IT boom and bust investment cycle undermines business value

Neil Curtis, Head of Marketing, ITM Group

www.itm-group.co.uk

With the economy showing signs of turning the corner, organizations are beginning to dust off long delayed IT projects. But are these projects actually worth implementing? If an organization could afford not to invest for two years, will a new development or systems upgrade actually deliver to the bottom line? If so, why was the investment put on hold, and if not, why invest now? Unfortunately, since few IT departments can accurately measure the business impact of these investments, it is hardly surprising that IT credibility remains low and IT investment heads the cost cutting agenda. This boom and bust approach to IT is extremely damaging to business and exacerbates the poor regard in which IT is held across organizations. If this cycle is to be broken, the onus is on the IT Director to make a valid case for investment based on real business impact and relevant business, not IT, metrics. The ability to quantify the role of IT within an organization should prompt a shift in corporate culture that turns the board's view from cost centre to business contributor, and fostering the support of the IT Director required to continually enhance that bottom line contribution.

With world stock markets recording their best third quarter performance in over a decade, there are clear indications that the financial markets have turned a corner. As a result, improved financial confidence looks set to encourage companies to reinvest in IT and unleash many development projects that have been on hold for the past two years.

But are these projects still appropriate? How much will they actually deliver to the bottom line?

These questions should be at the top of any IT Director's agenda. Yet too few organizations, especially those in the mid-market, have the ability to measure the impact of either existing or new technology on the business. As a result, IT retains its cost centre status and lacks the credibility at board level to take the central corporate role required if an organization is to truly leverage technology for business advantage. This situation will never change unless organizations link investment in ICT with defined business goals. And that means attaining a real understanding of corporate objectives and measuring ICT performance, both good and bad, and its business impact. Without a close relationship to the business, ICT will continue to deliver systems rather than provide services that support the real business objectives of the organization. IT Directors will continue to be marginalized among senior management and IT will retain its cost centre rather than business enabler status.

Breaking the boom and bust cycle is a major cultural shift that will require in depth assessment of internal skill sets, their applicability and viability. IT Directors need to look hard at the real business requirements and leverage relevant internal skills with those of business partners, outsource or co-source organizations.

Principles

While undoubtedly challenging, there are techniques available to aid this realignment process. Service Management principles, and methodologies, have been in place for over a decade that enable ICT to measure and demonstrate the bottom line contribution.

The IT Infrastructure Library (ITIL) methodology has been adopted both by the public sector and larger private sector organizations to align IT to the business. More recently, the BS15000 standard has been introduced which formalizes ITIL. While current adoption rates for BS15000 are low, the standard will undoubtedly increase in importance over the next few years, enabling organizations to demonstrate ICT differentiation and close business alignment.

Earlier adopters include Barclays, BBC, Centrica, Co-operative Bank, GlaxoSmithKline and Police IT Organization (PITO). The standard has also been advocated by research organization Gartner which has recommended that enterprises should adopt ITIL service management as a discipline and all improvements should be based on ITIL and BS15000 so that future certification is possible. But neither ITIL nor BS15000 will deliver service oriented ICT unless an organization engenders a fundamental change in communication between ICT and the business about strategies and prioritization. This must be supported by the implementation of relevant internal Service Level Agreements (SLAs) based upon business needs rather than technology goals. Measuring accounting system availability at month end, for example, is a far better measure of ICT service delivery than irrelevant percentage system up-time over three months.

Valid investment decisions

Only once both ICT and the business have achieved improved understanding of how existing technology supports organizational goals, valid investment decisions can be made to drive forward ICT developments in line with corporate objectives and based upon real business system performance. Accurate business measures combine with ICT technology expertise to drive investment strategy towards the most appropriate, cost effective solution with real, measurable objectives for return on investment.

This enhanced insight also applies to key decisions such as the use of technology partners and outsourcers to leverage an organization’s internal skill sets. There is currently a growing trend towards outsourcing according to statistics published by the Management Consultancies Association (MCA), which reveal outsourcing consultancy has grown by 20% since the second quarter of 2002.

However, the primary focus for outsourcing is on cost reduction, further marginalizing the IT department as a cost centre. Does an outsourcing strategy actually match business objectives or leverage existing internal skill sets? Is anyone measuring the value – or lack of it - to the business? Without the right business focus measurements in place, organizations cannot answer these questions and can only take a cost centric rather than business focused view.

Conclusion

Yes, a significant cultural change is required alongside the adoption of appropriate methodology such as ITIL to successfully align IT with the business and shift technology's perception at board level from cost centre to business enabler.

Yet time and again organizations have proved the value IT can deliver if, and only if, it actually matches strategic needs and user requirements. And while the larger organizations have begun to use ITIL compliant tools to measure, monitor and demonstrate performance in delivering business solutions, mid market organizations persist in a technology rather than business centric view. Unless this changes, these organizations will remain prey to the whims of the financial markets and economic cycle, deemed an organizational cost centre and fail to deliver the business value increasingly required to compete. The ability to demonstrate to the board the financial contribution delivered by IT provides an organization with the confidence to regard IT as a business enabler rather than cost centre and begin to support the IT Director in the delivery of IT strategies aligned to corporate objectives.