What is Information Technology’s Value?
November 2, 2020
What is Information Technology’s Value?
Defining Value and Leveraging the Technology Business Management Framework
Author: Aalap Jha, WBD Lead Consultant – IT Portfolio Management | Strategy | Analytics SME
What is Information Technology’s (IT) value? This has been an age old question since at least the 1970’s when IT became prevalent enough to affect competing business units’ budgets. When a budget crunch creates a need for organizational cuts, offices would unite for a brief moment to point the finger at the IT department and pronounce – “What value do they provide, and what is their return on investment? How do they provide shareholder value? Cut their budget!”
How does one measure the value of Information Technology? In the aftermath of COVID-19, the value of leading-edge IT became evident as corporations and government entities alike rushed to invest in Cloud solutions and collaboration tools to ensure their employees could remain connected, and accomplish their work while de-centralized from their clients. Below, we share our insights on a few of the common questions to ultimately define IT’s value – both during the pandemic and beyond – as well as how the Technology Business Management Framework can help communicate IT’s value to organizational stakeholders.
Why does IT cost so much?
Why does it cost $1,500 for a desktop through the IT Department when one can get a similar desktop from Best Buy for $599? Many IT Departments simply do not have a strong framework to calculate the cost of delivering IT services to business units or their customers. Customers frequently do not see the behind-the-scene technology and support that is included as part of the cost for the desktop – initial set-up and imaging, deployment, service desk support, maintenance/warranty, cybersecurity, etc. In other words, the total value of an IT product or service needs to be captured, defined, and communicated to the customer.
How do you define Value?
Organizations have many stakeholders and value means different things to each of them. Executives define value as being able to innovate in a cost-effective manner and to be able to respond quickly to business opportunities or threats. IT Departments define value as being able to provide a service in a technologically efficient and secure manner. Customers define value as being able to receive the “best” services at competitive prices.
But how do we demonstrate the value for services that are not as clear-cut?
This is the great divide between customers and IT Departments – the costs of IT services versus the value of IT services. A great example is from the company Everlane, an online clothing and accessories company that has built a fierce and loyal customer base through their “Transparent Pricing Model.” The company breaks down the true cost of every product they make so that customers understand where their hard-earned money is going. In a study conducted by Harvard Business School, researchers found that Everlane’s revenue tripled by revealing the cost composition of a product – including a healthy profit margin.
How can complex IT organizations tap into the success companies like Everlane and provide transparency in costs for their services and enable value-based conversations?
Bottom Line: Value from a service can be determined when the service’s perceived value exceeds the cost to obtain the service.
Common questions that need to be answered in order to define and communicate value are:
- What services did IT provide? – Explicitly document and publish all the enabling products and services required to provide the End-User Product or Service
- How much did the service cost? – Understand the total cost to provide the End-User Product or Service and communicate that to the Executives and Customers
- What did the services accomplish? – Ensure the End-User Product or Service meets the agreed to service levels Performance, Capacity, Availability, Security, etc. service levels
Enter the Technology Business Management (TBM) framework
TBM is a methodology designed to communicate the value of information technology to all stakeholders. The framework focuses on cost transparency, delivering value, identifying the total cost of IT, and shaping demand for IT services. TBM took on one of the biggest issues faced by IT organizations and created a standard taxonomy that can be leveraged to bridge the gap between finance, IT, and business, ultimately ensuring everyone is speaking the same language.
How to begin your organization’s TBM Journey?
- Determine the current state, objectives, maturity, and key players of your organization’s financial management, IT investment, and service management disciplines
- Understand how data is collected, aggregated, shared, and reported and what tools are used for each of the disciplines listed above
(2) Simplify & Integrate
- Identify existing processes and functional areas such as IT Financial Management, Project Management, Portfolio Management, Enterprise Architecture, IT Service Management, etc. that intersect with TBM
- Determine what your organization, at a minimum, requires out of each of the functional areas from a process and output perspective; More often than not there are overlapping roles, responsibilities, and processes that can be integrated and/or streamlined to create efficiencies
- Integrate the processes together to form an end-to-end multi-disciplinary life-cycle process in order to create a whole that is greater than a sum of its parts
(3) Define Success
- Scope out what success looks like for your organization for the initial implementation of TBM based on the maturity of your organization’s processes and data collection outlined in Step 1
- Tailor your implementation approach – If your organization is more mature and data is readily available then a broader implementation to encompass all IT spend may make sense on the other hand if your organization is less mature it may make sense to focus on Direct IT spend
- Identify what value conversations you are trying to have in your organization – this will drive the use cases and outcomes
(4) So Much Data – Need Tools
- There will be numerous urges and calls from vendors to procure tools in order to simplify and accelerate your TBM journey but resist those urges – at least initially
- Start your journey with a spreadsheet – understand, map, connect, and trust your data
(5) Pulse-Check / Course-Correct
- As you become one with your data, see if you are able to start having the value conversations
- Allow stakeholders to view and drill-down into the data model you created and have collaborate with them to see if you are able to have the conversations you expected and if the data is providing the insights you anticipated; If not – no problem maybe you just need to course-correct and bring more data into the model or adjust how you map your data
Rinse, Repeat, & Socialize
TBM is designed to ultimately prepare businesses to extract actionable data and insights that enable leaders to make informed decisions. Once your organization has completed these TBM steps, continue to iterate and refine the data model in order to unlock the value conversations that your organization needs to realize your strategic goals. By making TBM the default IT language at your organization, Business, IT, and Finance will be able to seamlessly speak the same language. Managing IT as a business is not an easy feat; however, with the right plan, people, and leadership buy-in, you will not only be on your way to transforming IT into a strategic asset, but you will also begin unlocking IT’s true value.
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