Managing The Value of IT

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Value definition with green highlighter

For much of my professional career, I’ve worked in Management Consulting, which is the practice of helping organizations improve their performance. At PwC I actually sat in the Technology Consulting business unit, but the work I did for CIOs and CFOs was not writing code or integrating applications, it was helping them to manage the overall value of the IT department.

When it appeared business was entering a slowdown, I spent time with leaders working to understand where there were opportunities to reduce cost, including IT. Unless you are seeking to reduce capacity, the key to effective cost reduction is focusing on what I call "low value-added demand," and not impacting the required value-creating capabilities of the organization. I’ll discuss demand management later.

One thing I’ve noted about well-managed companies is that they are always curious about value, not just during tough times, so I continually did this kind of work for some very large companies. How does one define value for IT? I recommend viewing it from three dimensions:

1. Cost - operating costs and capital investment
2. Responsiveness to the business - enable business value, partner with business leaders to drive performance, and deliver on promises
3. Management of risk - availability, and performance of technology solutions, management of complexity, and management of enterprise security

Depending on your company and your business need, you may prioritize any of the three dimensions, and that prioritization often changes over time. Many businesses focus on cost, but as the other two dimensions are harder to assess, they may lack a perception of value. Many business decisions involve tradeoffs: should we move to the cloud (cost vs risk)? Should we outsource IT management (cost vs responsiveness)? Do we need to implement more stringent password/authentication rules (responsiveness vs risk)?

The number one factor in enabling IT to manage its value is to communicate the business strategy, allowing IT to then design itself (including its cost structure) to align proactively to the business need. The most important measure of IT strategy is not about technology, it’s about how effectively it supports the business strategy. Where I saw CIOs get into trouble was when they thought their value proposition was delivering technology projects. There are no technology projects, there are only business projects. This is a key difference between the job description of a CIO (business-facing) and a CTO (technology-facing).

Of course, you really need to know technology and project management to deliver on complex business initiatives (websites, ERP, CRM, etc.) but by that point, you should have made the case that the investment was supported by a business value proposition, and now you turn it over to the technology team to deliver on the promises. I’ll dive into the IT organization design next week.