While most information technology (IT) organizations are constantly struggling to demonstrate cost savings, too few are focusing on ways to add value to the business. Alignment with the business is where the emphasis should be for IT departments.
CIOs today are actively involved in divesting business processes, and partnering with new offshore providers in countries like India and China. In fact, many CIOs are making tremendous strides toward running IT organizations like a well-disciplined business. Yet, the perception within many companies is that IT costs too much and does not understand the business.
Business leaders read in the popular press today that IT is no longer “strategic” because information technology has become ubiquitous. When something really becomes ubiquitous, it no longer can be a differentiator. According to Nicholas Carr, former editor of the Harvard Business Review, “IT systems have become commoditized, to the extent that competing firms are on a level playing field when it comes to the deployment of IT.”
A more accurate assessment is that IT is more strategic than ever and it is the very ubiquity that allows a business to transform in new dimensions, be unique and be competitive in the global marketplace. Yet there continues to be a gap in alignment between IT and business. Surely, the role of IT is changing and taking a new shape. IT organizations need to weigh the strategic choices they can make to improve service delivery process and thereby improve their value to the business.
New Role of IT
There are three main drivers which CIOs must consider:
- As service-oriented architecture becomes popular and accepted, divesting or deploying modules and processes will continue to increase. Thus the demand for internal development staff may not be high.
- Use of outsourcing continues at a faster pace than ever. A lot of technical jobs in the most industrialized nations are being outsourced to countries where labor cost is far less and at the same time there is an abundant high-skilled technical resource base for faster scalability.
- IT organizations no longer need to have as much emphasis on technically skilled staff. They need to have more business-savvy professionals.
These cultural shifts are transforming IT into a more service-oriented and yet business value-driven role. CIOs must demonstrate that IT is enabling business improvement rather than just implementing the newest technology.
Adding value to business should mean how IT can help transforming the business and enabling the business to achieve higher revenue, lower costs or improve customer satisfaction. Adding value also is about minimizing waste in the service delivery process.
For example, imagine that a company needs to implement a new CRM solution within 10 months. The process would probably include such activities as: needs assessment, request for proposal (RFP), evaluation, selection, contract awarding, design, configuration, development, testing, training and deployment. If any of the events related to this process could be eliminated or minimized, it would improve IT’s ability to deliver early and thereby would add value to the business. Research shows that changing priorities, excessive paperwork, backlogs, long turnaround time, slow decision-making, lack of training, defects, excessive processing and waiting can take up to 30 to 40 percent of the overall time of a project. Therefore, a value-added process for service delivery would essentially focus on improving the process efficiency by eliminating waste and bottlenecks.
Value stream mapping, a Six Sigma-based concept and tool, is extremely effective in allowing organizations to reduce cycle time by using knowledge of the process flow and the information systems that supports the basic process. Value stream mapping was originally designed to improve manufacturing productivity by eliminating waste. However, its applicability can be to a wide range of other business process improvements. The technique is to produce a map which visually illustrates the flow of any process, from the time it starts, through all its steps, until the final outcome or finished product. Using this technique, one would depict the current state while also focusing on the future state, which can serve as the foundation for process improvements.
The figure below is an example of the current-state process map of “a need-to-contract award process.”
Based on the current-state map, the future-state process map should reflect a reduction in cycle time as a result of eliminating slowness in the decision-making, improving the efficiency of reviews, and eliminating redundant steps in the process. (INDICATE EXAMPLES OF STEPS)
“IT organizations have not done a good job of quantifying what they’re able to deliver,” according to Michael C. Mah, managing partner at QSM Associates. “Most projects overrun, and most people aren’t able to estimate correctly,” he explained in an article in CIO magazine. “That drives [executives] to say, ‘If you guys are always late and always coming back to the well for more money, what’s the value of IT? What’s the outcome here?'”The good news is that measurement is not something new to IT – MIPS, Megs, uptime, SLA, utilization, cost, schedule and the like are common to all. The bad news is that none of these measures link to the business goals or company strategy. Thus, they do not matter to business leaders.Modern thinking is to allow IT to use more business-oriented measurements. These provide greater insight to the leadership of the business and links the benefits to the business goals and objectives. Several approaches and tools are useful in this regard:
- Applied information economics (AIE) allows measurement of uncertain outcomes.
- Balanced scorecard allows a direct link between business strategy and financial performances.
- Customer index determines value by tracking revenue, cost and profit on a per-customer basis.
- Economic value added allows a company to track IT revenue as well as costs.
- Economic value source allows four-way value measurement – increasing revenue, improving productivity, decreasing cycle time and decreasing risk.
- Portfolio management allows IT projects to be managed as portfolios, much as an investor would manage stocks, bonds and mutual funds.
Among these approaches, the most powerful and popular way to express IT progress to the business leadership is the balanced scorecard. The financial metric is balanced by three more dimensions, such as, customer, learning and growth, and process and operations excellence. Of course, implementing a valuation tool like the balanced scorecard requires buy-in, from senior executives all the way to entry-level employees. In reference to the results of using a balanced scorecard, Linda Bankston, CIO of DuPont Engineering Polymers, told CIO magazine, “It really changes the conversation between IT and business. The conversation is around strategy and impact, rather than just whether you can or can’t do something.”
The Bottom Line
The success of communicating the value of the IT service delivery process is when the CIO presents the business benefits and how these fit into the overall company strategy. Measuring the impact of IT in business must be a continuous give-and-take between business and IT. The CIOs who report to management the value of IT in terms of business will make a better case for showing the alignment of IT with the business.