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3/1/2005
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IT: The Next Target For Alignment

IT performance management makes sense of tech spending

Change and alignment are critical to tackling new markets, gaining new customers, reducing costs and growing profits. It's possible to adjust culture and priorities through performance management initiatives, but when reviewing people and processes throughout the company, businesses all too often forget to examine IT.

If you're serious about performance management, consider whether IT investments are aligned with business needs. Is the emphasis on efficiency, meaning investments in ERP, CRM and transactional/process systems, or is it on effectiveness, meaning information and systems that support BI and performance management? Gaining control of IT spending is a first step in driving change and moving beyond internal politics.

If you only examine the largest items in the IT budget, you're likely to uncover employee biases and departmental priorities that stand in the way of change. The biggest expenditures are often tied to consultant and vendor agendas focused on running the business efficiently, not managing it effectively. These vested interests can lead to larger business initiatives and contracts that simply don't deliver process and performance improvement. Instead, they're providing programs for outsourcing, adoption or upgrades to ERP, CRM and other systems that haven't delivered on expected improvements in revenue, profit margins or customer satisfaction.

IT performance management, a relatively new practice, ensures that IT is delivering business value. You use the same three-step understand-optimize-align performance improvement process that you use to improve processes in the rest of the organization, but you apply it to your IT portfolio and assets.

Most current technology approaches to managing IT projects, monitoring networks and analyzing capital projects are aimed at operating IT more efficiently rather than managing the department more effectively. To successfully adopt IT performance management, apply the proven management process of forging a strategy, devising a plan of execution and measuring the results. The strategy and plan should be well defined and encapsulated in a centralized system that can be managed and measured.

In the past year, I've seen a number of promising, well-focused applications and systems introduced by IT-specific technology providers such as Infovista, ITPM, Mercury Interactive, Niku, Planview and Prosight, among others. These vendors are putting the focus on strategic management challenges rather than just IT's operational aspects. Prosight's Portfolio Optimize module, for example, helps IT organizations assess investments in IT systems and match future spending to specific business objectives.

Those on the business side need to recognize that IT is a critical foundation of performance management. As you evaluate people, processes and investment priorities, you must adopt the same rigor that's applied to the rest of the company. I've seen many organizations spend more than 95 percent of their IT budgets on operational systems and try to manage IT to business expectations without using the right applications.

In the past, performance management proponents — including myself — have focused most of their attention on business, financial and operational performance, but the time has come to bring IT into the mix. IT performance management is especially critical for businesses going through mergers and acquisitions; there's no better time to ensure that you're leveraging IT for competitive advantage instead of focusing purely on operational expenses. Capitalize on the changing cultures and agendas that emerge organically during mergers and acquisitions, as a result of new management and shareholder expectations. Keep in mind, though, the larger the organization gets, the harder it is to monitor performance. (In fact, when you pull back the curtains on many large, consolidated corporations, you'll discover they have difficulty mandating change internally. That's why many companies turn to acquisitions to drive growth.)

As you investigate whether your IT portfolio is delivering expected improvements, consider how you can take advantage of opportunities in your existing investments while setting new priorities to meet performance management objectives.

Mark Smith is CEO and Senior Vice President of Research at Ventana Research. Write to him at mark.smith@ventanaresearch.com.

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