A different approach is needed for the way we deliver applications and functional enhancements. We all know costs are incurred the day an IT project is funded, but incremental benefits accrue over a longer period. And yet very few organizations consciously focus on understanding and exploiting the benefit flow of an application once it’s installed.
To me, it’s like a new employee who climbs a learning curve before becoming productive. Application managers could learn some good lessons from human resources professionals. For example, my friends in human resource management circles like to evaluate their assets (employees) on a two-dimensional matrix. A practice that has gained steam in the past several years plots an employee’s performance on one axis and compares that to his potential on the other axis.
Why not evaluate IT assets in a similar manner?
Applying this construct to IT management can be done in a straightforward manner to create an effective communication tool. Moreover, when it comes to maximizing application investments, IT and business managers often lose site of an architecture’s ability to evolve. A lesson learned from this HR practice is that the current functionality of an application (performance) is often less telling than its ability to progress and deliver customer value over time (potential). Considering applications on this basis improves our understanding of the real value that applications can bring today and in the future, can accelerate decision-making and add tangible value by designing business flexibility into the system.
According to John Glaser, CIO at Partners HealthCare System Inc. in Boston, “The goal of applying IT to improve organizational performance will be advanced if we consider our task to be implementing, and then perpetually leveraging, application foundations.”
John’s notion of an “application foundation” is intriguing to me, and while I think it’s well understood, it’s not normal practice. Indeed, many IT managers have become good serial implementers, meaning they treat IT as a series of discrete projects that once deployed, represent finished products that become maintenance items. Success is measured in project management terms like budgets and milestones. While crucial, these measures inherently lack any embedded business knowledge and don’t reflect the real value IT brings to the business. Rather, measurements should be ongoing and include metrics that reflect the benefits of the project, namely improvements in key performance indictors (KPI).
For example, I recently worked with an insurance company that decided to invest in a new policy underwriting system that dramatically increased the number of price quotes issued per day. The increase in new contracts was meaningful, leading to gains in market share and revenue. These indicators were quantified and tracked after implementation.
There are three notable features in this example:
1. IT is capturing and analyzing the key business metrics, in concert with the head of underwriting. Rather than emphasize only the cost of the project, the milestones and the completion dates, the organization actively participates in tracking the ongoing benefits enabled by the application.
2. These KPIs are as important to new investment decisions as the track record of functional implementation.
3. Rather than overload function into the initial implementation, the architecture of the underwriting system is specifically designed to accommodate future enhancements in smaller chunks, with the next potential areas of focus including decreased error rates, increased customer retention and higher insurance premium value through cross-selling.
By the very nature of this approach, the organization extends a one-dimensional measurement (performance) to include the potential an application can deliver in the future. By reflecting the strategic potential of an application in its design, monitoring its ongoing performance and updating our expectations as the business changes, we can add a dimension that considers not only the cost-benefit equation, but the application’s fundamental ability to deliver incremental customer value over longer periods of time.
How do you reflect the strategic potential of an application in its design? By evaluating and mapping its potential value creation to the following key attributes of the system:
— Extensibility of business function. In other words, the ability of the application to be extended to surrounding business processes and applications in a cost-effective manner.
— Technology on which the application is built. For example, levels of compliance, standardization, quality of security, integration, presentation layer robustness and middleware flexibility.
— Complexity (or simplicity). The number of discrete application components requiring integration and maintenance.
— Processes. The quality of implementation and maintenance processes, documentation, service levels and so forth.
— Viability. This refers to all products and providers that contribute to the application.
— Skill sets. Match the skills required to use the application with those available within the organization’s current and planned human resources.
Each of these high-level attributes should be broken down into relevant subcategories. The evaluation of these factors can be done for each application or group of applications using a simple scoring mechanism that rates each item within the above categories and weighs the importance of that item based on the organization’s key business objectives (KBO).
The scoring can then be used to evaluate initiatives as part of the cost/benefit analysis and serve to identify those applications that are worthy of the investments and approach described above. Applications can be compared on a relative basis and the projected value of enhancements assessed in the context of the attributes cited. This approach gives managers visibility on where value is derived and where emphasis should placed. Importantly, not all applications warrant an incremental, evolutionary approach. Frequently, applications are over-engineered and elegantly designed — but yield little business benefit over time. Not surprisingly, the best candidates for evolutionary investment will be core business applications with high value potential that share function and interoperate with other systems.
Make no mistake: Taking this stepwise approach to application evaluation, development and deployment isn’t trivial. The already substantial upfront activity involved in building enterprise systems is made even more intense when designing the ability to evolve and measure functionality in smaller increments. Moreover, this approach trades large chunks of functionality upon initial implementation for longer-term flexibility — and that philosophy may take some selling.
You’ll also need to consider adding capabilities to the process, including a repeatable methodology that’s simple to communicate, tools to assist managers in identifying the next area of advantage and resources to deploy modifications in software and processes, not to mention the compulsory executive sponsorship.
To be clear, chunking two-year projects into six-month segments is not radical, but evaluating the business benefit of application functionality and making course corrections in midstream is hardly common. Just as employees need regular performance reviews, peer feedback and set expectations to excel, applications are ever-changing assets that need continuous monitoring and direction consistent with business goals.