Value-Driven IT

As  the weather did not fully cooperate on the last week of my vacation, I spent some more time catching up on my reading, including reading Cliff Berg’s Value-Driven IT. I have to admit that Cliff sent me the book some months ago, but it has lain too long on my desk while I travelled the world. I am glad that I have taken the time now.

The overall thrust of the book – as described in it’s sub-title is Achieving Agility and Assurance Without Compromising Either. Cliff describes himself as “…an IT architect at heart, but one who has had business-level responsibility and who appreciates the business side of things.” In the book, he “makes the case for connecting business value with IT efforts” and goes on to recognize that “this has been tried countless times before, but today only a minority of firms are able to make this connection. It is a hard problem, and the gulf between IT and the business is as great as it ever was. The view from the ground is not pretty: ground level IT staff have a deep disrespect for policies, compliance, paper processes, and indeed for the entire mindset that is represented by the parts of the business that represent these. This is due to ignorance and a lack of communication between these two important parts of the business. The view from the middle is not pretty either: mid-level executives in IT and in  business units do not know how to change their organization s to address the resistance that they experience when it comes to implementing change. Finally, the view from the top is best characterized as misinformed: executives think that their IT staff have a handle on their technology and the executives do not realize how far their people are from having the skills that are really needed to get the job done.”

The book has four main premises:

  1. Business Agility – lead by a potent champion for change, with a mission to ensure consistency;
  2. Assurance within IT with regard to risks – with the champion for change introduced above having a mission to ensure that all enterprise concerns are addressed in a balanced manner;
  3. Accountability (transparency) for IT decisions – focusing on quantifying and measuring the business value of IT choices, recording the reasoning behind IT decisions, and measuring the actual value produced by IT; and
  4. Amplification – increasing IT’s value by using IT resources to amplify the effectiveness of the rest of the organization and being more transparent about IT’s value when this amplification is achieved.

Implied (and made explicit in the book) in these premises is that business value needs to be integral to IT. Yet, Cliff shares my view of the current state of IT governance saying that “the term ‘IT governance’ as used by the IT industry is a legacy of the separateness between business and IT.” As Mark Lutchen, says in the Foreword to the book: “Business value and IT – For some executives, even placing those words in the same sentence can be considered an oxymoron. Others might argue that you can focus on achieving business value and get it right or you can focus on delivering IT and get it right, but never the twain shall meet. I would argue that the real imperative within organizations today is to ensure that business value and IT are so commingled and intertwined with each other, that to not focus on getting them both right or to not understand how dependent each is upon the other, is to set up your organization for potentially disastrous failure.”

I couldn’t agree more. Having, over the last couple of weeks, read this book, and Stephen Jenner’s Realising Benefits from Government ICT Investment – a fool’s errand, which I discussed in a previous post A Fool’s Errand, I am pleased that more practical guidance is being offered in this space. At the same time, I am once again left wondering just how many more books need to be written about this topic before more than a minority of enterprises start doing this. To repeat Donald Marchand‘s conclusion in his testimonial to the Stephen Jenner’s book: “The big question is will [public sector] managers and executives have the “will” to put the book’s prescriptions and methods into everyday practice with ICT projects?” History would suggest that we still have much work to do before this happens – and not just in the public sector. Much of what I and others have been espousing over the last 10 – 20 years, and what Stephen and Cliff present in their books, is common sense – unfortunately, as I said in my last post, common sense is still far from being common practice!

Why is this?  As discussed by Jeffrey Pfeffer and Robert I. Sutton in their book The Knowing-Doing Gap, “…there [are] more and more books and articles, more and more training programs and seminars, and more and more knowledge that, although valid, often had little or no impact on what managers actually did.” There are many  proven approaches available to address the challenge of realizing business value from IT investments, including, but certainly not limited to Val IT™, yet adoption of these approaches continues to be limited and, as a result, value from IT investments remains elusive. One of the key findings presented in The Knowing-Doing Gap is that knowledge is much more likely to be acquired from ‘learning by doing’ than from ‘learning by reading’ or ‘learning by listening’. If we are to move beyond reading and listening to taking action, we need to focus on understanding the behavioural constraints to adopting such solutions, and identifying and implementing approaches to overcoming those constraints. Ultimately, as I discussed in an earlier post, Managing Change – The Key to Delivering Value, it all comes down to changing people’s behaviour – from the Board to the front line.

IT Value Remains Elusive

In a previous post, I discussed the US results of a short ISACA survey – which I helped to create – around “Value of IT Investments”. The global results have now been released.  The nine-country survey of 1,217 IT professionals reveals that while enterprises worldwide believe they are realizing value from their IT investments, it is difficult to understand how they can be sure as fewer than half of the respondents believe that there is a shared understanding of what constitutes value across their enterprise, and two-thirds don’t have a comprehensive approach to measuring value from those investments with 10% not measuring it at all.

The survey also showed a lack of business accountability for value from the use of IT in that 49 percent of respondents stated that the CIO or IT managers are responsible for ensuring that stakeholder returns on such investments are optimized. Only 15 percent said responsibility lies with the board, 11 percent the CEO and 9 percent the CFO. Remarkably, 8 percent said no one was responsible.

The results  raise the question, ‘On what basis are spending decisions made?’ Enterprises that do not have clear business accountability for the realization of value from their increasingly significant and complex IT-related investments, and do not fully measure value are unable to determine which investments to undertake, which are successful, which require corrective action, and which need to be  cut—and thereby are likely to miss out on revenue-generating opportunities, pursue unsuccessful investments and miss opportunities to gain competitive advantage.

These findings support the results of a number of other studies, anecdotal evidence and my own experience that most decisions related to value from IT are subjective, and all too often are based on perception and emotion rather than on facts. Organizations will not come close to realizing the full value of their IT investments until they adopt effective value management practices – such as those contained in the Val IT ™ framework – and assign accountability for the realization of value from those investments to the board and CEO, rather than abdicating it to the CIO.

Know your IT cost of goods sold

Although my passion is value, that certainly should not imply that I don’t think about costs – costs are an integral part of the value equation, as are risks. The definition of value used in Val IT™ is the total life-cycle benefits net of related costs, adjusted for risk and (in the case of financial value) for the time value of money. Costs are incurred in two main ways – the cost of executing investments in IT-enabled change, and the on-going costs of operating the new/changed assets that result from those investments, often new/improved business services which increasingly have a significant IT component. These on-going costs often represent somewhere between 65 – 85% of the total IT budget. This article by Craig Symons from Forrester focuses primarily on these costs, and in doing so, makes a strong case for IT financial transparency.

Craig points out that, as IT has become increasingly pervasive in enterprises, IT costs represent a growing and often significant part of their total cost of products and services. Yet, although these costs are associated with a number of different activities, including enterprise-wide and business unit administrative activities, sales and marketing support activities, and direct product and service activities, many enterprises lump them all into the general and administrative costs “bucket”, where they all too often become a very visible target for cost-cutting. Without more specific information around the activities these costs are supporting, there is a significant risk that the wrong things will be cut, and value may well be eroded or destroyed as a result of the “law of unintended consequences”.

With complete financial transparency, IT costs are identified by activity and charged back at the service level based on consumption. This allows IT to have a fact-based discussion with the other parts of the business, showing where IT contributes value to the business activities, and thereby enabling smarter decision-making. It changes the focus of the conversation from the cost of technology, to the value contributed by IT to business activities.

Managing Change – The Key to Delivering Value

Whilst the availability of frameworks such as Val IT, and others, can help enterprises implement or improve their value management practices, at its core, any initiative to implement or improve value management is about organizational change. Over the past couple of decades, many enterprises have undertaken programs to improve corporate performance, yet many of these have failed. The underlying cause of these failures is that most failed to persuade groups and individuals to change their behaviour.

Here, even the use of the term “organisational change” can set false expectations by overlooking the emotional aspects of change. George H. Sejits and Grace O’Farrell of the Richard Ivey School of Business in London, Ontario wrote “One of the more important reasons that change efforts fail is that the idea of ‘organisational change’ is an illusion. Organisations do not change. It is the individuals within organisations that change their behaviours. Unless the need to change is perceived as an effort to create positive outcomes including…the expansion of personal power and a more interesting job, individuals can be expected to resist the initiatives that are part of the overall change effort.” In the context of value management, this can be even more difficult as it is individual board members and executives that are being asked to change their behaviour – behaviour that they may feel has served them well in the past.

Effecting change requires a well-defined and disciplined change management program. Such a program depends upon a number of critical success factors. One is strong and visible executive championship. Another is a clear and realistic vision of the future state. Another is adequate resources – change almost always requires an investment in expertise, funding, and infrastructure over and above the normal costs of conducting ongoing business operations. Management of the program must also be flexible enough to change the journey and, possibly, the destination as more information is known and/or internal or external circumstances change.

A critical element of any change management program is communication – a change-related communications plan should address the following four elements—as defined by William Bridges in his book, Managing Transitions :
• Purpose: Why are we doing this?
• Picture: What will it look like when we get there?
• Plan: How will we get there?
• Part: What will be my role, both in getting there, and when we get there?

While all four of these elements are important, it is the last one—What is my part?—that is typically the most challenging. Make sure that not only is the question “What is in it for me?” answered, but also, and perhaps even more importantly, recognise that resistance to change, whether calculated or unconscious, is a common challenge when working with both individuals and groups. Naturally, people question why change is necessary and wonder whether it will hurt them – it is “loss” which most people fear most of all from change. The initial reaction to change is “What am I losing?” Take the time to understand and acknowledge what benefits, rights, privileges or freedoms key stakeholder groups believe they are losing – again, don’t forget that individual board members and executives are human beings with emotions too – they will also be feeling this way, possibly more than others.

Don’t forget the reward system. As another colleague of mine once said “The good thing about reward systems is that they work – the bad thing about reward systems is that they work!” Align the reward system with the desired future state. Provide incentives for change. Define how achievements will be measured. And link these objectives to outcomes within the scope of each individual’s responsibility.

As Albert Einstein said, “The definition of insanity is doing the same things over and over again and expecting different results.” Introducing change is never easy – but it is necessary if we are to realize the full value of IT-enabled change.

Leveraging the Value of IT in Good Times and Bad

This article was published in IndustryWeek today. It discusses that, while manufacturing companies and other enterprises are increasingly recognizing the opportunities for information technology to add competitive advantage and significant business value,  the track record of successfully doing so continues to be less than stellar. The issue continues to be the failure to recognize that we are no longer investing in technology, but in IT-enabled change. Effective governance processes, supported by proven value management practices, such as those provided in ISACA’s Val IT 2.0 Framework, are required to ensure that the right IT-enabled investments — those that will create and sustain measurable value — are selected and managed such that they deliver that value throughout their lifecycle. Enterprises that do this are able to thrive in good times and survive in bad ones. Unfortunately, they are in the minority.

Value Management – We Still Have a Long Way To Go!

I recently worked with ISACA to create a short survey around “Value of IT Investments”. The responses from more than 500 IT professionals in the US raise some interesting questions. While 67% of respondents felt that they were realizing between 50 – 100% of expected value from their IT investments, only 34% felt there was a shared understanding of what value was in their enterprise, and only 29% had a comprehensive approach to measuring that value. This raises the question, “On what basis are spending decisions made?”.

These findings support the results of a number of other studies, anecdotal evidence and my own experience that most decisions related to value from IT are subjective, and all too often based on perception and emotion rather than facts. The survey also confirms that responsibility for ensuring the realization of value from IT-enabled investments continues to be abdicated to the IT function with 57% responding that this is the case. Remarkably, 11% responded that no-one was responsible!

In response to another question about responding to the current economic crisis:

· 16% of enterprises are making across-the-board cuts in IT spending;

· 14% are freezing at current levels;

· 44% are reducing spending selectively; and

· 26% are increasing selectively.

These results are encouraging in that they show that enterprises are moving away from the traditional across-the-board cuts, but again raise the question of how spending decisions – decisions to freeze, spend more or spend less – are made.

We are still consolidating these results with those from other countries, which, while largely consistent, show some interesting differences. I will post and discuss these when they are made public.

The results so far, however, show that we still have a long way to go – organizations will continue to come nowhere near to realizing the full value of their increasingly significant and complex IT-related investments until they implement effective governance of IT, as an integral part of overall enterprise governance, adopt proven value management practices – such as those in the Val IT™ Framework 2.0 from ISACA, and assign accountability for the realization of value for those investments to the business, rather than abdicating it to the IT function.