Business & Finance
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10/20/2006
03:25 PM
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Businesses Apply New Metrics In Measuring IT's Value

CIOs look beyond ROI to gauge customer interactions, sales impact, and tech-driven innovation.

By CIO Randy Mott's calculation, Hewlett-Packard's IT strategy should drive $1 billion in business benefits this year, double that next year, and $2.5 billion by 2008.

At Global Crossing, CIO Dan Wagner wants IT managers and staff to attend a total of 500 sales calls in 2006 in support of the company's back-from-the-brink emphasis on business growth.

Dan Drawbaugh, CIO at the University of Pittsburgh Medical Center, expects IT developers to get it right the first time. His goal: Cut in half the time it takes to deliver a data-sharing project to hospital clinicians.

Techniques For Measuring IT's Effectiveness
Business is all about the numbers, and information technology must be part of the equation. But the metrics used to measure the value of IT resources and investments are changing as CIOs go beyond classic return-on-investment and total-cost-of-ownership formulas to prioritize their investments. How many customer interactions failed last month? How many hours were wasted on low-value computer maintenance rather than tech-driven innovation? To what extent did software developers contribute to the bottom line?

To get answers to these kinds of questions, IT and business managers are getting more creative in what they measure and how. "We're gutting our entire metrics look--putting them to the side," says Wagner of Global Crossing, the IP-based network services provider that, after three years of financial restructuring and cost cutting, is growing again and looking for new yardsticks to measure its progress.

In addition to tracking how many times IT personnel go on sales calls, Wagner has put a priority on training and skills development, on what he calls "strategic software development," and on IT security. And he's tracking all of them. For example, information on physical and network security is combined into a color-coded security vulnerability index that's shared with board members, among others. "It gives a temperature check at the senior management level," Wagner says.

At HP, Mott is just finishing the first year of a three-year IT overhaul he was hired to engineer and oversee. The goal is to create a world-class IT organization and state-of-the-art computing infrastructure, while driving down IT costs. Mott has created an IT portfolio scorecard to set goals and monitor progress. HP's objectives include:

• Delivering 98% of IT projects on time by 2009, compared with 81% in 2006.

• Contributing $3 billion in IT organization "annual benefit" in 2009, on top of the $5.5 billion to be contributed from 2006 through 2008.

• Producing "benefit per developer" of $450,000 by 2009, three times more than in 2005.

• Increasing the IT staff time spent on innovation--developing new capabilities versus supporting existing ones--to 80% in 2009, compared with 46% in 2006.

HP's IT department conducts a cost-benefit analysis on each project to get at the "benefit" to the business. Benefit refers to projected operating profits--either expense savings that drop to the bottom line or new revenue opportunities. "We try to get everything down to a bottom-line number," Mott says.

Mott uses many metrics to gauge HP's business technology efforts, but there are a handful that he relies on most: number of active projects; on-time delivery; project phase "time boxing"; time spent on innovation versus sustaining technology; cost-benefit analyses completed; and annual benefit per project. He says these metrics work best when used together rather than focusing on just one of them. Money saved through efficiency and productivity gains can be redirected as investment in innovation.

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