Florian Krueger

The (un-)negotiable value of IT

In Common Sense, IT, Management on November 26, 2010 at 2:56 pm

Have a laugh. Have everyone around you define the value of IT in one sentence. I mean it, do it and do it now. This is just too funny to be missed.

The answers I got so far are:
– What’s the question?
– 42
– I’ve been searching for that for all my life
– Whatever I tell you it is…
and so on and so on.

And just so we are clear, I did not ask the average Joe down my local Pub, but I’ve asked people I trust, people that are typically capable of formulating a thought that is related to the IT in general and are all together earning their money in the IT space. I’ve asked around our offices within the CIC (Cambridge Innovation Center) a place that screams IT and screams brainpower… right I’m the exception here ;-)…

Sadly, my findings where exactly the same as with the vast majority of most clients and prospects, namely CIO’s and Enterprise Architects etc. of the Fortune 2000’s of this world. There is a huge hole in the understanding of what it is that the IT actually contributes in terms of measurable value. How can this be the case after so many years of building systems and measuring the slightest deviances in all possible scenarios across a wide range of KPI’s etc.?

Now – did it get easier over the past years to define the value by looking at bundling information into application portfolios, or service-oriented architecture landscapes?
Did the “Business” get any better in describing what it wants?
Could cloud-based solution-models help people to communicate and collaborate in a new way and therefore eliminating the need of defining the value of IT, because the perception has changed? (And what on earth are they anyway and who gets to call something cloud-based? ROFL)
I don’t think so.

Net of the matter is: Stuff gets more and more complex and consequently complicated and the missing links between the business and the IT are still not the exception, but vice versa.
This is one of the many reasons, why the value of IT has not been agreed upon, or valid suggestions have been made in terms of defining a way how to measure the same.

But, you will never see the light of that day, where I introduce a problem without presenting at least an idea for a solution and yes, again you are right this has to do with self promotion. 😉

IMHO there are three important building blocks for measuring the value:

1. Quantitative Value, consisting of
a. The change in operational expenditures aka OPEX (does it become more, or less expensive to keep the lights on?)
b. The effect, or impact that your CAPEX, or capital expenditures have and the resulting impact on OPEX
2. The Qualitative Value, meaning
a. Degree of Automation
b. Process Maturity
c. Applied Compliance and Security Management
d. Incorporation of Innovation and Change Management Best-Practices
e. Internal and external Level of Satisfaction
3. The Return on any Investment

The Quantitative and the Qualitative Value are only in so far depending on one another, as they depict the overall maturity of an organization in terms of its Business-IT-Management capability. The ROI is detached and simply describes the value as an asset which is, or is not becoming profitable.

To apply this approach one needs to do three things:

1. Conduct an assessment of one’s trailing OPEX and CAPEX over the past years and the reasons for its development / internal skills to manage it
2. An assessment of the state of the IT in the 8 different domains, which are
a. Transparency
b. Road-Mapping
c. Consolidation
d. Business Orientation
e. Governance
f. Program Portfolio Management
g. Finance Management
h. Strategy Alignment
3. An assessment of the planned investments and the projected ROI

I have consulted on this matter extensively and I don’t claim to have the keys to the castle, but I have not seen someone combining these different thoughts, to come up with one solid statement, like:

The value of our IT during the next year is 12.87% of the EBITDA and any percent of failure equals a 4.1% reduction of the above, which means that the planned 3.7 Billion investments on XYZ are a wise choice.

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