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September 27, 1999

InformationWeek500
The Millennium IT Manifesto

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IT and business competition at the turn of the century

By Howard A. Rubin

ore than ever, technology, information, and knowledge determine whether companies will be competitive and successful. The economy has shifted from one that measured information by the tonnage to one where bytes are king. This fusing of technology with business and society-along with global variations in software production costs and quality, and the ever-greater need for economy and efficiency-are forcing many companies to re-examine their IT strategies for the new century.

Businesses, and particularly IT organizations, need to manage IT as an asset, behave like free-market competitors, and perform continuous benchmarking. They also need to become expert at remote management, focus on process and value-chain management, leverage global economies and efficiencies, and maximize customer relationships. Above all, companies and IT organizations must do all of this while managing a rapid rate of change.

Valuable Asset
IT is an enterprise asset and a producer of value, yet it constantly has to prove its worth. It should be managed as an investment portfolio and measured and charted as a portfolio would be, perhaps with the CIO or business officer accountable for IT serving as the "fund" manager.

The level of technology investment on a per-employee basis is significant and growing at many companies. IT spending per employee across all industries increased to an average of $10,800 in 1998 from $7,600 in 1997, according to our Rubin Systems Inc./Meta Group Worldwide IT Trends and Benchmark Study.

Companies in the finance sector were the biggest spenders on average, investing about $39,000 per employee, followed by insurance companies at $24,000 and utilities at $19,000.

Despite this high level of spending, the issue of managing and measuring IT from an asset-based and value-focused vantage point continues to be a major challenge.

The reason is that most companies, even innovative ones, have not tackled the issue of assessing and projecting the "value" of IT. They continue to look for the Holy Grail of value measurement: a single number or ratio that will objectively indicate what value IT has in financial terms. But IT investments result in value of many types-financial, relationship management, process impact, business network-and a single value metric will never be found.

Investments in IT must be managed to maximize benefits in multiple dimensions and in a manner that's cognizant of continuous change, and the fact that the value of IT is based on time. A particular IT project, an application system, or an infrastructure investment is subject to change based on factors ranging from internal aspects of company strategy to external market forces.

It's important to note that the concept of "value" itself has taken on new meaning, as exemplified by the pioneering work at Skandia AFS, a diversified financial-services firm in Sweden. Skandia has adopted an overall model applied to business and IT in a common frame that captures value in the forms of financial and intellectual capital. Because IT investments can be made at levels that range from the IT infrastructure-technology, people, and processes-to business application systems, an IT "value chain" or "benefits chain" is key to assembling and managing an organization's technology asset base. It's also the key to organizing the management of IT as an asset. All types of IT spending and investments must be associated with their current value, financially and otherwise.

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