CIO ROUNDTABLE SERIES SHIFTING IT PERCEPTIONS FROM COST TO VALUE

A pioneering IT department can be a significant strategic and operational game changer. Yet Chief Information Officers (CIOs) are still often tasked with not only justifying IT costs, but also objectively demonstrating the measurable value of IT to the rest of the executive team. Mind Over Machines brought together more than 40 CIOs and C-suite executives from notable organizations including Gartner, Inc., U.S. Department of Homeland Security, and World Wildlife Fund (WWF), for a series of roundtable discussions, to better understand how IT leaders can 1) frame the value of IT and 2) effectively communicate that value to the rest of the enterprise and beyond. This paper presents challenging self-analytical questions CIOs can ask themselves, and their executive teams, to better measure and leverage their IT resources. The responses distill participating CIOs thoughts on and approaches to shifting the emphasis from cost to IT value.

CHALLENGE:

How can a CIO define IT value?

Every organization defines value specifically IT value uniquely, and no single metric can be used uniformly across all organizations. The combination of the enterprises primary mission and its culture determine value. Operational excellence cultures, like Toyota or Honda, may likely describe IT in terms of costs. An organization with a focus on service excellence (think hospitality industry) may offer an execution-based IT value proposition that is measured by technology-enabled client services. A company like Apple, with a culture of product excellence, might be in the most favorable environment for framing IT in terms of actual or measurable value. An innovation culture will actually feature IT as the key component that can add significant value and differentiation, for instance Facebook or Pixar Studios. To demonstrate value, business-appropriate metrics must be adjusted to fit the dominant excellence orientation. The CIO must understand the organizations value proposition and cultural disposition before framing the IT discussion in terms of value.

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CHALLENGE:

How can a CIO demonstrate IT value?

IT is ubiquitous. It is one of the few departments that connects every business unit within a company. The CIO must create relationships with several senior executiveseach of whom will likely have a distinct set of divisional priorities. Effectively demonstrating ITs value across the organization starts with these relationships. Break down the silo walls! Because the CIOs know the needs of both the business units and the company as a whole, they are uniquely positioned to influence and communicate the use-case for IT initiatives. Facilitating the individual goals of a business unit leader, while delivering the highest degree of benefit to the entire enterprise, can be an extremely powerful lever in shifting the perception of IT from cost to value.

CHALLENGE:
TIP:
ROI PROJECTIONS

What is the best way to handle the cost argument?

Building a strong trust relationship with the C-suite, and specifically the CFO, is key to developing an IT value environment. Practically, the CFO controls the finances, and without proper funding, IT service levels can deteriorate and the CIO can lose support across the company. Further, the rest of the C-suite often depends on the CFO when evaluating the CIOs effectiveness. In many organizations, however, the CFO lacks IT expertise. And often the technology department is perceived as a cost center that needs to be controlled. Hearing that an IT initiative costs too much is a common frustration for CIOs. One roundtable participant reported asking his executive team, How do you know [my division] costs too much? This gets to the root of the issue between cost and value. If the CFO knows the CIO is driving value in the organization, the conversation changes from a cost discussion to one that tries to maximize the value that technology can deliver. How can CIOs shift the conversation from cost to value? Make the business case. Regardless of the year, in good times and bad, the CIOs top priority should always be to align IT initiatives with business objectives. Ultimately, this is subjective. If the executive team has confidence that the CIO is furthering strategic priorities, the discussion more easily moves from cost to value.

When developing ROI calculations, consider the total cost of ownership, i.e., the future costs of an initiative as part of getting approval for the project. Unless this is computed and communicated up front, it will be more difficult to explain why run-the-engine expenses increase, while unit costs for hardware, software and services decrease each year.

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CHALLENGE:

Measuring IT value that directly relates to organizational strategy

Increasingly, technology is not just how, but also where, business gets done. Creating and maintaining a secure environment that enables business to run smoothly is inherently valuable. Yet maintaining the status quo is not perceived as a value. As a roundtable participant reveals, Internal customers tend not to think about IT until something goes wrong. That only goes to show that the rest of the time the IT department is right on. This type of reactive thinking creates a culture wherein IT value is determined largely by intangible metrics, such as: Nimbleness the ability to react quickly and anticipate needs.

Time to answer is it easier and faster to ask someone rather than to use the technology? Alternative cost number of hours (and/or people) technology has replaced. These metrics, though important, are difficult to measure, and dont align IT with overall organizational strategy. To gain a better perspective on how IT enables top-line revenue, or makes operations more efficient for internal customers, CIOs should recruit business unit leaders and project managers who can speak to their relevant pain points. Some measurable metrics to consider include: Cost effectiveness e.g., average fully loaded cost per resource vs. the competition Success factor e.g., project completion on time, on budget, on scope vs. competition (or prior years) Speed to market e.g., how many days on average to deliver $50,000, $100,000, $500,000, $1mm projects vs. prior years Speak the language of the business unit leader before starting any discussion. Cost, quality, and speed metrics will be significant in most organizations.

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CHALLENGE:

Bridging the gap between CIO and CEO

CIOs often see IT from an operational perspective: Is the data center running? or from a delivery perspective: Are my projects on time? From the CEOs perspective, IT value stems from overall success: the ability to accelerate strategy, reduce risk, and maximize profits. To keep both parties on the same page, the CIO needs to align all IT requests budget or otherwisewith the CEOs larger strategy. Linking the IT departments operations directly with the companys strategy and success is very important. Enlightened CIOs make this connection and seek opportunities to drive company strategy through technology. CIOs should leverage their relationships with other C-level executives and business unit leaders to ensure that value metrics are presented in terms that are easily understood and measured. This could mean making joint presentations in which the business unit partner explains the need and the CIO explains the solution path. Bridging the gap between the CIO and CEO will be easier with the support of other C-level executives and will help align requests with the CEOs strategy.

CHALLENGE:
TIP:
Include decommissioning costs in new project estimates.

Demonstrate IT value through reporting

Increases in productivity and new capabilities made possible by IT are significant metrics that demonstrate IT value, but typically they are not measured. The same is true for the elimination of shadow systems and other process improvements, which also clearly deliver IT value. So what can we measure and report on?

Whenever duplicate systems are not decommissioned, ensure the additional expense of connecting the new system to multiple duplicate systems is made visible in the cost of any new implementation. Breaking that cost out separately will highlight the need for decommissioning.

One solution is to measure real-world results against the initial business case after the new system is well adopted. This requires setting concrete, measurable goals (e.g., ROI) at the start of a project. Analysis might show that the system or project provided even greater value than anticipated. A formal revisiting and in-use analysis also creates an opportunity to learn how better to leverage a tool or where to make incremental improvements that can deliver big impact and increase value. The communication goal of CIOs should be to translate soft benefits into hard, quantifiable results like quality improvements, increased customer satisfaction, return business, client retention, and increased volumes.

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CONCLUSION:

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QUESTIONS / INFORMATION

Transitioning the corporate concept of IT from a cost to a value orientation is not only possible, but also critically important. IT is the medium through which all business gets done. Companies that perceive IT as a high-value resource tend to use standard metrics to measure its impact. In some cases, the integration of IT with business units is nearly complete. For example, one roundtable CIO reported, We dont do IT projects. All our projects are business initiatives that require technology to function. We make a concerted effort to talk about what we do only as business efforts that move our CEOs strategy forward. By working to better align IT with business goals and to more accurately communicate ITs value, CIOs can make significant contributions to the success of their organizations and raise their strategic profile in the C-suite.

If you have questions or would like more information on IT Value metrics, visit mindovermachines.com or call 410.321.4700.

ABOUT MIND OVER MACHINES:

Mind Over Machines is a consulting and technology services firm that believes people-focused information systems can make the world smarter, more productive better. Combining business analysis and human insight, Mind Over Machines envisions and engineers game-changing information systems for commercial and government clients. Clients include Broadridge Financial Services, the National Committee for Quality Assurance (NCQA), the National Institutes of Health and the U.S. Department of Health & Human Services. Repeatedly named among Inc. 5000s fastest growing companies, Mind Over Machines was also formerly named by the U.S. Chamber of Commerce as Small Business of the Year for the Eastern Region.

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