Naked Truth About Enterprise IT Value
When I read about the latest and greatest approach for proving enterprise IT value, I find myself thinking about the Hans Christian Andersen story about the emperor's new clothes. In the story, the emperor is convinced to have new clothes made out of special cloth that can only be seen by very intelligent people. Not wanting to admit he couldn't see the cloth, the emperor wore his special new clothes out in public. The townspeople, not wanting to show their ignorance, cheered wildly for the emperor's beautiful new clothes - until a small child exclaimed, "the emperor is naked!"
Okay, I'm not saying anyone is naked, but I do see a lot of confusion about how to get maximum value from enterprise IT resources and expenditures. CIOs and IT leaders are desperate to prove IT is creating real value for their enterprises, so they quickly adopt the latest magic formula for proving enterprise IT value.
I have spent the last ten years researching enterprise IT value and I have some bad news. There is no magic formula
for proving IT value - because enterprise IT has only limited ability to actually create value. Enterprise IT is a
service provider and its services produce little or no real value for the enterprise. Value is created by enterprise
IT's customers using IT resources and capabilities to improve the overall performance and profitability of the
enterprise. That's kind of what Nicholas Carr was trying to tell us when he wrote his
controversial "IT Doesn't Matter" article.
The Solution
Based on my own experience and research, I am convinced a customer-driven approach is the best way to get maximum value from enterprise IT resources and expenditures. Instead of chasing after magic formulas for proving IT value, CIOs and IT leaders need to work with their customers to ensure IT produces maximum value for the enterprise.
I advocate creating a customer-driven, value-based enterprise IT governance framework. Here are three key components of the framework:
Tie IT Resources to Resource Drivers
The most important component of the customer-driven, value-based framework is tying IT resources to the activities or processes that use the resources. That means breaking out IT resources and expenditures for infrastructure, specific applications and support.
Tying IT resources to resource drivers provides an overall view of exactly how enterprise IT resources and expenditures are being used. Having a clear understanding of how IT resources and expenditures are being used is the only way to ensure IT resources and expenditures produce maximum value for the enterprise. Tying IT resources and expenditures to resource drivers also provides a basis for determining if redeploying IT resources or retargeting IT efforts could produce more value for the enterprise.
Track Cost Effectiveness
Another component of the customer-driven, value-based IT framework is tracking the cost of the enterprise's critical business activities and processes, breaking out IT and non-IT costs. That means tracking the cost of everything that is important to the enterprise - obtaining new customers, producing products, processing transactions, providing customer service, hiring employees, analyzing information, providing administrative functions and other critical activities. For example, the cost of processing a certain type of transaction might include labor, telecommunications, IT and overhead cost components.
The first step in tracking costs is to establish baseline costs for each activity and process. Then the costs can be tracked to see how changes in the IT cost component changes the overall cost of each activity and process. Tracking the IT and non-IT costs provides a basis for seeing if IT is helping to improve the cost effectiveness or performance of critical business activities.
Ask Customers
Since creating value involves more than improving cost effectiveness, another component of the customer-driven, value-based framework is asking IT's customers to regularly rate IT's performance in helping to create value - and asking IT's customers for suggestions on how IT can help create even more value.
Since IT's customers are the key to actually creating value with IT resources and expenditures, IT's customers are in the best position to judge IT's role in helping to create value for the enterprise. Actually, IT's customers are the only ones who can determine how effective IT is in helping the enterprise create value.
Moral of the Story
There is no magic formula for proving enterprise IT value. The best way to ensure IT resources and expenditures are producing maximum value for the enterprise is by creating a strong IT/customer alliance. The customer-driven, value-based IT governance approach is not easy - it requires commitment and effort - but it works.
Bruce Skaistis is the founder of Skaistis Consulting. He began his career as a consultant with Arthur Andersen and was CIO of a large bank group before forming his own management services firm.
Skaistis Consulting provides specialized support to help organizations successfully complete critical business and IT initiatives, optimize outsourced functions and maximize enterprise IT value. You can find out more about Skaistis Consulting at www.skaistis.com.
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