The completed system helped them reduce their transactional costs in finance and HR. Savings in these areas paid for the ERP project in about three years. After that, the annual SG&A savings went directly to improving the company's bottom line.
There are also direct correlations between IT effectiveness and improved effectiveness in finance, procurement and HR. This is enabled in part by the automation of basic transactional activities, which drives down headcount, reduces error rates and improves cycle times. Staff can spend less time on transactional activities and more time on analysis and other value-added activities. For instance, at the Fortune 100 company, the new system enabled finance staff to spend less time "racking and stacking" data, and it became easier for them to do forecasting, planning and other analysis activities. As a result, finance staff could provide much greater strategic value to their organization.
But IT doesn't just help staff in the back office find time to do more strategic analysis. It actually improves the accuracy of the analysis process. The best IT organizations focus heavily on designing systems that offer "one version of the truth" and then make these systems easily accessible. This dramatically simplifies activities such as enterprise performance management, supply chain optimization and financial simulations.
To drive the maximum value from IT, companies should focus on five best-practice areas. Do careful reward-risk analysis to identify where technology investment can reap the greatest rewards. Consolidate and standardize, reducing IT complexity wherever possible. Rather than focus on minimizing cost, seek to maximize value at the lowest achievable cost. Outsource selectively and use outsourcing as a tool to improve effectiveness rather than efficiency. Finally, the best IT organizations work with functional leaders to ensure that technology is implemented in conjunction with best practices and process redesign.
Senior vice president and director, Boston Consulting Group which specializes in general management and international strategy.
It is easy for CIOs to focus on critical projects to deliver value. The real challenge, however, is to step back and ask, "How are we adding value to the business?"
Effective CIOs first focus on where and how they are creating business value and making the key decisions transparent to both the business and the IT organization. Then they execute the plan to deliver the results in partnership with the business.
For example, I work with a CIO who produces an annual report that shares what the business has accomplished with IT's support. It also talks about where they will jointly focus their effort and dollars for next year. As with any good annual report, it discusses the financials: spend versus budget, benefits of previous projects versus plan, cost-saving initiatives versus plan, etc. It also discusses what they're doing to prepare for the future from an architecture and technology standpoint. It has been extremely well-received, and this is in a non-high-tech company.
Another challenge CIOs face as they strive to prove IT's value is what to count as the benefits of a project and how to ensure these benefits are achieved. Everyone focuses on the hard benefits, which is important. However, articulating the softer benefits that support key business strategies (which many times cross-functional silos) is also critical. This is especially challenging for CIOs who report to the CFO. But making transparent the hard and soft benefits to the senior team is the best way to make good business decisions.
Many CIOs also now group projects into "programs," a simple concept that can have powerful benefits. Focusing your development and business resources on a small number of programs makes it easier to communicate and more effective to measure benefits across business units.
Associate Staff Writer CG Lynch can be reached at email@example.com.
Join the CIO Australia group on LinkedIn. The group is open to CIOs, IT Directors, COOs, CTOs and senior IT managers.