Posted by Stephen Mann on September 12, 2011
Oscar Wilde once said that "The cynic knows the price of everything and the value of nothing." I shudder to think what young Oscar would have said about I&O organizations that don’t know what it costs to deliver individual IT services let alone the value they deliver to the business. Just knowing that it costs “x” annually to “run IT” is no longer enough.
This might appear a little random at first but I was reminded of something I wrote two years ago when informed last week of a CIO fired because they couldn't articulate the value their IT team delivered to the business.
So what did I remember? “It is often better to provide answers, however embarrassing they might be, before others start to ask awkward questions.” What were the “questions” I referred too? Nothing difficult, just what it costs to deliver IT services and the value that these services deliver to the business.
So ask yourself, “what value does IT deliver to the business?” Not in generic terms like business process-enablement and technology-supported efficiencies. What does the money we invest in IT each year actually deliver to the business in terms of value? More importantly, which IT services deliver the most value and which deliver little or no value?
Hold on a minute though. Do you actually know what “value” is from a business perspective? I’m not talking about the value I&O believes its IT services deliver; I’m talking about what the business thinks.
Am I moving too fast? Let’s take stock of the status quo.
I&O organizations have always “done finance” and there is not a business function, IT or otherwise, in any organization that can escape the need for some semblance of financial management and the scrutiny of the finance function. But the real question here is not whether you are “doing finance” but rather “how well you are doing finance?” – the level of your IT financial management maturity.
In the context of “awkward questions” from the business, I&O should be able to respond with not only how much its services cost, but also the relative levels of service and opportunities to improve service and value for money. The same is true in light of corporately-mandated budget cuts. I&O execs need to be able to explain to the business how budget cuts will impact IT service provision (whether it be in terms of volumes, quality of service, or both), and the associated risks. As with new investments in IT, this should ultimately be in the context of the value the IT services deliver to the business.
IMO such “awkward questions” will come. It is inevitable. Faced with the fact that consumer IT is now often perceived as both better and cheaper than corporate IT, and that business people are far more aware of third-party-provided alternatives, I have no doubt that CEOs will ask questions such as “how does our corporate email system compare with Google’s business email offering?”
So how does it? What does it cost you to provide one unit of an email service internally? What are the cost drivers and the volume-based points at which extra fixed costs (that adversely affect the per-unit cost of provision) are incurred? How does this cost relate to service levels? These are the easy questions but potentially difficult answers.
Adding in more difficulty, how would you quantify the value corporate email delivers to the business? What extra value is gained by providing the email service internally? Is that IT’s perception of value or “actual value” as agreed by key business stakeholders?
Email is seen as a business-critical IT service but is it the most valuable? Probably not.
This blog only scratches the surface of the situation I&O organizations will find themselves in when faced with business questions around cost and value. These questions will come, and probably sooner than you think.
So has your I&O organization woken up to the fact that it no longer has a monopoly on IT service provision and that to compete in the new IT landscape I&O needs so much more of the “management” element of “IT management?”
Please check out my latest blog ... http://blogs.forrester.com/stephen_mann
Search Forrester's Blogs
Free On-Demand and Live Events
Latest events from Forrester analysts, online and in person. »