Value of Technology Part 1 - Investment Value and IT Work

Let's Get Some Business Value Out of IT

There is a strong belief that corporate IT’s performance should be linked to the business value it provides to the organization. It is wise to want to bind all members of the organizational family to the common goals that provide value. But we must be careful to not cross a very important line between investment value and work value.  

If IT is the business, and the work products of the corporate IT function can be directly linked to sales and customer satisfaction, then yes, the linkage is healthy. But for many cases information technology is not your core business and IT acts as an enabler or a support function. If you're in entertainment, travel, financial services, healthcare, you can’t assess the value of IT the same way. In short you cannot —and should not— use business metrics as a means for assessing IT’s contribution to your business.   

Do Not Assess Corporate IT Performance With Business Metrics 

Business metrics are for business. Unless your organization sells IT products or services, IT’s contribution cannot and should not be assessed with business success.

There are two reasons underpinning this proscription. The first is that business value does not connect well to corporate IT work. In Part 2 coming soon, I'll dive a bit deeper into this. The second issue is that it creates distracting noise around the subject of IT performance, pushing corporate IT away from true accountability.    

There's nothing wrong about assessing business value in itself. It is a healthy practice, as long as it is used to evaluate the business returns of IT expenses from an investor’s point of view, not from an IT performance angle.

The Value Is In the Investment

The need to find metrics that relate information technology to business value is not new.  You can find a steady flow of scholar and trade articles from the 80’s up to a few months ago that show the continued interest on the subject.  

This infatuation is well founded. Each organization must allocate a finite amount of resources over a number of initiatives. It must arbitrage the distribution of limited investment dollars and scarce human resources to maximize business returns. It starts usually 12 to 18 months before the actual IT work begins, as part of what is often labelled the Investment Governance Cycle.

Whatever the name given, it is the formal process of assessing the relevance of proposed endeavors that require funding. The archetypical approach used to assess the investment worthiness is the Cost Benefit Analysis (CBA). 

Some business projects have a clear intent of changing business processes —and their underlying technologies. It can be revamped customer experiences, new business models, or just good old optimizations of the current ways of doing. In these cases, the business value of IT should be quite simple to grasp. The need to change the technology should be based on business outcomes with clear benefits that justify the whole endeavor, including its technology parts. 

Other changes however are cross-functional, cross-projects and often initiated by corporate IT as a means of optimizing its technical operations. For these projects, the task of identifying business value is much more difficult.  

The Knowledge Gap

Try to answer this question: What is the business value of moving all your business applications to a cloud-based Dockers operational model? 

As a business person, you're surely clueless about the actual meaning of this Docker thing. You’re probably somewhat aware of the ubiquitous but still mysterious cloud. In all honesty, you might not be 100% sure about the real meaning of the word application. 

There’s an obvious knowledge gap. 

Your response to the risks of making a decision about these types of project is to fall back on standard cost and benefits management practices. You’d probably ask for quantitatively measured benefits, in units of dollars preferably. You may add an additional multi-year benefits tracking process to ensure that the declared benefits are indeed reaped. 

That’s great, but remember that all of this is investment wisdom, not technology value assessment. The assessment of the value is ‘detached’ from technology and the teams that work on it. If you couldn’t understand what a ‘cloud-based, Docker model’ is, there is also a high probability that you will not grasp the true meaning of the CBA that was produced to justify the investment.

Identification of the business value of IT should be kept where it makes sense: assessing the value of the investment. Do not make the mistake of transposing a funding governance practice to the assessment of the contribution of your IT teams.

Investment Worthiness Is Not IT Excellence

As long as you are linking business value solely to the worth of the IT investments, then business value is used within a healthy and advisable practice in your quest to identify the right funding choices.  However, business value is not a valid proxy for assessing the actual work done by your corporate IT function when it all starts, 12 to 18 months after the financing decision is made. 

Business value of a technology investment is no proxy for assessing the work done with that investment money.

In an upcoming article (part 3), we’ll dive into what performance means for corporate IT. But before that, in part 2 of this series, we need to clarify that for most corporate IT professionals, creating business value is difficult to attain and hard to relate to.