Moving beyond IT Cost to Business Value!

I have been meaning to read KPMG‘s From-cost-to-value-2010-global-survey and today’s CIO Article by Beth BacheldorOutsourcing IT Must Create Value Worth More than Simply Savings, combined with a break between working on a couple of case studies (yes, of course, about value from IT) gave me the opportunity to do so. I don’t intend to review the whole document – it’s only 32 pages, many of which are pictures – but I do want to highlight and comment on what I see as the key points.

The management summary states “In the next few years, CIOs envision a shift in focus from cost efficiency and compliance to value creation and innovation“. I will avoid launching into my usual rant here, but would suggest that those CIOs who are not already well into doing this should be seriously reviewing their career options. The summary goes on to say “The days when IT was seen merely as a means of improving efficiency seem behind us. These days, IT contributes directly to realising the business strategy and has a central role in management. According to CIOs, this requires the distance between the business and IT as small as possible.” Again, I’ll hold the rant, but in organisations who ‘get it’, this has been the case for many years.

The survey goes on to present “eight clear conclusions” which I believe, ranting aside, organisations and their leaders would do well to heed. I will not go through each of these, but rather provide an overall summary (where I have included statements directly from the conclusions these are in bold):

  • IT is no longer about cost cutting – it is about creating value – IT value dominates the CIO agenda. Absolutely! Study after study show, and my experience would certainly support that organizations that are laser-focused on value outperform those that fail to do so. However, there is a danger here of falling into “the tyranny of ‘or’ vs. the beauty of ‘and’ trap, i.e. forget cost and think about value. The survey recognizes this saying that “Cost optimization remains important“. Of course it does and must continue to do so. We should always be looking for opportunities to reduce costs – but must do so in the context of value. The fundamental question that we should be asking is: Are we maximizing the value of our investments in IT-enable change (see my next bullet for more on this) such that we are getting optimal benefits, at an affordable cost, with a known and acceptable level of risk? The underlined words are carefully chosen. If we attempt to maximize all benefits, many of which are in conflict with each other, the result is sub-optimal. If we seek lowest cost, risk goes up. If we avoid risk, we fail to make the changes required for our organizations evolve and grow. Leading into the next bullet, as a Chief of Staff of the US Army once said: “If you don’t like change, you are going to like irrelevance even less.
  • IT value is not only about technology – people are the success factor behind IT value. Right on! IT, in and of itself has no value beyond what you can get for it on ebay – as we discussed in The Information Paradox, it is the change that IT shapes and enables that creates value. It is how we manage and use technology – more specifically how people use the information that technology provides – that enables that change and creates and sustain business value. How well this is done determines the success or even the very survival of organizations. This is far too important to be abdicated to the IT function but, unfortunately, all too often – in organizations that don’t ‘get it’ – this is the case. As the survey says: “Successful IT value creation needs to integrate and align the organization’s Technology, Processes and People agendas…CEOs and CIOs need to ensure that sufficient importance is attached to these aspects during project initiation.
  • Do not expect IT value from a CIO with an operational profile. A CEO once asked me “Why is it that whenever my CIO talks to me he only wants to talk about technology?” My response was “Because you let him!” As the survey points out: “The daily focus of a CIO depends to a large extent on the sector in which he or she operates. In addition, the results show that a CIO’s agenda is also determined by his position in a organization.”  There is, however, also the question of the CIO’s ‘comfort zone’. While somewhat unbelievable, given how long we have been talking about this, it is  regrettably true that there are still many CIOs who either don’t want to engage appropriately with the business, or are simply not capable of doing so. On this topic, KPMG provides a view on CIO competencies: “A CIO should have four important competencies. First, the ability to think like the organization’s customers and to understand clearly what they want. Second, the ability to obtain a good understanding of relevant technology trends and identify their specific business benefits. Third, the ability to manage IT investment for value creation. Finally, the ability to connect well with the organization’s business leaders, to help them unravel he mysteries of technology.” Although not a highlighted conclusion, there is an interesting discussion in the document on the merits of rotating people between IT and the other parts of the business. I have long been a proponent of this and echo the comments of Maarten Buikhuisen, IT Director Western Europe for Heineken Breweries when he says: “The general manager of the future has worked in IT.” (Tesco’s new CEO would certainly be a recent case in point.)

The survey covers a number of other topics, including process improvement, risk and compliance, and new ways of working including collaborative tooling and cloud computing, but I will restrict my commentary in this post to the above. Overall, ranting apart, I found the survey to be a very useful and well written document – one that is relevant to all executives, not just CIOs. They would do well to read and study it carefully.

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  1. […] ¡Moviéndose más allá del costo de TI al Valor de Negocio! – Por John Thorp 30 Junio, 2010 — Carlos Francavilla ¡Moviéndose más allá del costo de TI al Valor de Negocio! – Por John Thorp […]

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