from the board next month, Johnson expressed the need for assurance that the IT, marketing, and sales plans would fully support these initiatives. Brian understood the significance these new projects would have on his department, especially after hearing rumors from his boss, the COO, about something major approaching.
He had even been asked his opinion about whether these strategies were technically achievable, in theory. But both at the same time? Resources – people, time, and money – were limited, as usual. ModMeters was making a decent profit, but the CFO, Stan Abrams, had always been conservative with IT expenses. Brian had to struggle for every penny. He didn’t know how he would manage to find the means to support not one but two new strategic initiatives. The other vice presidents at this strategy presentation appeared delighted.
Expanding ModMeters globally from its North American base seemed like a natural progression for the company. ModMeters offered specialized metering components that were in high demand by a wide range of customers, including utility companies, manufacturers, and various other industries. The company, originally known as Modern Meters, had experienced consistent growth over the past century as the need for its metering expertise and components increased. Currently, ModMeters is the leading global manufacturer of metering components, offering a comprehensive range of both mechanical and digital products.
Brian believed that expanding into meter assembly in Asia and Eastern Europe was a good idea, but he was unsure about how to establish the necessary infrastructure to support it. He acknowledged that these countries lacked the telecommunications and equipment required, and implementing the necessary training and new systems would be a significant challenge. However, Brian anticipated that the second strategic focus, implementing direct-to-customer sales for “green” electric meters, would be even more difficult and cause him many sleepless nights.
His attention was brought back to the present when the CEO revealed a flashy new logo on an easel. “To align with our updated strategy, I introduce our new name—MM!” Johnson announced with significance. Brian thought, “This is a big inconvenience. Now I have to modify our name in every application and document created by the company!” ModMeters, as Brian still preferred to refer to it due to its longstanding presence and focus on science, had been operating in the IT industry for quite a while.
During the 1960s, ModMeters initiated automation of different aspects such as finance, accounting, and supply-chain management. However, they did not possess a consumer-focused website during that period. Nevertheless, ModMeters possessed systems from various computer eras like punch cards to PCs. Regrettably, due to limited resources, the company couldn’t enhance its current systems and instead kept adding new layers on top of them.
The diagram representing the interactions among systems appeared to be tangled like a plate of spaghetti. The speaker believed that it would be impossible to support two new strategic thrusts with the existing budget levels. However, he admired the new design along with the rest of the audience. He anticipated that the IT budget meeting scheduled for the next week would be incredibly difficult. As expected, everyone except the CEO gathered in the same meeting room for another intense session. Brian patiently waited for each Vice President to present their crucial IT initiatives before expressing his own thoughts.
Each division had a lengthy list of essentials for maintaining the firm’s current business, in addition to the tasks required to support the new business strategies. Abrams also joined in this year due to new legislation granting the firm’s external auditors significant access to examine all financial and governance processes. After attentively listening to each presenter, Brian addressed the group. “As many of you may be aware, we have always been conservative with our IT budget allocations.
The budget allocated to our IT department is only 2 percent of our revenues, which significantly limits our capabilities in serving the company. Each year, we spend considerable time reducing our project list to the bare minimum and resort to patchwork infrastructure investments. Currently, 80 percent of our IT budget is allocated to fixed expenses. Brian demonstrated this allocation by presenting a multicolored pie chart, pointing out that almost half of the budget is represented by the blue section.
“The maintenance and replacement expenses, constituting approximately 30 percent of the total, encompass system upkeep and minimal equipment substitution. This involves error rectification, incorporation of government and industry required modifications, as well as indispensable services like the help desk. The objective of this meeting is to determine the distribution plan for the remaining budget. Historically, we have allocated it proportionally according to each department’s operating budget.” Brian presented an additional slide featuring a pie chart for visual demonstration.
This large pink chunk represents Fred Tompkins, who is the head of manufacturing and the most powerful executive in the room. Tompkins’ division is responsible for a significant portion of the company’s profit, occupying more than half of the pie. Brian, who was speaking, pointed out the portion that each department had received in the previous year. Brian then introduced Harriet Simpson and Brenda Barnes, who are the VPs of human resources and marketing. Their portions were much smaller, barely visible and accounted for only a few percent of the overall budget.
“This approach to dividing our IT budget may have served us well over the years,” Brian didn’t believe it had, but he wasn’t going to argue about past conflicts, “however, we all heard what John mentioned last week, and this method of budgeting does not provide us with any flexibility to develop our new strategies or meet our infrastructure and staffing requirements. Although we might receive a bit more funding to acquire new applications and purchase additional computers,” Abrams acknowledged this point with a slight nod, “it will not lead us to where we need to be in the future.” A third paragraph appeared on the screen, displaying the projections for the next five years.
“If we do not take action now to address our IT challenges, in five years our entire IT budget will be consumed by operations and maintenance. Previously, we have neglected our infrastructure, information and technology architecture, and the reengineering of our current systems and processes. ” A diagram illustrating the complexity of these systems appeared. “This is what you are requesting me to efficiently manage. It is not pleasant. We require a stronger plan to enhance the resilience and flexibility of our systems. If we intend to progress with this company in new directions, the foundation is insufficient.
Stan should be concerned about the inability to provide auditors with the requested information as well as the potential risk exposure if any of our systems fail. Additionally, he should also be concerned about how we will incorporate two new business ventures into this chaotic situation,” Tompkins raised his head from his papers, expressing his dissatisfaction with the direction of the presentation. “I, for one, require all the items on my list,” he said firmly. “It is unrealistic to expect me to be the main source of funding for the organization without allowing me to generate the necessary funds for other investments.”
“Brian was appeasing. “I’m not saying that you don’t, Fred. I’m simply stating that we’ve received new guidance from higher management and that certain adjustments are necessary in order for IT to better support the entire enterprise. Previously, we prioritized divisional IT projects based on ROI. How should we prioritize these fresh strategic initiatives? Additionally, these new ventures will demand substantial infrastructure, so we must find a means to finance this.”
Currently, our systems lack communication with other divisions due to different terminology usage. However, for budget-friendly systems in the future, simplification and integration are necessary. Tompkins’ disregard for the enterprise’s needs caused frustration. Furthermore, Brian revealed that the company assigned us new tasks. John remains optimistic about potential payback but acknowledges that implementing new strategies may not yield immediate results.
“Now addressing Abrams, the speaker emphasized that there is more to IT value than short-term profit. Making new markets for the company is a crucial part of their business strategy, which requires investment not only in equipment and product, but also in the underlying processes and information necessary for managing and monitoring that investment,” said the speaker. Harriet Simpson then spoke up for the first time, stating, “It’s similar to when we hire someone new in R&D. We prioritize hiring for quality because we seek their ideas and innovation, not just a body. In order to better comprehend how we will translate our five key corporate objectives into IT projects, we need to further understand.”
Yes, we need to make a profit, but Stan needs to satisfy regulators and Brenda’s going to be on the hot seat when we start marketing to individuals. And we haven’t even spoken about Ted’s needs.
As the VP of R & D, Ted Kwok was tasked with keeping one or more steps ahead of the competition. New types of products and customer needs would mean expansion in his area as well.
Abrams cleared his throat. “All of you are right. As I see it, we are going to have to keep the cash flowing from Fred’s area while we expand. But Brian’s got a point. We may be being penny-wise and pound-foolish if we don’t think things through more carefully.
We have invested a significant amount of effort in creating this new strategy, with additional funding allocated for IT. However, it is insufficient to cover all your requests alongside our other priorities. We must simultaneously downsize, regroup, and progress. Abrams’s tendency to state the obvious without providing meaningful support was met with silence. Brian followed up by stating our need to comprehend two factors before developing a new budget. Firstly, we must determine how each IT project on our agenda contributes to our main corporate goals.
Secondly, it is essential to find a way to ascertain the value of each crucial aspect for ModMeters, so that we can prioritize them. Moreover, we must incorporate a reasonable amount of IT regeneration to ensure our ability to tackle new projects. The entire room agreed with this notion, giving Brian a sense of relief as step one was accomplished. However, step two would prove to be more daunting. “Within one month, we need to present the board with our assurances that the IT plan can seamlessly integrate these new strategies and outline the additional funds required. As mentioned earlier, merely throwing money at the issue is not the solution.”
What we require is an IT planning and budgeting process that will be beneficial for the next few years. This process should achieve several objectives: • It should adopt an enterprise outlook on IT, as we are all involved in these new strategies. • It must include various IT initiatives, such as our new strategies, the requirements of Fred and others to enhance our existing business with new IT capabilities, Stan’s auditing needs, and our operations and maintenance needs. • Additionally, we need to allocate a portion of the budget to resolve the current issues in our IT department.
- It must provide a better way to connect new IT work with our corporate objectives.
- It must help us prioritize projects with different types of value.
- Finally, it must ensure we have the business and IT resources in place to deliver that value.
Looking at each of his colleagues in turn, he asked, “Now how are we going to do this?” DISCUSSION QUESTION Develop an IT planning process for ModMeters to accomplish the demands as set out above. (Smith 55) Smith, James D. McKeen and Heather. IT Strategy in Action for Ashford University. Pearson Learning Solutions.
