“The IT KPIs must relate to the objectives of business operating model and hence support customer experience, revenue growth and time to market (and others). Internal IT KPIs will not support the digital transformation!“
A few months ago, I meet with a CIO who was going to launch another lean project to improve the productivity of IT. An interesting angle to the discussion was that business wanted the CIO to provided more business value creation – and it was interpreted as “more productivity”. Anyway, we discussed cost levels and definitions of productivity but the key question still remained.
“What is the business value of increasing productivity? How can you measure the business value creation of your strategic initiative?”
The two questions might seem difficult to answer but are highly relevant! In today’s digital age, business value creation is the prime purpose of IT and how IT provides business value should be easy to explain for any audience by any CIO today – it is the core competence in their job description. But still, many CIOs don’t have any tools and plans to address the questions.
I do not see productivity (output/input) as a bad measurement but the question is whether it view performance from an IT or business perspective. It all boils down to the definition of “output” – often expressed from an IT perspective (example: number of releases or projects delivered). Not working! What we need to do is to measure effectiveness (value/input) where “value” is expressed from a business perspective. The value IT is creating through releases and projects. It will give a better alignment to the business agenda – and support business competitiveness.
The question we have to ask ourselves in what is “value” of IT? How do we mission our IT mission and objectives in business oriented KPIs? My view is that we need to understand how IT interacts with business and the role of IT in the IT business value chain. What are business expectations on IT? The fact is that IT has one purpose only – not to supply technical platform, projects and complex architecture – but rather to support business competitiveness. In the end, IT KPIs must relate to objectives of the business operating model and support customer experience, revenue growth, and time to market (and few more). So, how does your IT KPIs relate to the strategic business agenda?
One IT organization discussed ways to measure IT performance from a business perspective – and started to discuss the SLA. In fact, business did not understand the SLA figure and did not know how to react to the SLA reports. Business declared that every second of system downtime (resulting in lost customer sessions) would results in lost sales. What they did was to calculate the average sale per customer session and then translated system downtime into lost sessions and hence lost sales. The linkage was not completely accurate but gave a measurement that was relevant both for IT and business. When business saw the figure of lost sales – they reacted with full force investing more in stability.
Measuring “value of IT” is a hot topic and much has been written about this. My point of view is that value is based on the performance gap between business expectations and perception of IT services. It is relative measurement where expectations and perception will vary over time. IT can show green SLA (95% service availability) – but if business’ expectations are 100% service availability – then IT is not delivering value. Do you understand the reasoning?
Value of IT – The performance gap between business perception and expectation of IT services.
I have worked with IT organization to set up frameworks to measure and enhance IT value creation and all journeys start with the same questions – what is IT’s role in the value chain and how does IT deliver value? So far, the journeys have been successful showing a 15% increase in value creation to a decreasing cost. Contact me to learn more how this was done. What we did was actually to measure IT value creation and could show business effects of all IT strategic initiatives. Cool!
- Understand and acknowledge the business agenda and strategic objectives (for example: customer experience, revenue growth and time to market).
- Set up IT business forums where the business expectations and IT implications are discuss frequently. IT all comes down to learning!
- Contact Sofigate for expert help in defining business oriented KPI.
Back to the discussion with the CIO attempting to boast productivity. I fully understand the idea to increase productivity but we need to understand the link to business success. Productivity will decrease the cost of IT and improve profit levels – but what is the impact on customer experience and time to market? Isn’t great customer experience and time to market a pre-requisite for revenues and profits? From this perspective, I would argue that the IT cost levels are too low and need to increase – with business oriented KPIs.