Enterprises that have achieved business-technology convergence can respond nimbly to change and use their superior performance to leapfrog over less-agile competitors and position themselves for future growth.
The second annual Baseline/BTM 500 survey was conducted in the midst of the deepest economic downturn in our lifetime. While economic recession is certainly not good news, it does present a unique opportunity to test the promise of business-technology convergence. Would converged firms react? Would they perform as well in a down market as they have in up markets? Would they exhibit the resilience and agility that are the hallmarks of converged enterprises?
The results of the survey do indeed confirm the value of convergence. Of the five levels of maturity, the top two levels (Level 4, the threshold of synchronization; and Level 5, convergence) of the Baseline/BTM 500 organizations enjoy an advantage in positive performance results as compared with their industry groups. In addition, they clearly show that even when performing below industry averages, they are significantly better off than less-converged organizations. (See page 28 for a list of the top 100 companies that completed the survey across all four functional areas. To view all survey lists, go to www.baselinemag.com.)
The Baseline/BTM 500 report highlights participating enterprises that have the most efficient and optimized business-technology management and explains how that convergence contributes to growth and profitability. Business-technology convergence and business-technology management are terms that spring from a simple idea: Technology is a means for achieving business objectives; therefore, managing business and technology together provides significantly better results than managing them in separate silos. By converging business and technology management, enterprises can nimbly respond to changing marketplace dynamics, technology evolutions and competitive pressures—capabilities that are especially important during an economic downturn.
Determining the maturity level of an enterprise’s business-technology management is no easy task. The Baseline/BTM 500 is based on BTM Corp.’s BTM Framework and Business Technology Convergence Index, an ongoing study developed to measure convergence levels and financial performance of companies over rolling five-year periods. (Read “2009 Baseline/BTM 500 Methodology” below.)
Baseline and BTM assessed the survey submissions using the same methodology as last year. Performance was calculated using six financial measures relative to business-technology convergence: five-year averages for return on equity (ROE); return on investment (ROI); return on assets (ROA); earnings before interest, taxes and depreciation (EBITD); annual growth in revenue; and annual growth in earnings per share (EPS).
We also examined, as we did last year, the change in share price during the same five-year period. Nearly 58 percent of the companies in the top two levels exhibited superior or average performance, tracking with last year’s result of 60 percent. The study found that these companies experienced an average 5.9 percent higher rate of EPS, an average EBITD advantage of 9.4 percent, and an average ROE advantage of 6.8 percent over their industry peers between 2004 and 2008. Both ROI and ROA performance for Level 4 and Level 5 showed a 1 percent advantage over their industry peers.
Performing Despite the Downturn
The downturn has had a marked impact on revenue and share price, and the survey results consistently show the damage done to company and industry performance. Trying to go beyond the noise, we performed a second performance analysis to examine an organization’s ability to react to challenging environments.
Not surprisingly, nearly 73 percent of the companies in the two top levels exhibited superior or average performance—a 15-point increase over last year. They held a performance advantage of more than 8 percent over their industry peers and were nearly a full percentage point higher than less-converged firms.
Baseline and BTM also examined the impact of company size on performance, as measured by revenue. Companies of all sizes are fairly evenly distributed across each of the five levels, with two exceptions. First, no companies with more than $75 billion in annual revenue fell into the lowest level. Second, there is a disproportionate representation (about 50 percent) of companies with less than $7.5 billion in annual revenue in that level.
The Baseline/BTM 500 is in line with previous findings of the BTM Institute (the research think tank launched by BTM Corp.), which established that converged enterprises know when to change the rules to maintain a strategic advantage over their competitors—and to sense and respond to changes in the marketplace. While less-mature enterprises enjoy increasing benefits as their maturity increases, none of them equals the performance of converged enterprises.
Level 1 enterprises, which are the least mature, typically execute some strategic capabilities in a disaggregated, tasklike manner. Level 2 organizations exhibit limited capabilities, attempt to assemble information for major decisions and consult the technology function on decisions with obvious business-technology implications.
Enterprises at Level 3 are functional with respect to the capabilities, and those at Level 4 have the capabilities fully implemented. Companies achieving Level 5 (about 1 percent of the organizations surveyed) have achieved full convergence.
The Baseline/BTM 500 study shows that as an enterprise’s maturity extends above Level 3, the resulting synchronization of business strategy and technology delivery makes the company more agile and adaptable. For such enterprises, changes in the business environment—such as the one we’re currently living through—rapidly drive appropriate adjustments to strategy and its execution, thereby limiting the damage of falling revenue and share prices, while exhibiting the superior performance needed to position an organization for the growth cycle that historically follows a downturn.
Leading enterprises in the Baseline/BTM 500 study have demonstrated that data has become information. In large measure, this information is available through and managed in an integrated, enterprisewide fashion that facilitates better and faster decision making.
Leaders look at technology as an enabler of enterprise strategy. They consider the technology implications of business decisions and look for innovative ways to embed technology into their business operations and processes. For them, technology is more than “information technology” or “operational technology.” It is, rather, “business technology.”
Validating the Power of Convergence
The numbers speak for themselves. Companies such as AT&T, Boeing, Cisco and New York Life demonstrate that the principles of business-technology convergence are not exclusive to any particular market vertical, technology specialty or organizational size. The results of convergence—or the march toward convergence—pay companies real dividends in terms of financial performance.
Convergence does equal dollars, especially during a recession. But saving dollars shouldn’t be the only measure of success.
The superior performance of organizations in the upper-level business-technology management stages (alignment, synchronization and convergence) derives from their agile and adaptive nature. These organizations are able to respond nimbly to change and to use their superior performance to leapfrog over less-agile competitors and position themselves for future growth.
There is no doubt about it: To meet strategic goals, companies are drilling down to core management processes as a means of delivering results to the business. By exercising effective governance over these goals and the technology that underlies them, companies are able to maintain competitive advantage, increase operational efficiency and improve financial performance—making these objectives part of an organization’s DNA.
The Baseline/BTM 500 research and report are a collaborative effort between Baseline magazine and the BTM Institute. Faisal Hoque, Jeffrey Bruckner, Diana Mirakaj, Brian Fishman, Dr. Vallabh Sambamurthy and Dr. Robert Zmud conducted the analysis contained in the report. For complete biographies of the Baseline/BTM 500 team, visit go.baselinemag.com/BaselineBTM500Team.
2009 Baseline/BTM 500 Methodology
This year’s Baseline/BTM 500 report was built on the same foundation as the 2008 study: Both were based on the BTM Maturity Model and the Business-Technology Convergence Index. By offering participants the option to self-assess their organization by participating in from one to four 10-question surveys (each focused on one of the four functional areas of the BTM Framework), we can provide a more in-depth view of the management practices conducted in leading organizations throughout the United States.
The Convergence Index highlights the connection between corporate financial performance and business- technology convergence, as measured by the BTM Maturity Model. Enterprises at lower levels of maturity score lower for business-technology productivity, responsiveness and project success than enterprises at higher levels. As enterprise maturity improves, the increasing synchronicity of business strategy and technology delivery makes the enterprise more agile and adaptable.
To measure what companies do differently in terms of their management behaviors, BTM assessment tools are used to evaluate organizations against management capabilities for effective business-technology convergence. These capabilities are grouped into four functional areas:
1. Governance and Organization
2. Strategic Investment Management
3. Strategy and Planning
4. Strategic Enterprise Architecture.
Each capability represents a specific management competency defined by four critical dimensions: having repeatable processes, executed through appropriate organizational structures, enabled by the right information and using the right technology.
BTM research shows that at Level 1, enterprises typically execute some strategic capabilities in a disaggregated, tasklike manner. At Level 2, an organization exhibits limited capabilities, attempts to assemble information for major decisions and consults the technology function on decisions with obvious business-technology implications.
Enterprises at Level 3 are functional with respect to the capabilities, and those at Level 4 have the capabilities fully implemented. Organizations achieving Level 5 maturity have achieved full convergence and know when to change the rules to maintain strategic advantages over their competitors.
read more about the Baseline/BTM 500 at: http://www.baselinemag.com/
printed in Baseline Magazine, October 2009
BTM Institute Staff Writer
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