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Value of IT framework – an approach to change the role of IT to support competitive advantage and business success!

 A couple of years ago, I attended an IT governance conference in Stockholm with quite high expectations. My key memory from the conference was a discussion with some experienced CIO and IT Governance experts around the topic of “Value of IT” and productivity. It was concluded, with quite high confidence that such framework cannot exist – as IT is too complex – in a similar way as cold fusion. Impossible task! To my surprise, I received an assignment to define “Value of IT” and productivity a couple of months later from our CIO – and my first response was that this is impossible. Or is it a “selected truth” that hinders us to perform at our best? It was worth a try to test if it was possible or not – like a management Myth Buster!

I know that a framework for “Value of IT” cannot exist, but if it did exist – how would it look like?

An interesting perspective is that it is essential for an IT organization to show; black on white, how IT contributes to the value chain. If this is not possible, it is difficult for IT to justify its role and will automatically be categorized as “production unit” and cost center. IT will be the main source for cost reduction and productivity gains in the organization rather than the source of competitive advantage and business success.  It is mainly a communication issue that only can be bridged by displaying how IT actually creates value for business. I would argue, based on recent research (Harvard Business Review), that approximately 50-60% of IT organization cannot justify its existence as “value creator” and is forced into the corner of “production unit” (a completely different ball game).

The first step in my crusade again the “selected truth” was not to look at IT but to do extensive research on service quality (in general). IT is obviously a service provided to the business, in the same way as other services. The same logic and methods should then apply to IT. Worth a try! Frameworks such as SERVQUAL was studied in detail, together with in-depth interviews in the organization, and it was possible to make three conclusions:

  1. The Service Value depends on the service receiver’s expectation and how these expectations are fulfilled. Expectations need to be mapped and tracked.
  2. Different service provider contributes with value in different ways depending on their role in the chain. The role of IT is different from the role of a Product Responsible Units. A common generic model would not work.
  3. The strategic initiatives (such as lean) must support the value creation in the value chain.

By adding IT specific knowledge based on ISACA IT Balanced Scorecard theory, Merchand Value of IT model and continued interviews and workshops, it was possible to set up a straw model for the role of IT and how IT delivered value.

Role of IT (version 0.1):

  • Drive Cost and Risk Reduction
  • Assure high quality of Service Delivery
  • Support common strategy and vision (future looking)
  • Corporate contribution (realizing effects)

The straw model needed validation and review but in the end, we concluded on the Role of IT in the business IT value chain. By combining the Role of IT with a performance management (Plan/Do/Check/Act), a complete framework was born support learning and continuous improvement with aim to enhance Value of IT.  Who would have guessed? It was possible!

So, what happened? To set up the framework was not done in an instance but actually demanded quite a lot of coaching and support. Dialogues between IT and business were initiated to discuss business expectations and IT’s ability to exceed the expectations – according to the defined Role of IT. The effects of the new approach gave immediate effects.

  Value of IT
High performers +23% increase/year
Low performers +0% increase/year
Average performance +15% increase/year

Fig. 1: Value of IT effects

The effect of +15% increase of Value of IT was surprising, as this was not expected. We therefore started to investigate why the effects were higher then expected. What were the mechanisms that were the driving force to the increased value?

A key conclusion was that the focus on the process of learning and continuous improvements was the main source of the positive effect. The idea was never to optimize a one-time measurement but rather to build a framework that inspired managers to learn and improve. Each “score” (score 1-7 based on fulfillment of expectations) was complemented by a discussion between IT and business of how the score could be improved, and this discussion was documented into action plans and responsibility. Secondly, excellent scores (score 7) were studied and managers interviewed about the success factors for achieving the score. The information was distributed on intranet for learning purposes. The actual process of learning and continuous improvement was prioritized before specific measurement and targets.

A second conclusion was that the interaction between IT and business changed how these managers talked and collaborated.  Previously, with complete silo thinking and low value focus, created a blame game culture where each side blamed the other side for its failures. This “culture” changed to stimulate a collaboration based on trust and business value creation. The new approach was highly praised by business side and also by IT managers.

A third effect was that strategic initiatives (such as lean) now were placed in a context to work in. The company had introduced Lean in IT two years ago but after the project was closed and responsibility moved to the line organization (us), the engagement dropped by 60-70%. Many units did not see the value of doing lean and that it actually had impact anywhere. With introduction of Value of IT framework, Lean got a context and had a purpose. The successful units continued with lean and could therefore show cost/risk reductions and improved service deliveries.

There were a number of negative effects of the Value of IT approach. The transparency of performance and competence increased rapidly and revealed low performing managers in a detailed way. We could point out exactly were support and coaching was needed, and tried to support these managers as good as possible. But some managers with a “legacy thinking” expressed concern with these new administrative tasks. They were low performers in the survey and did frankly not see the value of a business-oriented dialogue with business. The long-term effect of low performance was that these units were subject to re-organization and management replacement to force a business value dialogue with business.

The main effect of implementing a framework for measuring and enhancing Value of IT was the ability of IT Executives to communicate the value of IT to their counterparts in business. IT could display, on average, a service quality above business expectations and with growth of 15% per year at flat cost. The communication resulted in the ability of IT to drive the discussion away from a “production” (Operational Excellence) focus to a more “value creation” (Customer Intimacy) focus – with potential effects of higher enterprise RoE, revenue growth and cost efficiency. The implementation of the Value of IT framework was one of the key drivers for a better collaboration between IT and business, and supported ITs ambition to support business success!

My recommendation:

  1. Stop saying that it is impossible to measure and drive “Value of IT”. It is possible and has great effects on your organization!
  2. Start to think out the workings of your value chain and the role of IT. What expectations does business have on your organization?
  3. Focus on building a process for learning and continuous improvements to get the best effects.

It is interesting how a “selected truth” can affect the performance of a whole industry. The “selected truth” in this case was that the value of IT could not be measured and improved – as IT was considered too complex. This was the “truth” and could not be changed. Actually re-thinking and challenging the common standard have now busted that particular “selected truth”. What other “selected truth” do we have that is hindering us from performing at our best? Think about that!

Hans Legend 1