The true value of IT
Mani Mulki, General Manager, Information Systems,
Godrej Industries, takes on a provocative topic: does IT matter?
Does IT improve productivity? Can it boost a companys
bottom line? These questions haunt CIOs. Not surprisingly, Nicholas Carrs
provocative article, Does IT matter? has not only generated worldwide
interest and controversy but has also managed to bring the issue of RoI in IT
to the forefront.
What Carr basically says in his article is that while IT is critical for organisations
to maintain their competitive edge, businesses worldwide have grossly overestimated
the value of IT; worse, he suggests, the strategic advantages which IT can deliver
are on the decrease.
There can be different reactions to Carrs observations and each of them
could be termed right from different perspectives. However, one cannot ignore
the fact that organisations today do invest heavily in IT and it is fair on
the part of the management to expect returns that meet business objectives.
For this reason, periodic review of key IT projects becomes essential. At the
same time, the perception of most CEOs regarding IT delivery does not quite
match the hype.
Implementation With Effect
In most organisations, IT projects are declared live
when live transactions are being fed into the database. But in most
cases these projects end up being only that mucha transaction recording
system that has no effect on business processes. Therein lies the root of the
Significant value can be extracted from IT only if the
implementation ushers in business innovation. An IT implementation should
bring about fundamental changes to at least one key business process
Significant value can be extracted from IT only if the implementation
ushers in business innovation. An IT implementation should bring about fundamental
changes to at least one key existing business process. This is probably the
most difficult and challenging part of an IT project.
A classic example of this is Wal-Mart, which continuously innovated around new
generations of IT. While competitors were quick to respond and ape its tactics,
the retailing giant quickly focussed on the next wave thereby continuously maintaining
its strategic edge.
Many companies are still under the belief that IT can only reduce transaction
costs, whereas the truth is that bits and bytes are the fundamental building
blocks for innovation. IT is just waiting for right-thinking organisations to
harness, exploit and use it effectively. The differentiation is not in IT as
such but in the innovative new practices it can enable.
No management would be comfortable destroying practices that have prevailed
over the years. Organisations that have a history of successful IT implementation
are not wary of bringing about these fundamental changes. They are aware that
IT capabilities can be fully leveraged if accompanied by business innovations.
Thus, IT does matter.
IT projects are launched with fanfare and great expectations. The scope and
investments are centred around the promise of high returns. That could be one
of the primary reasons for the big-bang approach that most organisations adopt.
All modules and sites go live at once with the hope and expectation that returns
would be that much faster. However, nothing can be further from the truth. ITs
economic impact comes more from incremental innovations than big-bang initiatives.
Returns from IT rarely come instantly. They need time to mature and be effective.
Big-bang IT initiatives rarely produce expected returns as they are complicated,
expensive, take a long time to implement, and are fraught with risks.
The companies that are most successful in harnessing ITs power typically
proceed with incremental waves of successful IT-enabled business changes. These
incremental changes are not hard to implement. A feedback system is put in place
to make sure that every small but significant change in a business process is
imbibed fully by the organisation. These incremental changes that are enabled
by IT cause minimal disruption and heartburn. Pursued continuously over a period
of time, they translate into a mammoth change in the way business operations
By implementing IT projects in chunks and tying these initiatives into explicit
business performance metrics, the management can create tighter feedback loops
and accelerate the learning process. The strategic impact of IT investments
therefore comes from the cumulative effect of sustained IT-enabled initiatives
to innovate business practices in the near term. Strategic differentiation emerges
over time, and not instantly.
How does one measure the value
that has been generated by an IT project? There are no easy or straightforward
answers, and that is why this process is often avoided
One of the prime reasons why returns on IT initiatives have
always been defined in hues of grey is because of the vague ways in which they
are being measured (or not measured at all) in many organisations. The fundamental
truth however has always been that what cant be measured cant be
How does one therefore measure the value that has been generated by an IT project?
There are no easy or straightforward answers, and that is why this process is
often avoided. The challenge appears to be in finding the tangible equivalent
of intangible benefits. Lack of measurement eventually translates into IT being
viewed as a cost centre and not a value centre for most
part, and reinforces the managements perception that IT doesnt really
It is therefore absolutely imperative to have a measurement system well before
the IT project is initiated. This system should be calibrated such that it is
explicitly linked to business performance metrics.
Further, it should be agreed that the actual measurement and reporting should
be done by business users and not by the IT department. It is important not
to miss this point in the beginning itself. In fact, no IT-enabled project should
ever commence without a broad alignment and consensus on the measurement criteria.
This would not only ensure that the implementation is given the right priority
and pushed in the right direction, but would also set the right expectations
in the management.
To sum up, to improve the business results gained from IT, corporate leaders
must continue to increase alignment with strategy. Most leaders therefore would
need to have a better understanding of IT and integrate IT leadership into their
strategic planning activities.