CIOs have led their organisations through tumultuous change and rid them of a widespread scourge. They may be heroes today, but the honeymoon could end sooner than anticipated. Recent trends suggest that the boardroom is demanding that CIOs demonstrate returns from the Y2K investments their business has made. Keeping the business running is just not enough. Can this be true? Absolutely, and the lack of IT leadership is to blame. CIOs unable to identify, codify and communicate in business terms the value from such investments are increasingly at risk.
Two components of leadership are crucial to CIOs' survival and success. The first is the ability to create a set of value expectations shared across all departments -- one sensitive to the realities of competency, competition and culture. The second is the ability to measurably deliver on those expectations. CIOs must understand and express IT's value in a way that's meaningful to the executive. Value is simply the total future benefits to be realised by the company in one of four ways: increase in revenue, increase in productivity, decrease in cycle times or decrease in risk. The combination of shared vision and measurable action drives progressive businesses in formulating their value agenda for IT.
Are You Running a Vacuum?
Meta Group has seen a distinct downturn in IT investment when IT staff does not lead in the management of expectations. Unfortunately, it isn't always obvious when a leadership vacuum exists. The following questions can be enlightening. The harder they are to answer, the greater your concern about leadership should be.
¥ Is there a cohesive business strategy for the role of IT?
¥ Is the CIO invited to participate in nontechnology business initiatives?
¥ Do you know how much business value potential exists within your IT organisation?
Let's return to the debunked belief that Y2K compliance is a leadership indicator. How can CIOs be challenged on an investment that kept the business running? Quite simply, that is not how many executives view the situation. They may feel that too many resources were expended to solve what they saw as an IT problem all along. During that process, the business side began to expect something more from its investment than replatforming legacy applications. The lack of leadership in anticipating this demand now jeopardises many careers. With the Y2K compliance halo shattered, other IT claims to leadership are also breaking down:
¥ "Customer satisfaction ratings are increasing even as we speak." Don't put your faith in lagging indicators. While actual benefit from IT services might be increasing (for example, declining mean time to repair), the perceived benefit may be well below acceptable limits.
¥ "Nothing screams value like 99.999 per cent network availability." Infrastructure stability is indeed a priority, but that alone does not deliver business value.
¥ "My total cost of ownership beats the industry average." IT efficiency does not equal business effectiveness. The business expects IT to manage its shop efficiently, but as one CEO said, "You can't save your way to prosperity." These claims to leadership turn to myths as IT changes from an art form, inspired by engineers building technology solutions, to a business discipline that is mature, can be audited and is perceived as a capital asset.
The Business Discipline of IT
Meta Group explored this issue of leadership and business discipline by researching ways to measure and increase the business value from IT. We asked CEOs, CFOs and CIOs of many major corporations, "What is your business value agenda for information technology?" Many executives did not have a formal value agenda for IT, even though they all expected IT to deliver business value.
Is there a real IT value problem or an IT value measurement problem? Either way, the results are the same. Indeed, the dilemma confronts most companies today. Meta Group research shows that only 5 per cent of companies have IT measurement systems in place. For the vast majority, if they derive value from IT there is no way to be sure or to quantify it.
Many companies have an IT value problem in perception only, where value delivered is taken for granted and goes unrecognised. CIOs must document the value that has been delivered -- a critical first step in leveraging prior accomplishments and success into a more robust and proactive IT program.
Recognition for business value creation is essential to promote the use of IT to exploit new business opportunities. Companies need a process to measure how efficiently they manage their IT resources and how effectively the IT resources deliver business value. CIOs will then have a basis for communicating both the value that currently exists in IT (taking credit for the things accomplished to date) and the value from future initiatives that will deliver measured benefits to the organisation. Key steps of this value management process include the following:
1. Establishing the IT value position: What is your company's IT equity? Developing an adaptive architecture to leverage your existing application portfolio is essential to creating capital asset management policies that justify and measure IT investments on a business basis. Applying capital asset management criteria (such as method of ownership, productive/non-productive, operating/non-operating) to the architecture sets the stage for replacement, betterment and other investment discussions with the CFO -- clearly a key executive to influence. Existing assets can now be classified and valued, moving CFO/CIO discussions beyond cost of ownership to a more relevant value of ownership perspective.
2. Aligning expectations: What will success look like? Communicate expectations in the form of critical, measured steps to drive business value realisation. You must understand not only where current executive expectations lie but also who is setting them. It may be the CIO, but it could be someone outside the IT organisation. A survey of a Meta Group client shows that reports of competitors' doings and promises from IT staff significantly drive executive expectations (see "Reality Check"). Yet, the IT management team believes that its past performance and anticipation of value to be delivered sets executives' expectations. Regain control of the expectations your team is setting -- and those that outside forces are setting.
3. Defining value initiatives and measurement programs: How do you measure what you value? A value statement, prepared jointly by technical and business executives for each initiative at its outset, defines the expected result for the organisation. How will this project increase revenues? Increase productivity? Decrease cycle times? Decrease risks? Answering these questions will require heightened business value literacy on the part of IT professionals and a closer working relationship with the executive team. (For another perspective on measuring IT value, see "Maximising IT Investments", September, 1999 CIO, page 50.) IT must be managed as an asset, so its contribution can be readily known and measured. At any point in time, IT managers can communicate the value expected from approved initiatives, value now being delivered and what has been delivered. This is expectations management based on accounting principles for IT -- concepts well known to, and understood by, the executive team. The business discipline of IT provides CIOs with the best tool for improving their leadership standing within the executive community.
Vision for Change
PricewaterhouseCoopers LLP stated in its November 1998 "Trendsetter Barometer" report that 80 per cent of the CEOs of the 436 fastest-growing companies said that the role of information technology is extremely important to their company's success.
Not just important -- extremely important. These CEOs posted 72 per cent higher revenue growth than peers who did not rate IT as highly. This reflects the new business model in which IT plays a central and driving role. Many CIOs are either incapable of effectively managing the related cultural change or, worse, unable to recognise the need to change.
To manage change well, you must have a simple vision -- it should fit on one PowerPoint slide. You must also understand the distribution curve of change, with its trickle of early and late adopters and the masses in between. Many managers mistakenly view the emergence of early adopters as a sign that the culture has moved. They set expectations based on that vanguard and take their eye off the ball. With expectations out of line with current cultural reality, they lose progress and have to restart repeatedly.
The lack of IT leadership could be the downfall of CIOs. Those who believe that will take the right steps. The rest of you should update your resumes.
Michael Pedersen, senior vice president and managing director at Meta Group Consulting, can be reached at email@example.com. Karen Rubenstrunk, vice president and director, executive directions, at Meta Group, can be reached at firstname.lastname@example.org Client Case StudyA global logistics company tackles assessment of IT's value contribution A global logistics company faced a challenge common to many organisations: the need to derive demonstrable shareholder value from IT investment in terms the board would understand. The CEO readily understood investment benefits to be had from new aircraft, route optimisation and operational improvements. But he understood little about realising value from the company's investment in information technology. IT was never the company's strength, but it was clearly needed now to be competitive. With the CEO's approval of a new customer management and package tracking system that could gain market share and improve margins for the company came the rollout of a value management process to rebuild credibility for IT and deliver recognisable value from the investment.
The CIO recognised that the CFO was a key project stakeholder who was seeking new ways to prioritise and manage IT investments. To manage his expectations, the CIO prepared an IT value asset analysis identifying the current lack of investment across the application portfolio (see "Sample IT Asset Analysis"). The ensuing discussion centred not on IT cost, but on ways to protect the existing IT resource -- a corporate asset valued at $280 million. As a result, the CFO began tracking IT investment in terms the executive team used regularly for other key asset investment decisions.
Delivering the new system seemed straightforward to the CIO, but were the expectations of what constituted success the same for the executive and IT teams? Working with the executive team, the CIO codified the strategy by defining specific value statements to drive recognisable business value. Framing the benefits (see "Identify and Track Value") in the form of value statements set expectations of what success would look like, how it was to be measured and what reporting mechanism would be used.
Several interesting benefits resulted from the process. The executive team assumed a greater sense of ownership than in previous IT initiatives; the CIO was able to communicate value delivered and in process at any time during the course of the initiative; executive team expectations for the CIO were well understood; and the value initiative was consistently communicated across the organisation in terms that people could relate to at all levels, building grass-roots support for a critical corporate initiative.
-- M Pedersen and K Rubenstrunk
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