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Issue of September 2003 
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In Person: Technology in Business

'Ensure that IT is tied to business processes'

Many organizations feel they haven't spent their rupees on IT wisely enough. They have seen projects with very high investments fail. Gartner analyst John Roberts who is Vice President & Director of Research Asia Pacific discusses how enterprises can achieve business value from technology, and make a convincing case to the management for increasing the IT budget. by Minu Sirsalewala

How viable is it to increase the IT budget in light of the economic downturn? How can a convincing case be made for increased IT investment to the board of directors?

There have been incidents of no correlation between business performance and the ratio of IT spending. This has led to ongoing dissatisfaction among senior management about the IT contribution to the business. Management remains unconvinced that the appropriate mechanisms for translating the IT investment dollar into business value exists. Thus, it is a huge task making a convincing case for increased IT investment, to the concerned people.

Enterprises continue making the following five mistakes:

  • Over-focus on ROI to the detriment of other key determinants.
  • Rely on traditional techniques that focus on delivering vs input measures (time and budget), instead of adopting value management techniques.
  • Concentrate on upfront analysis of IT initiatives, rather than adopting a whole-life approach.
  • Adopt static models of benefits realization, rather than acknowledging the 'moving goal posts' nature of IT investment.
  • Rely on initiative-specific approaches to benefit realization, rather than adopting consistent, business-wide standards and approaches.

There is no case of ‘independent business project’ and ‘IT project.’ Fundamentalist do not look at what the IT solution is, but at what are the business processes of an organization. That implies not only to the processes within the organization but also to the processes in the entire value chain.

Every organization has numerous processes—they may also have some internal value adding process—be it services or products—that might be linked or may connect to customers at the other end. Organizations are encouraged to map these applications that contribute value to business processes.

Many organizations have IT as a core system. Business should take IT as an enabler as you cannot get value by adding something to IT unless some change takes place in the business process.

There is a convincing case if they map the applications with the business processes, and highlight the correlation between the IT spending and business value.

How do you evaluate the investments?

Gartner recommends that you evaluate potential IT investments through five perspectives (including the financial one), or on the Pillar model.

The five pillars are:

  • Strategic alignment - There should be alignment of the IT investment strategy with the realization of the organization's business goals and objectives.
  • The architecture - How well does it integrate with the applications? How scalable is it? The integration, scalability and resilience of the databases, operating systems, applications and networks that the company has implemented or plans to implement.
  • Business process impact - What impact will the company's requirement to redesign the business processes have on the customer? How extensive and costly will the required process changes be?
  • Direct Payback - How much incremental revenue will be generated? How high is the total cost of ownership?
  • Risk - Will the scale of the project stretch our capabilities? Does the vendor have appropriate reference sites? Trying to identify the exposure of the proposed investment to failure or underachievement.

How does one derive IT business value through processes?

The key to getting business value from IT is to make sure that it is tied into the business processes. Process a matrix of how business will improve, and the board of directors will be convinced about the value proposition, as it can see the improvements in terms of lower cost.

The business value of IT is spread across a myriad of business processes and activities. Developing an IT business value proposition will help to create the ongoing strategic dialogues that will define how IT can increase business value. The business value of IT lies in its ability to conduct business processes more reliably, faster and at lower cost; and to control inventories, increase revenues, reduce time to market and provide information that enables better decisions. Therefore, assessing the business value of IT means establishing a link between IT and its contribution to business processes. Only then can IT costs be viewed in the proper context.

How can you achieve IT benefits?

Achieving IT benefits demands an integrated, multi-step process. This process defines 'value standards' under each pillar—basically a series of success criteria against which critical IT investments are assessed at the outset of their life cycle, as well as an ongoing basis.

The 'whole of life' approach to benefits realization, is superior to the traditional ROI approach, as it combines a more comprehensive and appropriate range of investment management perspectives that provide the required level of shared management insight for effective decision making.

Is there any model that users can adopt as a guide to achieve the business value?

Success of the IT initiatives will depend on the adoption of a balanced set of metrics, including financial, employee and business processes, as well as customer satisfaction. To gather relevant metrics (activity-based costing is an ideal method), to position yourself to justify investment in an IT project, and to measure 'before and after' performance.

Most enterprises are driven solely by financial metrics, such as revenue, profits and shareholder value. While these metrics are important, they tend to ignore the 'casual' contribution to financial success, like employee skills, and the actualization and process measurements and metrics for customer satisfaction and value. Organizations that have not 'institutionalized' metrics in these non-financial areas, have no explicit recognition that these contributions to financial success are important and increasing or decreasing through business cycles. Enterprises cannot manage what they cannot measure.

What's the IT impact on business?

Few IT projects are stand-alone anymore, due to the pervasiveness of IT in every organization, and the increased requirements for systems integration. To deliver business value, IT initiatives must be part of a broader portfolio of measurements, some of which may need to be introduced directly to support the proposed project, while others may be ongoing.

In India the distribution network still needs to be streamlined for greater efficiency. Implementation is there but how many are leveraging from it? There is still lot of implementation that needs to be put in place. But what is important is how much change has been incorporated in the process, and how much validation has taken place. That is the real challenge.

What are the typical obstacles faced?

One of the impediments to achieving benefits is the clear accountability for achieving them. Too often 'accountability' is viewed in terms of getting the project out on time, and within budget. Broadly, IT management is responsible for the effective and secure operation of the application and infrastructure, while business managers are accountable for achieving the benefits. To do this, the objectives must be given the appropriate resources and powers. Accountability objectives should, wherever possible, be represented in measurable terms.

To achieve this, the management mindset must be changed. The concept of thinking through the full realization process, quantifying metrics, establishing a practical system of accountabilities, and sticking with it throughout the program life span will not come easily to most senior managers. It is common practice for the initial support for the process to wane over time. If this happens, the position of those accountable becomes untenable.

Attaining business value from your IT investments calls for structured, ongoing scrutiny, from initial feasibility through to post-implementation.

What kind of design can one use as a guide to ensure efficiencies?

People, the way they act and interact, are central to the achievement of benefits from IT investments. They need the best tools and techniques, as well as a set of principles that determine the way decisions get made and conflicts get resolved at all levels, across business boundaries. Such a set of principles is referred to as 'governance' by Gartner. Without effective governance, people will take shortcuts and accountability will be lost.

Spend only when you see a business value. IT exists, if you can’t find value then create a hierarchy of the IT applications portfolio. Do an evaluation of which is the highest cost and do the hierarchy of which is of highest value. Do not consider just the cost but focus more on the value.

Every intangible benefit can be turned into a tangible benefit. Managing and leveraging intangible assets will become an imperative for enterprises. The wealth created by investments in intangibles will be tracked and measured as VOI (Value on Investment), rather than the ROI.

The VOI framework describes where the value is created, and where it accrues in workplace initiatives. When enterprise performance is positively affected, it increases competitive parity; however when strategic direction is positively affected, it results in competitive advantage. Enterprise should strive to 'fill' the framework with initiatives that address all VOI dimensions, thereby affecting all levels of value creation.

Delivery model in India

Another approach to business process management systems, helps to automate the identification and documentation of what goes on in the business. You don't get that link in most companies and technologies.

Someone in the business has to realize that what is the business value and what is the contribution of IT. The users need to get disciplined and spend money on IT things that really matter. Total value of opportunity (TVO) is the first application by Gartner of the Business Performance Framework. TVO is being formed through a multi-client development project that will link IT capabilities to financial performance.

By defining, measuring and auditing the cause-and-effect relationships among IT capabilities, our Business Performance Framework and financial results, the value of IT-enabled business initiatives and processes finally will be established.

GARTNER APPROACH
  • P1: Pillars - the 'What'
    (A comprehensive set of standards and perspectives against which to evaluate proposals)
  • P2: Process - the 'How'
    (The processes to realize the benefits and manage the risks identified under P1)
  • P3: People - the 'Who'
    (The people and the roles required to execute the processes)

The Gartner approach to investment appraisal and benefits realization will optimize the chances of your project delivering the anticipated business profits. The comprehensiveness of our approach stems from the 'three P's' of our framework: pillars (perspectives), process and people.

Pillars: The five pillars of benefits realization (strategic alignment, business process impact, direct payback, architecture and risk) define the 'umbilical cord' between business context and IT investment management. They provide the critical set of perspectives with which to understand, evaluate, manage, and retire your IT investments. They can be 'sculpted' or customized to fit your specific business context and 'reshaped' over time as your business context evolves.

Process: This defines how you put the five pillars to work—weighing their relative importance, defining the business-specific value standards (evaluation criteria) that composes them, analyzing and managing IT initiatives against them, and keeping them up to date.

People: This defines the organizational roles—and the people who fill them—that must be in place to ensure that the process operates and does not become a paper-based, rubber-stamping, irrelevant activity.

Ensure that all key value determinants are included in your value assessment.

Gartner Recommends

IT is not even discussed in many organizations, it is taken as granted; nobody at business levels discusses it. What IT really needs is recognition, as IT has substantially contributed to the organization.

  • Educate your top executives on the requirements for benefits realization now.
  • Recognize that a successful assessment must use comprehensive value standards and perspectives (Pillars).
  • Recognize that value achievement calls for clear processes (Process), supported by the relevant governance roles (People).
  • Proactively take into account and manage business and technical initiatives that affect the success of the proposed project.
  • Continually question assumptions about which project was justified.
  • Remember, accountabilities are all important.
  • Quantify and measure at every stage.

IT is an essential component of business operations. To be successful, an approach must incorporate the business dimension in a structured way; it must take all the key determinants into the appraisal process, and it must be capable of adapting to rapid changes in business and technology.

Minu Sirsalewala can be reached at minus@networkmagazineindia.com

 
     
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