- 10 December, 2007 13:06
The value of a business investing in IT - like investing in any other asset, such as real estate, a new factory or a TV commercial - is its ability to support and improve business performance. This means that IT value is business value and is expressed as the ratio of business performance to IT investment.
The CIO can set an example for the entire IT team by focusing discussions on the business - inside and outside the IT organization
This definition of IT value is simple, but the implications are profound. Any discussion of IT value is ultimately meaningless, unless it's framed in terms of changes in business performance. Cost always matters for IT as for anything else that a business does, but cost is not value. Thus, a key point that deserves particular emphasis: IT performance must be connected to business performance to be meaningful to business executives.
Connect IT performance to business performance. The first step in connecting IT performance to business performance is to focus on the right thing. Let's consider a familiar analogy: an exercise machine. There is a very real difference between an exercise machine and exercise. An exercise machine enables exercise and generates profits for its manufacturer. To the purchaser, it offers potential for value. But it's pointless to measure the value of the machine in terms of its operations:
- Number of hours per week that the machine is in use
- Number of calories burned per minute, per hour
- Muscle groups exercised
- Average cost per hour of usage
The only meaningful metrics to the user are about the machine's effects on the user - information that makes the user feel better about themselves:
- Weight lost since start of exercise program
- Weight left to lose to reach target weight
- Maximum bench-press weight
- Time to run 100, 200 or 500 meters
- How much better the user looks and feels since beginning the exercise program
These user-centric metrics confirm the wisdom of the investment in the exercise machine.
The lesson of the exercise machine analogy is this: Do not report to business executives on the technical minutiae of operations; report on how IT operations are affecting business performance gains.
To realign these conversations, identify critical business performance metrics. This step requires participation by business executives, because IT staff can't assume that they know which metrics are most important to executive and business unit management. Critical metrics may be operational, financial, compliance-oriented or fall into some other category. Execute this step at the start of the program or when substantial change occurs in the business.
Next, tie IT metrics to business performance metrics. Identify specific IT operational measures, such as unplanned network or server downtime and correlate them to comparable business metrics. Or combine multiple IT metrics to produce a single business metric. For example, combine network availability with desktop availability and other measures to measure call centre agent availability. Or use ratios to correlate IT metrics to business performance metrics by, say, calculating the cost of IT operations per business user, new customer account or sale.
Credibly communicate the benefits of IT investments. When communicating the benefits of IT investments, take care to avoid the baseless, outright sales pitch syndrome that tries to gloss over obvious defects. Even in companies where executive management understands that IT is essential to the business, CIOs must continually show that IT delivers value for money right where it counts - in improvements to business performance.
Beware, though, of this potential value trap: "IT Doesn't Deliver." Nothing destroys credibility and influence faster than unreliable delivery of services and initiatives and poor management of the business initiative pipeline. As one CIO who contributed to our research said: "Reliability liberates you to talk about the business. It's not the end game." Equally egregious is confusing IT risks with business risks. They aren't the same thing.
Also, key to credibly communicating the benefits of IT investments is benchmarking and setting guidelines for performance. The business can't appreciate IT value-for-money until it knows how the IT organization is performing relative to its peers.
Several companies that contributed to our research benchmark annually or biannually to establish a baseline for IT performance. Other companies included in our research also report against benchmarks to demonstrate progress in a turnaround situation. All the companies expect to report IT organizational performance forever to demonstrate that IT's value is high and rising.
Position IT investment as the cause, not the effect, of improved business performance. In many enterprises, IT investment is seen as a trailing indicator of improved business performance. ("I'm getting more customers so I have to buy more servers."). A more accurate view is that careful investment in IT drives business growth by providing the capacity in infrastructure, operations and management visibility that makes improvements in business performance possible. ("I want and expect to grow, so I need to build the infrastructure that will support growth.")
To make the point that IT investment drives business performance improvements, the IT organization needs to benchmark and measure not only its own performance but also the performance of the business units. It takes terrific effort to change the business's perception that IT is a trailing cost - even when business executives know that IT matters.
CIOs will know when the corner is turned because the nature of the conversation will change. The CIO will no longer sell technology but will advise on investments.
Think different, act different, be different. IT is one lever an executive team can pull to improve business performance. But CIOs must know enough about the business to know when IT is and is not the right lever to pull - and say so.
To know when IT is the answer and when it is not, CIOs must keep the following in mind.
- The value of an IT investment is always measured in terms of business performance.
- The CIO's job as an executive is to boost business performance, not IT's.
Thinking like a business executive also means paying attention to personal style. How does the executive team dress? What do they talk about? What do they read? What do they do for leisure? External signs and adherence to norms for personal behaviour indicate membership in the team. How else could an observer tell at a glance who plays for which side at any organized sporting event? The personal influence and value of CIOs depend a lot on whether they are perceived as being part of the executive "tribe".
Additionally, the CIO can set an example for the entire IT team by focusing discussions on the business - inside and outside the IT organization. One means is to encourage and reward IT personnel for discussing the business in business terms - for example, in CIO staff meetings, in IT governance councils and in meetings between business unit executives and their IT support and relationship management personnel. Another technique is to "get physical" by embedding IT personnel in business units at multiple levels.
In short, conversations should always be about what the business can do, when, where and how - not about what the technology can do. Above all else, CIOs must drive this message home at every opportunity.
To show that IT investments produce value, CIOs must ensure that the business performance improvements are harvested and measured using a systematic approach that includes planning, review and audit, and measurement. The pay-off for the entire enterprise is better business performance resulting from: 1. superior planning and prioritization for investments, and 2. management attention to the activities that ensure that benefits are harvested.
In measuring value through improved business performance, CIOs should be aware that there is a lag between IT investment and the delivery of value. This is why benefits must be harvested and measured over a period of time that matches the business cycle for the initiative. The organization needs time - typically one to two years for a major change - to assimilate new processes.
In effect, when CIOs talk and act like business executives focused on business performance, sooner or later they will be perceived as business executives. The first sign of this change is being invited to the CEO's staff meetings. The next sign is being asked to manage business initiatives outside the realm of IT.
CIOs who can deliver business performance via IT face a future of great opportunity and increased influence.
Andrew Rowsell-Jones is vice president and research director for Gartner's CIO Executive Programs