Ask the Experts
Ask the experts is a column in the Financial
Times IT Review supplement, which focuses on addressing IT issues faced by
business leaders. This short article, written by Auridian’s MD and founder, Ade McCormack, appeared in the 22nd
September edition.
"How
can I ensure we are getting best value from our IT investment?"
Smart business leaders look at their investments in terms of
the value derived. Consider a day trip to the seaside with the family. Is this
a good investment of your time? And should the value take into account the fond
memories it will generate? And perhaps even the number of times the memory is
recalled? And so it is with IT, everyone knows it requires investment, but
nobody seems to know how to measure the associated value.
Many corporate reporting structures have the CIO reporting
to the CFO, who typically likes progress expressed in hard numbers, ideally
currency denominated. Traditional measures such as ROI (Return on Investment),
ROCE (Return on Capital Employed) and TCO (Total Cost of Ownership) will work
if one can isolate what elements of business efficiency/productivity can be
attributed to the IT department. And then there is the delicate question of
when the measurement of ‘return’ should cease.
For me the ultimate financial measure is whether a dollar
invested in IT yields more than a dollar in value. Today many IT departments
are judged on whether they are delivering the same level of service as last
year for less money (cost management), which as a sole measure is unlikely to
lead to much by way of innovation. CIOs are groomed to be risk averse, though
this is used in a relative sense, given the inherent riskiness of anything to
do with IT.
Possibly measuring the ratio of IT spend against operating
profit will yield something meaningful and create a positive innovation
tension. It will certainly encourage the CIO to engage with the business and
share the IT leadership burden with those outside the IT department. To support
this, it is recommended that the functional heads report progress on how they
are using IT to deliver value. You won’t get the answers expressed in pounds,
shillings and pence, but it will provide a strong indicator as to how well the
IT department is aligned with the business. Conducting regular ‘shop floor’
surveys to establish ‘customer satisfaction’ levels will also be informative.
Something more radical would be to measure the IT department
on its profitability. That’s right. Turn that money vortex into a profit
centre. Option one, your IT department charges the business for the service.
Though that takes us back to the value question. Option two is to actually
‘white label’ the IT department’s offerings to the wider market. If for example
you run a global bank, why not offer your back office capabilities to a
regional bank? Let’s face it, if you are global then IT is a core competency
and your IT department should be ‘world class’. But a simpler option would be
to unleash the intellectual property hidden in the way that you use IT. With
minimal effort your key IT processes could be documented and licensed to
aspirant players. The Pareto Principal suggests that most of your IT processes
would be of use to most organizations in any business sector. What a market!
This is likely to become a real opportunity as the BPM (Business Process
Management) market matures. Consequently it will be another dimension through
which to leverage value from your IT investment.
In conclusion, whilst there are ways to mine more value from
the IT investment, there is no absolute value measuring approach. Perhaps just
like the day trip, the true measure of value is the extent to which the ‘users’
are satisfied. Assuming the business processes are in order, satisfied users
equate to productive users. That’s got to be valuable.
Ade McCormack
ade@auridian.com
