How to Measure IT’s Business Value?

In today’s world, each and every business initiative is measured in numbers. However, more often than not, the IT community is not overly inclined towards getting IT investment measured in terms of business outcomes or attributed to numbers. 

In fact, what one can observe is that the project’s cost-benefit analysis often places IT as the cost centre, while the business takes the ownership in terms of the benefit it achieves.

For example, the benefit can be stated as objectively as possible, maintaining that “through this project, we aim to increase direct sales by 10 per cent in the next 6 months in the south zone.”

And, in subjective terms, it can say, “through this Social Media initiative, we aim to increase the brand image of the organisation.” The business would not really care to re-visit the process and the steps that IT initiates to reach the goal in the cost-benefit analysis exercise.

How one can measure IT
Let’s take a step backwards, and try to figure out the different types of IT initiatives a CIO office currently gets involved with in a typical financial organisation, in a hypothetical scenario. Besides keeping the lights on as an operational job, the project initiatives taken up by IT can be clubbed mostly into 4 groups:

1. Business Process Re-engineering
2. ERP projects, custom development or package implementation
3. Technology initiatives like Field Automation projects
4. Data driven projects like Implementation of Analytics 

Ways of evaluating IT’s cost versus benefit
Take the case of a business process reengineering project which has several gaps in the existing process and so, a new process has to be defined to bridge these gaps. The first step to measure the value this group brings in would require weeding out the non-value adding processes/wastes --in terms of resources, equipment or outdates processes. This is a major investment by the organisation and is driven in tight collaboration with the quality, IT & business community. 

CIOs can use this step to create the IT roadmap for his/her organisation. The benefits for these projects can be measured, for example, by finding out time saved in the critical business flows or by reducing wasteful over-processing.

Secondly, the ERP project group as the scope of this project can be derived based on the recommendations of the Process reengineering projects. These transformational projects take organisations to a different plane of daily operations. The benefits can be derived by measures like increase in employee productivity, decrease of turnaround time for delivering a service, reduction of wasteful time, etc.

Thirdly, technology initiatives like field automation come closely linked with ERP projects. The enterprise should be able to predict the utilisation and value derived from the sales teams, if they want to do a Sales Automation project. Mostly, these are measurable metrics, and IT should play the role of mentor with the business in coming out with the benefits.

However, projects like sales automation also offer some non-financial benefits which are hard to measure. For example, a sales guy having an Android tablet capturing details on-the-go and sharing information right there might be perceived by the customer as being smarter than the competitor, who is out there with a few printed application forms. This has a long term impact in changing the brand image of the company. In some cases, business can even decide to put a number to these non-financial metrics by converting them to tangible values (like increase in topline), which would make IT get the budget approval much easier.

Then, there is the 4th type of IT investments on data driven projects, like data engineering, predictive analytics or web & social media analytics. The CBA for these tools can be done in a different way. Any customer-facing organisation would like to get insights out of its existing customer base to define its future investments or to define a new product line. If any Internet business believes that it doesn’t need to look at the demographics of the visitors to its website, then it is losing out on possible business opportunities.

The benefit can be derived based on the opportunity cost. Though there is a belief at large that IT has a very small role to play in implementing this kind of off-the-shelf tools, IT should step in by becoming the mentor of the business community and help them choose the right tools, keeping in mind the overall enterprise architecture.

IT needs to step up from a support function and start working as the enabler vertical in the organisation. This is a major change in mindset, and this needs to happen both at the IT leaders’ end as well as the business end. Only when IT stops becoming only a cost centre and starts becoming a strategic partner for increasing the top line and bottomline of the business will the CIO’s entry into the boardroom become that much smoother.

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