Driving IT business value has always been one of the key mandates for the CIO. Now research from the Hackett Group puts some numbers around business value management and its importance to the enterprise.
According to Hackett’s research, when compared (by industry) to the typical US$22.3 billion Global 1000 companies, top IT “business value management” performers generate $1.1 billion more operating profit on an annual basis and $645 million higher net profit. In addition, not a single company in the Hackett study was able to deliver superior financial performance without also being a top performer in IT business value management.
Business value management has four aspects: business value governance, performance management, portfolio management, and IT financial management. According to Hackett chief research officer Michel Janssen, “The IT [business value management] processes we’ve identified represent only 3 to 7 percent of the overall IT processes and resources. Yet by excelling in these areas, companies can drive dramatic bottom-line benefits.”
In practice, top performers manage their IT project pipeline much more effectively than their peers, according to Hackett. They weed out the least promising initiatives early on, approving and funding only half as many project proposals (40 percent versus 88 percent for typical companies). Then they initiate and complete a much larger percentage of the projects they approve. Finally, top performers are nearly two times more likely to meet cost targets on IT projects as typical companies and nearly three times more likely to meet benefit targets. Ironically, they achieve those financial efficiencies as an effect of their IT business value management approach, not from a focus on cost containment. Most companies — those that don’t get the strategic IT value — focus on maximizing the efficiency of IT, viewing it simply as a cost to be contained, said Eric Dorr, a senior business adviser at Hackett.
Separate research by independent consultant Howard Rubin has also shown that IT organizations that manage and apply IT wisely are more successful than their peers. His IT value metric approach helps IT managers assess how IT spending corresponds to business value.
Hackett’s research also showed no correlation between a company’s industry and its ability to follow the business value management approach. “Top performers are not specific to a particular industry, nor to company size,” said Mike Roen, a senior business adviser at Hackett. But it is critical that the business value management approach be embraced companywide, he noted: “If you try to approach this from just one perspective, it won’t happen.” That means that IT cannot apply business value management approaches in isolation and expect to transform the company as a result, nor could senior management apply these approaches while letting IT continue old approaches and expect any lasting results.
For companies that don’t have a business value management approach in place, Roen cautioned that it will take a lot of work to make the necessary transformation. But he noted that a great opportunity for applying these principles is when IT does a technology refresh, as that creates the opportunity to rethink the infrastructure and drive out complexity, not just freshen the existing systems with the latest products. “It’s a lot like urban renewal,” Roen said, “and requires a longer-term commitment.”