Measuring IT Value: The Issue of Attribution

Today, all organizations need an answer to the following question: How much do the power and performance of IT capabilities contribute to successful business outcomes?

This question unlocks the complex issue of attribution – the degree to which IT and other processes make business results successful. Organizational arrangements and management practices can either enhance or diminish the effectiveness of IT’s contribution of value. Two questions constitute the issue of attribution:

• To what extent does IT make business results possible?
• To what extent do business processes and practices help or hinder IT’s ability to deliver results?

Three factors make keeping track of IT value especially difficult, but well worth the effort. These factors are not obstacles, but they need some extra attention.

Dimensions of IT performance. The span of IT’s impacts and implications warrants a reconsideration of what is meant by “IT performance” for the purpose of tracking the value IT contributes to an organization’s business success. Because IT is so pervasive in modern organizations, the kinds of value it contributes are also wide ranging and varied. A spectrum of value types could include:

• Technical/service IT. IT’s traditional role of technology service provision and high technical performance
• Matched IT. Deployment of the right IT capabilities for the right job, as well as the right people on the right application
• Leveraged IT. Combined IT installations and initiatives, internally or externally, to boost IT capabilities or increase speed/functionality exponentially
• Strategic IT. IT as a driver of new opportunities, new business models, and ways of doing things that add value that the firm can capture

IT’s dual role of service and strategy. IT services are now an essential underpinning of excellence in operations or execution demanded in business today. IT in a strategic role is able to capitalize on IT investments and capabilities in ways that take most advantage of all resources and opportunities. Because of difficulties in judging fundamental services on the basis of return on investment (ROI), organizations may find it useful to view IT’s role in services differently than IT’s role in formulating IT strategy.

Many orders of benefit. Another factor that adds to the difficulty of accurately capturing the returns on IT investments is that such investments can create first-, second-, and third-order benefits.

Investments may lead to first-order (or direct) benefits, of course, but various combinations of resources and resulting synergies may create further benefits of a second order. There may also be third-order benefits that involve partners or customers in new and unforeseen ways. Organizations can reap many kinds of returns, over different time spans, from the original investment.

To answer the first question (To what extent does IT make business results possible?), organizations need to have some methodology to track IT performance to business results.

A recent IDC study advocates “the adoption of a business service management (BSM) model that explicitly matches the various service-level requirements to the business processes and reports on these in business terms.” Implementation of such an approach requires four steps:

• Identify the current and future business processes and their requirements
• Map business processes to the systems, network elements , and applications required to support them
• Create metrics to measure the performance against the requirements of business processes
• Implement tracking and reporting of the results

To answer the second question (To what extent do business processes and practices help or hinder IT’s ability to deliver results?), organizations should consider the non-IT factors that can increase or diminish IT value. Two of the most important factors that can either expand or limit IT’s value are business design and business dynamics.

IT/Business Design

When it comes to tracking IT value – to create, measure, and capture or realize value – organizations need to have the right business architectures in place to draw the best advantage from both IT and non-IT resources.

Measurement. Few organizations can properly attribute value to IT without collecting and monitoring information in a corporate business performance measurement system. This type of systemallows firms to calculate and articulate the dimensions of IT performance in business outcomes.

Organization. Organizations can achieve greater advantages from IT (both IT and Internet infrastructures) with decentralized organizational structures than with hierarchical and rigid ones. Also, IT governance structures that draw together senior managers to set and manage IT priorities can knit together valuable IT and non-IT resources.

IT/Business Dynamics

Any value that IT contributes directly or indirectly to the business needs to be realized through the way IT and business professionals work together through the mechanisms (e.g., policies, processes, and procedures) in place for that purpose.

Management. A useful way to link IT and business efforts is to manage IT initiatives as a set of related activities or projects. These include IT and non-IT activities, and all are required to bring about the anticipated benefits (e.g., IT installation, change projects, training, possible restructuring, and new marketing tactics).

Protocols. To draw the best from IT and business capabilities, organizations need to establish clear accountabilities for IT and business professionals. Is there a business sponsor for the IT initiative that is accountable for delivering expected benefits? Has a program manager(s) been assigned to oversee the IT and non-IT aspects of the initiative? Are IT and line-of-business (LOB) participants clearly accountable for the stated deliverables?

Attributing enterprise value to IT capabilities and performance is now necessary for fiscal and competitive reasons. IT users need to make the best possible use of expensive IT investments in a competitive environment. IT suppliers need to see organizations actively demonstrating positive returns from their offerings.

Technology is now too important for users and vendors not to extract the most possible value from it. The issue of IT value attribution is ultimately the issue of getting the most possible business advantage from IT, a worthy objective for all.

If you have any questions or would like more information, please contact Michael Hyjek at IDC at 1-888-432-2812 or mhyjek@idc.com.