Wednesday, March 9, 2016

A Cost-Transparent IT

Take multi-phased approaches to building a more transparent IT for customers.

Many IT organizations still get stuck at the lower level of maturity, running as a back office function, no one knows what happens inside if only the light is continuous on. However, forward-looking companies have positioned their IT organizations at the digital frontier to drive changes, optimize business processes/capabilities, and catalyze business growth. So how to run a cost-transparent IT organization to re-energize its value proposition and unleash its full potential?

All IT spending must be rationalized against the business benefits: IT is always striving to improve its value to the business. Some of the "long poles in the tent" tend to be labor; depreciation and new capital spending. It isn't just the IT spending ratio as a percentage of budget numbers (70/30, 85/15), but the question of what is real - tangible - measurable business value? And who is measuring/driving the perceived value? When all departments truly collaborate with IT to improve the vision, realization of leveraging IT as a competitive weapon versus just commodity, everybody wins.

Trim wastes and redundancy: IT needs to continue fine-tuning its own infrastructure, applications, and services via consolidation, modernization, integration, optimization, innovation., etc. The approach is to implement a program that like a gardener would prune the tree and nurture the valuable solutions. Pruning the weeds would face resistance, however, at the end of the day, this was not just an IT decision and rather than let the senior management team beat them up, by understanding and communicating the actual costs. IT needs to promote its products and market its capabilities via transparency and cultural willingness to optimize IT spending,

Keep on track: if as a CIO, your key metrics focus only on cost, then don't be surprised if you are managed on cost. If your metrics are all pointed backward in the technology, then don't be surprised that the business can't really understand the value of IT. Only through well-defined sets of KPIs, IT can both qualitatively and quantitatively measure value delivery to business and achieve a high-performance result. Business should be able to define and align operational KPIs to strategic KPIs for successful tracking of the effectiveness of strategic KPIs. The effective way to track the achievement of strategic goals is to cascade those down throughout the organization with the use of operational KPIs. Often the root cause for dissatisfaction with IT projects is a mismatch between the initial expectations of the business stakeholders and IT. This can be addressed by ensuring up front that the desired benefits are realistic and achievable in an organization. There is a concept of the 'golden thread' that can link business strategy to an investment objective, a business benefit, a business change, an enabling change and finally a technology enabler. This helps an organization to assess if the business change (with associated technology) is the right thing to be doing in the first place. It is imperative that you link lower level metrics with higher level strategic objectives.

Analytics: Do cost/benefits analytics is important to improve IT effectiveness and efficiency. A business stakeholder has to be accountable for realizing the benefits, not IT. On the ROI side, there are metrics that could be used and monetized. The top metrics which is of interest to Executive Management are either ROI, ROE or growth. Any project has a cost and a cost with no obvious or measurable (directly or indirectly) return makes no sense. A project with no clear ROI (not just the crunching number from finance perspective though) sounds like you don't really understand the project and its relation to the strategy. Cost/benefit analytics continues to practice being called 7"Cs" to measure SMARTLY: conceptualization, characterization, challenge, collection, control, construction, and conversion. It is useful looking at this exercise almost as a type of experiment where one hopes to gain results at the end. Like in all experiments, there has to be some sort of hypothesis - some sort of conceptualization of a useful outcome. Performance Indicator helps you make better decisions to improve performance. If your KPIs are opposite, they are a long list copied from the industry database; are not aligned to your organization's specific strategy; are only lagging and financial not being able to tell you anything about the future; drive wrong behaviors across the organization and bring some significant levels of discomfort to employees, then they could be deemed as bad measurement.

Multiple perspectives of ROI & metrics: Do not think of ROI as a simple accounting measure. ROI is a concept first and a set of numbers second, and the types of numbers involved can vary widely depending upon to what the ROI relates. If ROI is only financial, you are hard-pressed to do that. But in the 21st century, ROI is expanding into other less measurable, but no less tangible areas that we need to be focusing on, such as employee satisfaction, creativity, teamwork, collaboration, making silos disappear, etc. Educate not only the IT organization but also spend considerable time with each LOB to educate them on how to determine if they actually needed to contact the operations group for support. They are able to determine on their own if there are known problems with their IT services plus they are able to see exactly where those problems are. Have multiple perspectives when running metrics:
- Do know why you are collecting the metrics.
- Establish a good root question.
- Identify the purpose of the information and the stakeholders who will use it.
- Ask whether the metrics can reveal anything meaningful for the identified purpose.
- Give those responsible for collecting the metrics a reason for doing so.
- Ensure management buy-in for the metrics collection process.
- Use metrics as pointers to areas requiring further investigation.
- Don't collect metrics for the sake of collecting metrics.

Take multi-phased approaches to building a more transparent IT for customers. What these phases essentially do is to reduce the IT service support because the end users are empowered with the visibility of IT they required. Define the right set of KPIs which can reflect progress for the long-term goals of the firm. The way the KPI is measured needs to be an accurate reflection of the behavior the firm is looking to exhibit. The purpose of running a cost transparent IT is to bridge the gap between IT and business, link lower level metrics with strategic goals, harness cross-functional communication & collaboration, improve IT performance and maturity.


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