Sunday, October 30, 2016

"CIO Master" Book Tuning #132: The Noble Purposes of IT Performance Management

Running IT as a business, IT performance has to be clearly linked with the business performance.

IT organizations are at the cross-road to either ride above the learning curve of the digital transformation or become irrelevant as a support function. IT metrics has to evolve from being a cost center to becoming a revenue generator. It’s dangerous to impose metrics just because the focus on what’s measurable is manageable. The only way to do this is to show a clear link to top executives between IT efficiency and productivity and top-line revenues. Continually accelerating changes in IT consumption and production requires faster responses and better performance metrics. Start with the noble purposes of IT performance management and then select the right set of metrics for measuring the right things and measure them right. IT measures should cover all areas that contribute to value creation including service quality, employee engagement, customer satisfaction and financial outcomes itself.

Measuring IT performance to enable business growth and development: Contextually, the measurement method is to persuade management the progress of strategy execution. IT value to the business can be categorized in a number of ways, IT is a key enabler to build almost all differentiated digital business capabilities nowadays. Assuming a healthy pipeline of work, trending to forecast on releasing new capabilities (the business getting what they paid for), KPI setting should focus on achieving the ultimate goals of business as a whole. It is one thing to have the IT resource aligned with the business strategies/ objectives (IT Effectiveness); it is also something to have the IT resources (people and operational IT processes) refined to the point that they are nimble, can adapt to changing business demands in a timely fashion, can be reapplied to altering business priorities and be effective with little down curve via IT efficiency. There are indeed qualitative objectives that the basis for rating performance is the set of criteria that address the question: “what does it mean to enable business growth and catalyze development?" And develop a set of measures to stimulate IT performance for achieving such a noble business purpose.

Measuring IT performance for improving revenue (enable the business to gain market share, enter new markets, etc): IT metrics has to evolve from being a cost center to becoming a revenue generator. The only way to do this is to show a clear link to top executives between IT efficiency and productivity/ top-line revenues. This is an important step to building IT reputation as a strategic business partner and growth engine. Improving revenue alone without improving net will become meaningless as stakeholders will be more interested to see how much net generated from the business rather than revenue. A CIO can help the business to improve net by spotting the growth opportunities, capturing customer insight, reducing cost of doing business or by various means such as right sourcing & sizing, keeping IT cost flat while at the same time maximizing its output so when the business revenue increase, IT cost remain the same which will improve net or that will improve the top line and at the same time decrease expenses to improve the bottom line.  

Measuring IT performance for improving speed/agility (Speed to Market, ability to change direction with the market, etc): It is one thing to have the IT resource aligned with the business strategies/ objectives (IT effectiveness), it is also something to have the IT resources (people and operational IT processes) refined to the point that they are nimble, can adapt to changing business demands in a timely fashion, can be reapplied to altering business priorities and be effective with little down curve via IT agility. When a CIO is able to position and maintain the IT organization to ensure it addresses both "IT effectiveness" and "IT efficiency," "IT agility" and "IT maturity," measure them in the right way and communicate the tangible IT value to business partners, they have earned their stripes.

Measuring IT performance for improving customer satisfaction (internal customers -employee productivity and engagement, end external customer experience optimization): One of the noble purposes for digital IT and the organization as a whole is to build up a customer-centric organization. On one side of the gap is how well you understand your customers, and on the other side is how well you deliver to your customers. The narrower the gap then the more Customer Centric (CC) you are. Once recognition of the gap exists then the journey starts towards CC starts. Measuring how well you are delivering to your customers is relatively easy but developing a true measure of how well one understands their customers is the hard part. The other key factor on affecting a customer's perception is that of relevance. First of all, you would look at how many of your KPIs measure the end result from a customer perspective of outcome driven rather than output driven. IT internal users and/or end customers whatever works for your business, consider using the Net Promoter Score (NPS) to measure customer and/or partner advocacy of your IT organization.

Measure IT performance for Risk Management (reduces business system downtime, create business continuity, etc): There are two aspects to managing risk, assessing it and then evaluating it against acceptable levels (risk appetite.) In this case, there are multiple players. The CIO will generally drive a periodic risk assessment, usually with the help and input of multiple areas. But it is up to the board or other governance bodies to determine if the risk level identified is acceptable. The CIO does not own the risk, but he/she can and should certainly be tasked with assessing, measuring, and monitoring the risk on an ongoing basis.

Measure IT performance for optimizing cost (reduces the cost of the current business process, improve margins, freeing up capital for new ventures, etc): Every new technology adopted must facilitate business but also bring down the incremental cost of growth and the time to market. That should be the true metric for the IT leaders: how have they been able to impact the top and bottom-line and facilitate growth and competitiveness. IT value is measured by optimization and consumption of IT assets in support of the business solutions. Some organizations apply the technique, either being called touch point analysis or another term for identifying and tracing through the manner by which an IT initiative impacts an organization’s bottom line and business efficiency.

Running IT as a business, IT performance has to be clearly linked with the business performance. IT projects should be called a business project with a clear objective and full alignment with overall company’s objectives, otherwise, they do not exist. Most commonly, the IT narratives within strategic business cases reflect multifaceted business value pathways: responding to mandates by external parties; upgrading existing technologies; making business process improvements; responding to a competitive necessity; gaining a competitive advantage, generating options for provisioning future business capabilities and fueling the digital transformation.



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