Real Business of IT: How CIOs Create and Communicate Value

by Richard Hunter

We can sum up this paradigm change as rule number 1: it’s not about IT. It’s all about business outcomes and business performance, whether you’re communicating IT’s internal performance or IT’s impact on business operations and financials.

initiatives that included consolidating the infrastructure, improving measurement, creating transparent governance mechanisms, and focusing continually on process improvement.

Every action was focused on delivering better value for the money invested—offering the right services at the right quality and the right price, and doing so in a way that made IT people easy to work with.

Step 1: Change your thinking to avoid the value traps. The road to (IT) hell is paved with good intentions. Avoid the value traps: practices that seem to be good ones but actually prevent IT from delivering and communicating value. Step 2: Show that IT provides value for money. As the “cheap information officer,” you and your team demonstrate that the IT organization is providing the right services, at the right level of quality, at a competitive price. Step 3: Show how IT improves business performance. As the “chief improvement officer,” you and your team help everyone make the connection between investment in IT and improved business performance. Step 4: Show how you have value beyond IT. As the “CIO-plus,” you operate as a peer on the executive team, providing value beyond IT itself.

successful CIOs make costs and performance transparent and comparable.

“Reliability liberates you to talk about the business. It’s not the endgame.”6. —Butch Leonardson, CIO, Boeing Employees Credit Union

“It’s not about building infrastructure,” I’d tell them. “It’s about enabling growth. It’s not about spending money; it’s about getting new customers.”

large manufacturer might be proud of an overall IT budget that equals about 1.5 percent of revenues, roughly 25 percent less than the average for manufacturers in general.3. But 1.5 percent of General Electric’s revenues as of this writing is close to $2.5 billion, and that is a nontrivial sum in anyone’s terms.)

According to a 2007 MIT CISR survey, the average for-profit company spends 5.8 percent of revenue for IT, with 72 percent of this budget going for run-the-business activities.5.

If IT can’t demonstrate its contributions to grow-the-business and transform-the-business initiatives, then IT is not a participant in the activities that make the business increasingly viable and successful.

successful IT organizations reframe the conversation. They report to the rest of the business in terms of services and the outcomes those services create, as opposed to the IT components that contribute to those services.

The basic message of this chapter, indeed of this book, is simple: the right way to discuss IT performance and value is to focus on IT’s contributions to business performance and business outcomes, and not on the performance of IT’s machines.

To help illustrate the difference between IT inputs and business outcomes, let’s consider an analogy: the respective value provided by exercise and by an exercise machine.

Excuse traps are about how the IT team’s execution and delivery are perceived by users.

Ideally, the IT team will gain a reputation for being the team that helps good decision making and makes great ideas work, as opposed to being the team that always says no.

most-effective CIOs put the highest priority of all CIOs on improving the quality of their people.

Role traps are about relationships. IT professionals need to recognize the implications of the roles they have traditionally chosen to play in their organizations.

The only people in any enterprise who ever describe anyone except the people who buy the enterprise’s products and services as “customers” are IT personnel.

Executives want outcomes. Increased sales, increased margins, and increased market share are examples of the outcomes that executives want. If the IT team is talking about and helping

Al-Noor Ramji of British Telecom puts it this way: I don’t allow the use of “customer facing” unless those guys pay me real money. What was happening in our organization is that people used the word customer to imply colleagues. Now if you give me greenbacks, you’re a customer. If you give me what I call blue dollars . . . it’s just internal transfers of money. That’s not real money. . . . So most of the spending decisions do come through me but . . . the budgets are still held by the business lines. . . . They cannot spend the money on IT without me. On the other hand, I cannot spend the money without them. It’s very important that we have this partnership model, so neither side is seen as being able to do it on their own.18.

Pushing back effectively starts with a foundation of credibility that comes from effective delivery.

In the end, it’s all about the performance of the business, and not the performance of the machine.

Show value for money before you try to prove that IT is an investment in future business performance.

There are three essential steps to delivering value for money: Measure and communicate IT’s performance in terms that are meaningful to the rest of the business. Benchmark IT’s performance against peers. Provide data that will help the rest of the enterprise manage consumption of IT services.

The right metrics are about quality and price for visible services

The right services are critical to business performance and are visible in some way to users. The right services might be as simple as e-mail or as complex as an infrastructure upgrade. The right level of quality means that the business gets the quality of service it needs. It doesn’t pay for more than is necessary, and it doesn’t get lower quality than needed when lower quality has an unacceptable impact on business performance. The right price means that IT’s services are competitively unit priced (priced per unit of service delivered).

Unit cost per service is a far better metric. It provides information that everyone can use to assess and improve IT value for money.

Uptime, which is equivalent to sales and service channel availability in a business where the product is delivered to customers electronically on demand Application performance, such as the time needed for an application to respond to a request from a user, another metric that is highly visible to internal users as well as external customers On-time project delivery, a critical metric for product availability in a company whose products are information based On-budget project delivery “First time right” application development Cost-saving opportunities, an important metric in a business where IT is a significant portion of all costs, and a useful measure for many infrastructure investments Software quality based on defects per thousand lines of code, an important measure of product quality in a software-driven business

“Everything you do in a business involves benchmarking your capabilities against your competitors.”6. —Randy Spratt, CIO, McKesson

value for money has been achieved—then

In short, the most important business value comes not from managing the IT organization better, but from changing the business in valuable ways.

“Getting Business Value from IT: The Non-IT Executive View,” MIT Sloan CISR Research Briefings, V1(3A), December 2006.

The most important element is effective oversight. It’s the glue that holds everything else together. And it turns all the tasks into a cycle of learning, and not something that repeats anew for each investment.

AT ROOT, IT organizations have two basic levers at their disposal for creating value. They can improve decision making by improving information quality or timeliness, or they can increase efficiency, quality, and functionality by improving processes.

mechanisms by which information or automation is provided—the

The four sources model: How IT improves business performance Optimizing: Processes internal to the company are improved or transformed through automation. Though optimizing is typically about incremental process improvements, it can also include actions that replace whole sets of applications and processes. Reshaping: Automation is used to change how customers and partners interact with the enterprise, how they work with the enterprise’s products and services, or the levels and kinds of service provided. These may be large, such as integrating the global supply chain, or smaller, such as providing customers with self-service features they formerly had to request through a salesperson or call center. Internal informing: Information is supplied to internal audiences to support decision making related to specific operational issues. Resulting performance improvements may be visible to external parties such as customers and suppliers, but the information itself typically is not. External informing: Information is supplied directly to external parties, such as customers and suppliers, to enhance or change the enterprise’s value proposition, relationships, or operations.

Optimizing opportunities revolve around using IT to streamline processes through automation or consolidation.

These CIOs are examples of what we call the CIO-plus—simply put, the CIO whose stature and influence inside and outside the enterprise are comparable to those of any other executive.

Spratt predicts that the role will move soon from a technology focus to one that is oriented to rapid delivery of new products and services—from running the business to growing it.