By Katie Hynan
“IT Doesn’t Matter.” This simple statement served as the title of Nicolas Carr’s provocative 2003 HBR article. The premise of the article was straightforward: IT services have become a commodity that can be provisioned over the internet and through a variety of external vendors versus expensive and unresponsive internal IT functions.
Fast-forward 15 years—information technology has significantly transformed how we play and win in our targeted markets. Whether B2B or B2C, information and the technology that enables its flow, access, and insight forms the foundation for how we run our businesses and how customers engage with us and our products and services.
Now more than ever, CEOs expect their IT functions to enable profitable growth, innovation and the cost-effective management of IT risk to realize a higher return on their IT investment. Meeting these expectations requires internal IT functions to move beyond operating as a reliable utility and transform into a strategic business partner that materially contributes to the success of the business. To make this transformation a reality, CEOs need their IT functions to:
This article shares perspectives for CEOs on areas to hold IT accountable, ensuring its relevance and delivery of optimal value. In future articles, we will share our perspectives on the actions CEOs and business leaders should take to re-equip, re-position and re-align the IT function to deliver greater value.
Re-establishing IT’s relevancy and value requires your company’s CIO to answer three central questions:
Question #1: What does the business actually spend on information technology?
Most companies do not have a clear understanding of their total IT investment, especially if they fund and pay for IT at a business unit vs. enterprise level. Frequently, they have no clue on the hidden costs of “Shadow IT”, which represents money spent by the business on information technology that is not visible to or controlled by IT. Shadow IT increases not just direct costs but also indirectly raises the cost to run IT itself due to the complexity it brings to the overall IT environment, not to mention the increased business risk associated with managing and maintaining it.
CEOs should ensure their IT functions provide visibility into all costs, including internal and external labor, hardware and software, outside services, facilities and power, and telecommunications. While potentially awkward and upsetting, the function must also understand and quantify Shadow IT and its implications on total IT spend.
Question #2: How do these IT investments directly support the company’s business strategy?
With a more complete understanding of total investment, IT should determine if it is investing in areas that enable the company to realize its strategic goals and objectives around Growth, Profitability, Innovation and the effective management of Risk. This requires a fundamental understanding of what drives value in its business and how IT can enable this value.
Axiom Consulting Partners’ IT Value Framework helps our clients understand the connection between the business needs that information technology should address and the value addressing them creates for the enterprise.
CEOs can use this framework to ensure the company’s portfolio of IT investments aligns with and directly supports the achievement of business strategy, goals, and objectives by engaging their CIO and business leaders on the following questions:
Question #3: Are we realizing an acceptable ROI? If not, what should be done to improve it?
Mapping IT investments to the Value Framework is requisite, but not sufficient to understand ROI. Understanding ROI requires IT and the business to define and quantify the expected return on investment as part of defining the business case and project scope for each IT investment. Sounds like a no-brainer? It’s not.
Most IT organizations and their business clients look at IT expenditures through a project cost lens and do not understand or forecast the total cost of ownership (TCO) over the life of the investment like is done for many other CapEx and large OpEx investments. Like many investments, the bulk of the cost comes in the operation and use of the asset, not in the acquisition or installation. IT investments are no different. Even if TCO is understood, IT functions that do not have a clear and credible line of sight to business value are unable to complete the equation.
It is easier to define and quantify ROI on investments directed towards Growth, Profit and Innovation as impact is tangible in terms of revenue cost and productivity. Quantifying the ROI for risk management related investment is more difficult as these may be necessary to avoid costs that are not clearly quantifiable. While difficult, IT and the business should press to develop credible assumptions on this cost avoidance in order to make an informed decision on the type and level of investment.
Does Your IT Function Still Matter?
Answering Carr’s central question is more important now than ever, as information technology is at the core of how we run our businesses and how customers engage with us and our products and services. Re-establishing the function’s relevance and value is the first step in ensuring your IT function matters.
Our next article will focus on re-equipping the IT function with the required capabilities to deliver on its value promise. In the meantime, we invite you to share your perspectives on the topic.