Author: Chris Bedi, CIO at ServiceNow
It is a common view among my CIO peers that IT needs to be seen as a strategic asset not just a cost center. Yet most IT organizations struggle to quantify our impact on the business despite working our tails off to deliver business value. The truth is that most IT organizations are not great at telling their own story. I believe most IT organizations lack the DNA to measure the true value/impact of IT and we are doing ourselves a disservice. And without concrete metrics, the business leadership is often unconvinced of our value.
Admittedly, IT value is difficult to measure. As much as we try to report the metrics that matter and speak the business language—growth, margin improvement, employee productivity, velocity, and customer satisfaction—it is difficult to trace a direct line from IT investment to these metrics.
Consider one important growth metric: increase in bookings. IT may lead the investment and implementation of a new CRM system aimed at increasing bookings. However, 10 times out of 10 IT will face a high degree of cynicism if we try to take credit for increased bookings; there are too many other factors involved that contribute to this growth metric.
The same goes for customer satisfaction. Perhaps IT spearheads a new customer-facing website or service portal and your Net Promoter Score goes up. But IT isn’t the only department trying to influence customer satisfaction. There are likely a thousand little things being done across the enterprise to improve customer satisfaction, so tracing the outcome back to IT is hard.
One area where IT can start drawing a direct line from IT investment is margin improvement. IT is taken seriously when we can get our arms around the work we’ve done and boil it down to the bottom line. However, measuring IT impact on margin comes with its own challenges. Certainly, we can measure operating margin improvements derived from automation projects but, in a growth business, automating tasks doesn’t necessarily mean reducing head count. Rather we’re moving people to higher level tasks, or reducing the need to hire more, which doesn’t show up as increased margin.
Another emerging area is tying IT investment to reducing customer churn. Predictive analytics isn’t just about putting the diaper aisle near the beer aisle in the grocery story anymore. We are starting to see IT applying predictive analytics in some very interesting ways within the enterprise. IT organizations in some telecom companies, for instance, are able to accurately forecast which accounts are at risk for renewal by analyzing their usage of the platform alongside other available data. By doing so, they are able to flag an account’s likelihood of renewal for account team intervention and thereby trace a direct line from IT investment to reduced customer churn.
There is no silver bullet to solve the problem of measuring the value of IT but there are a few places we can start doing better.
Before any new major IT initiative, identify the outcomes you intend to influence—and trust that on time and on budget delivery is not the right metric. Too many joint business and IT projects are started without defining outcomes. It may sound basic but not many organizations do this well.
It helps to have business focused roles in IT that can work with the stakeholders to pinpoint how an IT investment might drive the business outcome. You need to define your target metrics: whether it is a cost, hours saved (i.e. productivity), velocity (i.e. cycle time), customer churn, etc. that should be measured. Your outcomes should be specific and measurable not broad. For instance, you should not define your metric broadly as “increase sales productivity.” A more specific metric would be to reduce cycle time to generate a quote by 30 percent.
Take a Baseline
Next ask yourself, “Do we even have the ability to measure this metric?” Peter Drucker is often quoted as saying that “you can’t manage what you can’t measure.” This holds true in IT value. You can’t know whether or not a project is successful unless you can quantify progress. If you intend to influence sales productivity, you need a baseline measurement of how you define sales productivity today, which will most likely have multiple dimensions such as cycle time and response time. This baseline data must be valid and reliable. Unfortunately, collecting good baseline data is often overlooked by IT, which leaves you vulnerable when IT value is questioned.
Define Timeframe for Benefit Achievement
There is always a lag between an IT project go-live and benefit achievement. That is why it is vital to establish up front when the targeted benefits will be achieved. One will likely not realize all the value the day you go live. Defining the timeframes and having a regular cadence to review the metrics helps hold everyone accountable to realizing the benefit.
Be Realistic about Business Time Needed
IT needs to be realistic about the workload involved for business counterparts in a joint IT initiative. Many IT projects rely on content contributed from other groups in the organization. This “business time” needs to be built into the timeline for benefit achievement. Take, for instance, a project that focused on reducing the number of manual entries that finance needed to make to close the books every quarter. Before IT could even start automating the manual entries, we needed an inventory list of all the manual entries that Finance makes. It took Finance more than four months to provide this list, which meant it took a little over a quarter to start the project and even longer to start seeing value from it.
IT needs to be aware of the time constraints and resource limitations of other business groups before engaging with them in a joint project.
Start in your Backyard
Measuring the value of IT doesn’t get easier than in our own backyard. When doing a project for yourself, you have direct control. Put the above measurement habits into practice on your own projects first. You define the outcomes and how IT will create value for the business. Don’t just look at cost reduction as a percentage of revenue or average spend per head; look at some of the big picture items for the business like increasing productivity and how you can measure that within your own organization. It is good practice to optimize IT before looking to optimize everyone else.
In the absence of metrics on IT value, negative stats will get more attention. Late projects, cost overruns and SLA misses will take center stage instead. Your IT organization drives business value and you must communicate in a way that the rest of the business can understand the value. When you don’t, the IT organization will continue to be perceived as just a cost center.