Thursday, September 5, 2013

Three Perceptions of IT Value Proposition

The successful enterprises have IT systems that are not cumbersome but enabling.

IT is working hard to transform from a cost center to a value center, but some of the challenges facing IT valuation are that we attempt to apply the same measurement approach to all investments - yet there are unique attributes that differentiate one investment category from another. Further, too often, IT is driving by a look at the rear mirror only, not pay enough attention to the front window and create forward-looking view upon how to run IT smoothly, or only focus on ‘tangible’ value, with ignorance of ‘intangible’ one. So what are the best way to present IT value?

1. IT Value Needs to Reflect the Era Shift 

Business paradigm is shifting from the industrial era to an information/digital era, technology plays a pivotal role in such a transformation, and therefore, IT value needs to reflect such a shift.

  • Industrial era vs. Information era: Industrial era = traditional "asset-based" accounting and productivity measures and approaches. Informational era = knowledge conversion and intellectual capital, which explains excess market valuations. 
  • Collaborative value vs. Collective Advantage: IT value-based management needs to be driven by concepts like collaborative value or collective advantage and multi-layer ROIs. IT value is demonstrated through the rate of productivity increases, the rate of new product development, the rate of market share gains, the rate of customer approval and satisfaction gains, the rate of sales gains, etc.  
  • IT Value is based on transforming data into intelligence: The service IT delivers to the enterprise is transforming data and information into knowledge and intelligence. The ability to incubate, grow, protect, and leverage intellectual capital is the greatest value that any IT organization can provide its enterprise. In addition, service can be measured and valued according to the increase it delivers. 

2. Different Ways to Look at IT Value 

The successful enterprises have IT systems that are not cumbersome but enabling. Enablement through unobtrusiveness is what drives innovation and the improvement in the ability of the enterprise to learn and grow as an entire organic system. There are two ways of looking at IT value, either look through a rear mirror or front window; a single point of view, or connecting the dots.

  • Driving by looking at the rear mirror: Too often IT uses the first way - which is historical and does not account for residual value and intellectual capital that makes up a large portion of the market value. Beyond pure and simple historical accounting through poorly projected ROI.....surely the issue is around buy-in and confidence in the business metric. 
  • Looking forward, focus on the way ahead: Second is the way that calculates the potential value of IT on a Normal/Best/Worst scenario in the future Near/Mid/Long and creates a multi-dimensional map of the same as to how it supplements the business. So the second way is worthy of the pursuit.....the timeline is critical as hard returns take the time to be realized onto the books...thus, the importance of other value drivers at points in time - triangulating economic value. 
  • Connecting the dots. Confidence comes from a demonstrable value from previous investments...these very investments that now sunk costs require operating costs to support. Without the effective cost of ownership and line of returns, how can you justify with confidence on incremental investments without an effective IT value chain or IT operating base, how should you be effective in managing new investments?  

3. Triangulating Value from Different Lens 

Many companies want to measure IT investment based on ROI which is measurable only in certain deployments. Often an IT investment falls into more of a risk prevention model than to driving profitability. However, many companies do not buy into this paradigm of IT investment as a preventative tool to avoid loss. ROIs are an effective way of deciding many things. But shall you use the same ROI monetary principles as a way of deciding whether IT added value? 

  •  It’s interesting to see how IT value is in the eye of the beholder. There’s an inspiration from prior design patterns, no value chain possible without UX perspective (at least according to the UX person), risk management perspective has made its appearance, as it has sunk cost (IT has no value if there are no improvements). In reality, it's a combination of all of the above. What combination is important in a given organization depends on who is beholding that value. One can start with a standard set of these metrics, but ultimately, only metrics that are worthwhile to the stakeholders should be employed.
  • Triangulate value from different value lens in building a more comprehensive IT value proposition. There are tangible (cost saves, efficiency, etc.) and intangible (brand equity, sales enablement, etc.) components of value. Each organization has a set of capabilities that enable it to achieve successful outcomes, whether financial, brand, or double bottom line. So it needs to create the alternative IT value index- comprising of value lenses such as strategic imperative, operational excellence, and business agility.
  • Gaps filled vs. Gaps Open and to what degree is what you build to solve and repeatedly measure. This can be an “As is vs. to be” or “as–is vs. was” when you are done. If you can accurately articulate the primary business objective, then you can derive from it the business process requirements and subsequently the user requirements and usability objectives along with the technical requirements necessary to support the desired user & customer experience. Embedded within those are implied metrics, all pointed toward how well the business objective is being delivered, or not as the case may be. Create a roadmap from strategic goals to business profitability: Objectives -> User/Customer eXperience -> Technology & implementation = strategic plan and profitability.
Therefore, measuring IT value is both art the science, the key principle is to look at it both via a historical and future view, as well as in the eyes of shareholders, to measure IT efficiency, effectiveness and agility accordingly.


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