Completing the IT Value EquationCompleting the IT Value Equation
Manage the entire IT portfolio to optimize IT alignment.
May 13, 2004
In the past 15 years, business executives, consultants and IT trade magazines have hammered IT executives with a crystal-clear mandate: align IT with the business to deliver value.
That being said, most CIOs understand their mission. But the majority of IT departments still do not fully measure or understand how to manage IT value. According to the META Group, 70 percent of IT organizations are still perceived as cost centers rather than value centers, and 52 percent of CEOs question the value their IT departments deliver.
Several miscalculations typically prevent companies from realizing and maximizing IT value — and, by extension, hinder the CIO's ascent to strategic partner, and expose many IT departments to external competition. First, the notion of alignment from an IT-project perspective has been oversold to the point that it masks the need to achieve an accurate view of an IT department's complete workload. The majority of work performed by an IT department — as much as three-quarters of the function's activities — resides outside the scope of projects. Responding to the "alignment" mandate with a projects-only approach will never deliver genuine alignment because doing so neglects the strategic importance of IT systems and the need to manage "lights-on" IT activities in an efficient manner.
Second, more than 80 percent of all IT departments fail to manage IT employees with the same rigor that IT projects are managed. If employee performance is not tied to business goals, there is little chance that the systems, projects and non-project activities IT employees support will be aligned with business goals.
And third, too few IT departments view line of business clients like a customer consuming their services. They fail to measure satisfaction accurately or consistently. When CIOs don't track those numbers, it becomes difficult to keep score of the overall value their departments contribute to the business.
Balancing the Three Jobs of IT
The META Group often references one of the IT department's greatest challenges as the "Three Jobs Problem." The IT department's work can be segmented into three areas: structured projects, "lights-on" process and systems-oriented maintenance activities, and responses to customer requests.
As little as 25 percent of the typical IT department's workload consists of projects, according to The META Group. This is a crucial but understandably difficult bit of information for CIOs to accept. Projects such as ERP implementations and Y2K compliance initiatives once qualified as bet-the-company endeavors. And the perception of large IT projects as a security blanket ("We're spending all this money on IT, so we must be important.") lingers from the bygone era of "buy-or-die" IT management. CIOs who cling to that view turn a blind eye to the majority of their department's workload — the IT systems that have established permanent residence in all corners of the organization.
Unlike five years ago, today's customers rely more on the performance of key business systems (such as ERP, PSA, e-commerce packages, and so forth) than they do on the management of new IT projects. To deliver value to their customers, IT departments must manage the company's portfolio of key business systems in the same way they should manage a portfolio of IT projects. Those systems should be monitored to determine if appropriate IT resources are supporting them. And the management of IT systems should also have the flexibility to be client-focused.
Customer Satisfaction is Key
The most successful IT departments function as internal professional services organizations — their technology offerings and services support, and in some cases drive, the strategic objectives of the business. The most successful professional services firms have mastered the process of delivering, managing, and measuring client satisfaction.
To be effective, client satisfaction should be measured consistently and completely. A CIO should be able to regularly monitor the extent to which business clients are happy with the systems, maintenance, service, new projects, and troubleshooting that IT delivers on a daily basis.
Truly Balanced Portfolio Management
Since the scope of IT work is broad — it requires attention to systems, client requests, client satisfaction, new projects, performance management, workforce development, and retention — the reach of a successful IT-management strategy should be equally comprehensive if IT is to be successfully aligned with business needs.
Too often it is not. Why? Because an over-emphasis on project management and the new hype around the alignment of projects form an exclusive project-portfolio-management perspective, obscuring a complete and accurate view of IT's actual workload and preventing CIOs from linking all of their department's activities to business needs.
Relying on project portfolio management as an overriding IT management strategy is only a 25 percent to 48 percent solution. The majority of work performed by an IT department — 52 percent to 75 percent — does not involve projects in any way. And while project portfolio management can and should serve as an important tool in the CIO's belt, CIOs must understand that their portfolio management tactics also apply to the IT systems and non-project work the rest of the business depends on.
To optimize IT alignment, IT executives should side-step the trap of project portfolio management as an all-encompassing governing principle and manage the entire IT portfolio, which includes projects, systems, support and maintenance, satisfied clients, and a high-performing workforce. The highest-performing CIOs should be able to view that portfolio by client (How satisfied is the sales force, for example, with IT's products and services?) or by system (Is the e-procurement system continuing to deliver its expected bottom-line benefits?).
CIOs need to spend more time aligning IT with top-level business objectives and less time grappling with the introduction of new technologies and, consequently, managing projects. Managing those strategic endeavors means tracking them — a process beyond the scope of project portfolio management disciplines and tools, and a critical difference between the tactic of portfolio project management and the strategy of IT-business alignment.
Making Alignment a Top Priority
High-performing IT executives have learned that many facets of IT's contributions must be measured and managed. The CIOs who embrace a holistic approach to IT portfolio management tend to boast continuous IT efficiency improvement, ability to reduce costs, and improved effectiveness with enterprise-wide asset deployment/management. Portfolio management enables CIOs to manage the business of IT like a financial investment portfolio, enabling them to categorize, evaluate, prioritize, purchase, and manage technology assets and projects.
The reward for CIOs who measure and manage each component of the IT value equation is better alignment with less pain. And that combination leads to greater IT value.
Chuck Tatham is Vice President, Marketing at Changepoint Corporation (www.changepoint.com). Changepoint is a leading provide of business process automation software for corporate IT departments and global services organizations.
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