The team and I at Ventana Research through development of new research agendas for 2009 have identified business and technology thematic topics that will be critical to all organizations. These topics will be critical for business and IT to be more educated and savvy on how to leverage them for their organizations. These are our assertions and not just predictions for success in this year and we remain optimistic that business can drive significant change in how they use information and technology to advance their processes and people who operate them along with management who need better tools for being effective in their decisions.
IT for Business Value
“Governance,” when it comes to information technology, focuses heavily on restricting capital spending but usually fails to understand and optimize the value of the existing portfolio of IT capabilities and assets. Companies can measure the total cost of their IT spending but they have an imperfect understanding of what drives those costs (http://www.ventanaresearch.com/blog/commentblog.aspx?id=2909). Equally important, they have a limited understanding of the benefits they are deriving from their IT portfolio. Organizations that have minimum service level agreements may think they are user-centric when they’re not. What’s the value of 99.999% availability of an application that fails to deliver operational capabilities that competitors already are offering? CIOs that want to increase the strategic value of information technology in their company must begin to focus on measuring the value of IT capabilities to the business, both for line-of-business executives as well as the finance organization.
The challenge of unlocking strategic and operational value from IT investments begins right after the investments are made. Typically, advocates prepare a rigorous business cases for the money to be spent acquiring capabilities (such as applications or hardware). However, our research finds few organizations ever follow up to determine whether that business case was satisfied. Moreover, these business cases focus mainly on direct cost savings to determine the value of an investment. While this approach makes sense for pure infrastructure (such as servers and storage) because these reduce the cost of delivering needed capabilities, it has nothing to do with the capabilities themselves and the value to the company. The value derived from consolidation software, for example, lies in closing the books faster, thereby providing actionable information sooner as well as reducing the risk of errors and non-compliance – activities that promote necessary effectiveness, not efficiency.
CIOs must have ways to measure the business benefits of existing and new IT investments to deliver business value,including their ability to manage risk. They need to work with their “clients” to establish metrics to assess how well information technology is supporting business units, finance and other administrative elements. This is an important first step to understanding how IT can deliver value as well as give the CIO a much more useful way to concretely demonstrate the value of IT spending. Value that should be measured in the context of achieving key performance indicators and avoiding key risk indicators. CIOs that have this capability will be able to demonstrate the value of the money spent on IT, shift spending to areas that business managers see as important and away from those that they do not. Our research shows that companies that have formal processes and used metrics to drive them were more likely to spend their IT dollars effectively. Moreover, the research shows those CIOs that are viewed as good stewards of IT spending are rewarded with faster growth in IT budgets and are able to spend a higher percentage of their budget on innovation, rather than maintenance.
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