“What is the value of an exercise machine?” – Probably one of my favourite opening questions by Gartner analyst Richard Hunter, vice-president and Gartner Fellow, just prior to sharing with the audience his insight on communicating the business value of IT.
Many people in IT often use technology terms that business leaders don’t understand, and frankly, don’t care. For example, when trying to explain the value of a server, people in IT will often describe the server as having a faster CPU, RAM and increased storage capacity. So … How might an IT person answer the question “What is the value of an exercise machine?” In traditional IT speak, responses might be describing the technical features of the exercise machine, such as the number of revolutions the belt can make without a failure, or how many exercise programs are included.
Hunter shared this with the audience: “IT personnel are rightly concerned with the functioning of the machines they manage. But the machine’s functions, per se, are not value – they are at best a means to efficient and effective realization of value. What is the value of an exercise machine? The value of the machine is expressed in the performance of the user. From the user’s point of view, the number of hours per week that machine is in use is of little to no interest. That metric is essential to the people maintaining the machine, but maintenance is not value. The metrics that express the value of the machine refer to the user: number of pounds lost since start of exercise program, number of pounds to target weight, and so on. Benefits are harvested in the domain of the user, not the machine. To express value, do not report on the machine – report on the user.”
Taking a pragmatic approach … the following ideas, thoughts and words are directly from Hunter’s presentation on Communicating the Business Value of IT.
The business context for the value of IT can be summed up simply:
- RUN the business
- GROW the business
- TRANSFORM the business
All value is not the same. Value is not measured solely in financial terms. IT organizations need to know what kind of value they’re talking about, and position their discussions of value accordingly.
IT creates value by running the business at the best possible balance between price and performance.
Running the business metrics is never about revenue. They are about enabling essential non-differentiated services (from the customer’s point of view) with the desired balance between cost and quality. They are about reduced cost, price to performance ratios, and reduced risk (which translates to avoidance of catastrophic costs). The only thing IT needs to do in this case to show value is to demonstrate that operations are efficient and focused on the right priorities. It is pointless and often impossible to connect such value directly to revenues, and too many IT organizations tie themselves in knots trying to do so.
IT grows the business by ensuring capacity and capability – the ability to conduct business in a certain way.
Growing the business value is about increasing revenues and profits from existing customer segments. Operations enables growth by providing capacity where and when it is needed – the ability to do business in a certain way. “Capacity” in this sense includes the capacity for change, also known as agility. For example, reductions in product development cycle time may have few financial impacts initially, but enormous impacts over time as more new products get to market faster. For many products and services, IT is the delivery channel, and operational requirements are closely tied to the value proposition.
IT can transform the business by enabling new value propositions for new customer segments.
The context for transform-the-business value is about massive change: new value propositions serving new customer segments with new products and services. The most important questions are about who will win and why, who will lose and why, and what will be won or lost. Stakes are high; entire industries may rise and fall. Precise calculation of outcomes is usually difficult or impossible; Clayton Christiansen’s work in “The Innovator’s Dilemma” shows clearly that when major changes occur in an industry, even experienced analysts have very poor ability to predict outcomes.
Hunter advises to never forget what it is all about when communicating the business value of IT:
- Change what you think and say before you change anything else, and focus your comments always on business outcomes. IT value must always be measured and expressed in terms that are visible to, and meaningful to, the rest of the business. Instead of talking about what the machines do, talk about what the business does and how IT can help it do more and better. Use the head of sales rule: if the head of sales wouldn’t say it that way, neither should you.
- Show value for money. The inescapable table stakes for communicating IT value is to show conclusively that IT delivers the right services, at the right level of quality, at the right price. Measure and communicate unit costs and quality in terms that refer to services that touch the rest of the business. Players know the score. Benchmark against yourself and against external peers. Provide information that will help everyone in the business manage consumption of IT services, and so reduce costs.
- Show the value of IT as an investment in business performance. Help the business focus on strategy, processes, and operational performance measurements, all of which will clarify which opportunities matter most. Assess the potential of projects to contribute to the most important business outcomes. Measure when an initiative is completed to make sure the benefits promised up front are delivered, and use what you learn by measuring to improve upfront estimates and the investment process.
The Real Business of IT by Richard Hunter and George Westerman is an insightful read for CIOs or anyone in IT looking to be more strategic and relevant in their approach. I have recommended this book to many CIOs and IT leaders over the past few years.