Some commonly heard complaints about IT are ‘we are spending too much on IT’, or ‘IT is a black-hole’. While IT aspires to become a strategic business partner, business folks complain about the lack of trust between IT and business or the lack of a common language between the two. Business does not know if IT is doing a good job and many IT leaders cannot communicate how they are creating value for the business.

A book by Hunter and Westerman, “Real Business of IT” provides a four step process for finding and communicating IT value. I thought I would share their key ideas.

Four steps to IT Value

The authors found that successful CIOs do remarkably similar things when it comes to achieving and communicating IT value. They found remarkable similarities in the approach taken by CIOs. The four step approach they have proposed is:

 

  1. Avoid the value trap thinking – Avoid practices that appear good but actually prevent IT from delivering real value.
  2. Show that IT provides value for money – Demonstrate that IT provides the right services and the right level of quality at a competitive price.
  3. Show how IT improves business performance – Demonstrate the link between IT investment and business performance.
  4. Show how you add value beyond IT – Take on a “CIO-plus” role by being a peer on the executive team and providing value beyond IT.

Successful CIOs don’t skip steps or do these steps out of sequence.

Avoid the value trap thinking

Value traps create barriers between business and IT. Typical value traps are ‘IT performance speaks for itself’ or ‘we deliver great technology to the enterprise’, ‘business is IT’s customer’ and ‘customer is always right’.

Avoid the value trap thinking

Value traps create barriers between business and IT. Typical value traps are ‘IT performance speaks for itself’ or ‘we deliver great technology to the enterprise’, ‘business is IT’s customer’ and ‘customer is always right’.Value trapped thinking

Talking about value sounds like blowing your own trumpet. When IT costs are noticed and talked about often, but value is rarely mentioned, value is unlikely to be seen. The good side of IT performance should be made readily apparent to the executives in a way that they can understand and digest.

Many IT shops still believe their role is to provide good technology. However, what really counts is how the technology contributes to business performance. The right way to discuss IT performance is to link it to the overall business’s performance.

Demonstrate value for money

IT needs to demonstrate it can run the business of IT well before IT can have any credibility as a business partner. When everyone knows that IT is providing quality services that the business needs at a competitive price then IT has shown value for money. There are three essential steps to delivering value for money:

  1. Measure and communicate IT performance in terms that everybody can understand – When there are no metrics, executives believe that IT can’t deliver. Rather than showing metrics such as systems availability, identify what services are critical to business performance. What is the required quality needed vs. The actual quality? How does the unit price for these services compare with peers or external providers?Metrics are only useful if they help utilise IT services better. A cost metric that business cannot influence is unproductive in demonstrating value. Rather than focussing on perfection in cost measures, use cost measures as a manager would by examining relativities and direction.
  2. Benchmark IT performance against its peers – Business performance is meaningful only when it is measured against peers or competitors. Only benchmarking can indicate whether the cost of service at a given level of quality is right. Many times there are no comparable peers for the whole of IT.  CIOs make a great deal of effort to benchmark services that are most comparable with IT across organisations against the factors of standard performance and quality. When certain IT areas obviously need to be fixed, benchmarking is not the best use of resources. However, generally benchmarking is a useful tool for most IT organisations to demonstrate value. The key here is to make a start and begin measuring. If you can’t measure you can’t improve.
  3. Provide data that helps businesses become wise consumers of IT services – This can be as simple as providing managers with the cost of their mobile phone or network use, reporting on the number of laptops and cost per laptop, and providing details of amount of pages printed or storage used. When managers can see how much they are consuming they can take steps to optimise their usage and costs. Start with more obvious services and then move towards other services where a greater proportion of the costs are fixed.

Demonstrate new business value

Hunter and Westerman  have identified the virtuous circle of IT value. IT value is created when IT understands business needs, develops a case for investment, drives business process or organisational redesign, and then develops applications to implement the design. As a result, the organisation realises the benefits from the investment.

CIOs commence the virtuous cycle by focusing on what is important. The first step usually involves clarifying the strategy. In what direction does  the organisation want  to go? What opportunities need to be utilised to achieve the organisation’s goals? What new capabilities are needed?

Once you know what is important to the business, the next step is to identify key processes (e.g. supply chain, risk management, and product manufacturing) where strategic uplift in performance is important. By working with the process owners, IT can analyse these processes and identify areas in which new technology can have the biggest impact. The discussion is not about IT, but about the business’s goals and performance.

IT can create new value in four ways:

  1. Helping make better decisions
  2. Improving or transforming processes
  3. Embedding information in products and services  to change value proposition and
  4. Changing how customers and partners interact with the organisation

By identifying the key management metrics used by the organisation enables IT to measure and demonstrate the improvement enabled by technology. This is the new value created by IT.

Adding Value Beyond IT

Hunter and Westerman argue that the CIO’s role is a potential launching pad for gaining more responsibilities in the business. The CIO has access to the strategies of all business divisions. The CIO also has the knowledge of all key processes occurring in the business, because the IT team is enabling and automating these processes. CIOs also typically possess the most capable project delivery teams in organisations.  Hence, it is logical that other divisions in the business will call upon the CIO when they are in need of a capable leader.

However, the transition to taking on more responsibilities in the business is not automatic. This transition requires effort. It also means that CIOs must seek opportunities to leverage their leadership experience by taking challenging and risky assignments outside of IT. Extending value beyond IT is not about technology it is about changing strategies and  leadership styles. As more and more IT functions are beginning to look like utilities, the challenge is to employ these ‘utilities’ to bring new products and services to market.  Some CIOs are already carrying multiple additional responsibilities, sometimes as a COO, other times by leading administration, procurement, or central services. A few CIOs have even become profit-centre managers or CEOs. The sky is the limit!

Final words

Demonstrating IT value is a difficult challenge, but Hunter and Westerman have described a pragmatic and well tested way of communicating IT value. The challenge for CIOs is to avoid the ‘value trap’ thinking and stay the course.

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