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Issue of April 2006 

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The true value of IT

Mani Mulki, General Manager, Information Systems, Godrej Industries, takes on a provocative topic: does IT matter?

Mani Mulki

Does IT improve productivity? Can it boost a company’s bottom line? These questions haunt CIOs. Not surprisingly, Nicholas Carr’s 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 Carr’s 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 much—a transaction recording system that has no effect on business processes. Therein lies the root of the problem.

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.

Incremental Benefits

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. IT’s 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 IT’s 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 are conducted.

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.

Measuring Value

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 can’t be measured can’t be improved.

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 management’s perception that IT doesn’t really matter.

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.

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