InformationWeek
Defining The Business Value Of Technology
September 14, 1998
IT Dollars and Sense
continued...page 3 of 3
Most companies realize that just setting business performance targets is not enough to reach them. Leading companies have used metrics such as the Balanced Business Scorecard to measure results and meet business goals. Managers need to keep technology and business in sync through every phase of an investment.
The link must be a two-way street. When making an IT investment, business and IT leaders together should develop an understanding of where the benefits will appear. Not all benefits show up in the same place. There are some things you may do with IT, such as factory automation and electronic data interchange links with the supply chain, that reduce costs. This will show up in the annual report.
But suppose you develop an improved customer-response system that aids your company's service representatives. A system of this type has an impact on the quality of customer-company interaction, which in turn may affect customer defect rate, satisfaction, and revenue. While this is not a direct bottom-line or top-line "hit," it does affect the value chain supported by IT.
If you go deeper and make investments that improve system responsiveness at the hardware level, such an investment may make the customer-service system more reliable and responsive. This increases the ability of the customer-service staff or sales staff to work with the customer, which in turn supports more revenue. The value chain is even longer in this case.
Going deeper, suppose you invest in tools and processes to decrease development cycle time. The result should show up on the IT organization scorecard, which should translate to bringing more business support systems out faster and cheaper. This should give your company the ability to better serve and expand its market, and should show up on the top and bottom lines.
Follow this chain and you will understand just how an increase in lines of code or function points per professional generates business value. It is a function of its distribution channel.
To map these channels and focus on benefits management, managers should categorize the impact levels as first-, second-, third-, and fourth-order effects or benefits. First-order benefits go right to the top-level business measures; second-order benefits show up in the business scorecard, which in turn affect the top-level measures; third-order are those that affect overall IT performance and then bubble up the chain; fourth-order are those within the IT processes themselves.
For benefits management to be effective and for companies to maximize the payback of each IT dollar, the chain must be mapped like a chart of accounts and managed from technology and business perspectives. This ensures that the full range of results are achieved at the right time and cost, while management remains cognizant of ever-changing business and economic conditions that can affect the whole system. IT organizations must do more than cope with such change, they must leverage change and determine the potential benefits.
IT managers must be able to select newly arising options in technology, process, organization, and human resources in a way that provides a level of performanceconsistent with the needs of the enterprise.
Today's IT organization must be able to pick a performance target and hit it reliably. It must engineer its performance and optimize the cost of doing so, and manage the yield of its investments as effectively as a top-notch money manager. That's the new economics of IT at work, and it's the final measure of success for IT management.
Howard A. Rubin is chairman of the Department of Computer Science at Hunter College of the City
University of New York and a Meta Group research fellow.
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