Saturday, November 18, 2017

CIOs as “Chief Investment Officer”: How to Measure IT Performance and Assess IT Investment Right?

Continually accelerating changes in IT digitalization requires faster responses and better performance metrics.

IT investment now is a strategic imperative for a forward-looking business to pursue the growth, the company needs to continue to review upon the ROI of existing IT investment, the maturity of IT performance, how well can IT investment unleash the digital potential of the entire business. And how to make an objective IT investment and IT performance assessment via initiating sophisticated questions, setting right metrics, and measure them in the right way?

Do you know why you are collecting the metrics? Don't collect metrics for the sake of collecting metrics. Assess metrics from IT investment and IT performance perspective. When you think of "IT performance," what comes to mind?  IT effectiveness or efficiency, operational excellence such as customer satisfaction, or strategic value such as competitive advantage, leadership edge, or cultural niche? When you think metrics from IT investment perspective, what comes to mind? Ask whether the metrics can reveal anything meaningful for the identified purpose. Identify the purpose of the information and the stakeholders who will use it. Understand measurement from outside-in shareholders’ perspective. The well-selected set of metrics are those used to inform the business of multidimensional IT performance and value, with the goal to change the business perception of IT as a cost center. Diagnose the current IT problems -  There are quantifiable elements such as inefficiencies which can be brought to light and the qualitative elements such as ineffectiveness that there is a disconnect between IT and the business.

How to give those responsible for collecting the metrics a reason for doing so, and also do it in the right way? Companies are highly dependent on IT executives who make the proposal to change or replace the technology based on the need for the business. IT should continue to review upon the ROI of existing IT investment, whether depreciated life cycle is completed or not; whether new technology/ product mature enough in the business market to adopt. Information & Technology are one of the most invaluable assets in the business right now. Applying the right procedures and policies to asset management allows IT to create a realistic budget with few surprises, and keep best practices to adapt to “continuous changes.” Thus, CIOs as “Chief Investment Officer” need to ask themselves as well as those who take responsibility for measuring:
-What efficiency and revenue generation opportunities are supported or delivered by IT?
-How does IT impact customer retention?
-How can IT have a "P&L" even if it’s only for communication purposes?
-How can IT impact business metrics like RONA, depend on the nature of the business?

How to ensure management buy-in for the metrics collection process? Define the right set of Key Performance Indicators which can reflect the progress for the long-term goals of the firm. The board or business management will buy-in when the metrics can clearly present the tangible business result from IT investment, and persuade them that IT is a strategic asset. Performance metrics are numbers in context, results related to the strategic goals of the business. One of biggest pitfalls for IT performance measurement is measuring the “part” with ignorance of the “whole.” Company management is more interested in the business’s overall performance, not just IT performance. The top metrics which is of interest to top executive management are either ROI, ROE, RONA or business growth. On the ROI side, there are metrics that could be used and monetized. The way the KPI is measured needs to be an accurate reflection of the behavior the firm is looking to exhibit.

Continually accelerating changes in IT digitalization requires faster responses and better performance metrics. IT leaders need to play the number game wisely to present IT value proposition on how to increase revenue, reduce cost, improve service/solutions, manage risks, both accelerate business performance and realize digital potential seamlessly.


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