For all of its 40 years, IT is still a young, immature industry; even more so the management of IT within business. Bringing IT projects in on time, on budget and to requirements remains at best an imprecise science and at worst an ill-disciplined art form. Various estimates in recent years suggest that two-thirds of IT projects fail to meet their delivery dates, while half go over budget.
Business leaders may have become used to that, coming to accept that IT – like other activities such as construction and film-making – is subject to so many intangibles that ‘slippage’ needs to be built into the delivery formula. What they cannot abide, though, is when, after all the time, effort and money, the resulting applications fail to deliver the desired business value.
A 2007 survey by Dynamic Markets of 800 IT managers found that 41% of IT initiatives fail to show the expected value and return on investment. And today, one of the greatest challenges for both IT and the business is to ensure not only that the risk of project overrun is minimised but that each investment generates the maximum possible value for the business.
Industry analysts and business authors have waxed lyrical on this. Richard Hunter of Gartner, for one, makes clear the case: “The guiding principle is that the business value of IT is always, always, always measured in improved business performance as perceived by the business stakeholder. The CIO must position investment in IT as leading directly to improved business performance. Achieving this requires the CIO and the IT organisation to think differently, act differently and be different.”
And that value has to be spelt out. “No enterprise in the 21st century runs for long without capable IT. Whether IT enables current operations or contributes to enterprise competitiveness, it is essential to success. But businesses produce returns on investment, not IT, and many CIOs struggle to communicate the value that IT produces for the business,” he adds.
This is where the concept of ‘value traps’ comes in: pitfalls that stand in the way of the business understanding how IT investment improves business performance. Some of these traps are the aforementioned ability to deliver reliable, cost-effective services. But others are more related to an inability to establish tight linkage between IT and the business performance goals.
As numerous CIOs and IT managers have stated, the perception of the real value of IT is not going to come from the ability to deliver day-to-day services such as Internet access, email and payroll – the reliable delivery of those is a given. Rather, the appreciation of IT’s contribution is built on initiatives that make tangible improvements to business performance.
Indeed, the expectations for IT are changing fast. According to recent work by the Economist Intelligence Unit (EIU), globalisation and increasing competition in markets worldwide are driving senior managers to demand a closer alignment of IT to business goals. The research indicates that 69% of senior IT and business executives expect the primary role of IT, traditionally seen as cost efficiency, to be elevated to that of enabling revenue growth within the next few years.
This expectation is most strongly held among CEOs and board members, 83% of whom are “wholly convinced” of this shift; IT managers themselves are a bit more cynical about this game-changing trend, with only 62% sharing the CEO’s convictions.
The driving force behind this shift in priorities is shareholder pressure, the EIU reports. But the focus on justifying IT expenditure, combined with a growing understanding of IT at senior levels, is leading to the reappraisal of IT’s role, as the potential to use IT to improve revenue generation is recognised.
Indeed, when IT website CIO Insight recently canvassed its users on their pressing business goals for 2008, the top five aims were: improve alignment with business objectives; improve IT planning processes; improve project management capabilities; reduce IT costs; and improve ROI on IT spending. And those all map straight on to a single desire: for better management of the economics of IT value creation.