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September 27, 1999

InformationWeek500
The Millennium IT Manifesto

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A value-based framework should be used to map technology spending, establish a comprehensive profile, foster an understanding of costs, and identify opportunities. Such a framework links IT spending to business performance as first-, second-, third-, and fourth-order effects or benefits.

First-order benefits go right to top-level business measures; second-order benefits show up in the business scorecard, which in turn affect the top-level measures; third-order benefits are those that affect overall IT performance, and in turn bubble up the chain; and fourth-order benefits are those within the IT processes themselves.

For IT investment portfolio management to maximize the benefit of each IT dollar, the value-generation chain must be mapped like a chart of accounts and managed from both technology and business perspectives. This ensures that the full range of benefits is achieved at the right time and cost.

Because of the essential role of measurement in IT management, especially from a portfolio standpoint, it's critical that an IT organization communicate its performance to senior management in a concise manner that focuses on key business concerns.

Whether or not an organization opts to transform its IT organization into a free-market, competing force, it should instill a free-market mentality in the management of IT resources. At the very least, IT organizations should plan for a transformation from a state of working with captive customers to a posture that lets it behave as a business.

Organizations that are successful in the free-market economy focus on these core disciplines: relationship management; superior processes; service levels and quality; and financial and performance competitiveness.

Focused Management
Accomplishing these goals requires nothing less than fundamental changes in basic management disciplines. For example, customer-relationship management must be formalized in the organization and its support processes; service quality must be defined in terms of customer outcomes, and not just simplistic numbers representing average availability of systems and turnaround time; and financial performance must link IT costs to the total cost of doing business.

Some leading organizations have already applied these concepts to their management reporting. Projects are tracked based on their on-time, on-budget, on-scope, on-value performance and projected trends. Completed projects and applications are tracked and assessed in terms of their yield, which is defined as actual value vs. expected value. Performance of applications, systems, and infrastructure are monitored in pure business terms.

IT management must have a mechanism to continuously maintain competitiveness-where capabilities are developed within the IT organization to support continuous benchmarking in all of its key areas. And the IT organization must also put in place value engineering, in which IT projects and performance are matched and linked to the distinct needs of the enterprise in terms of cost and their value-producing structure. In other words, investments are made to get IT performance to an appropriate level for the company's cost structure. In this way, IT contributes not only to the support and expansion of the enterprise's IT portfolio, it also becomes an active partner in moving the business forward by using technology.

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