To print: Click here or Select File and then Print from your browser's menu

This story was printed from silicon.com, located at http://www.silicon.com/

Story URL: http://comment.silicon.com/0,39024711,10004953,00.htm

Meta Group Quarterly: From 'efficiency' to 'value'
IT must make the all-important leap - and soon

By Meta Group

Published: Wednesday 02 July 2003

The second in a series of articles for silicon.com sees leading analyst house Meta Group consider a major shift - involving IT portfolio management - that has started to gain acceptance in the past three months. By Luis Leamus...

Leading CIOs in large organisations have shifted senior management's perception of IT from a cost centre focused on increasing organisational efficiency to a value provider focused on winning competitive advantage for the organisation. During the past 18 months, a Meta Group survey has indicated that a key tool for making this transition is IT portfolio management, which enables CIOs to present IT expenditures and projects in business terms that resonate with senior executives and line-of-business management.

Optimising expenditures is definitely the first priority of CIOs. But CIOs who focus solely on that and do not also capture and communicate the value of IT products and services are missing half the value equation. The key to converting the IT organisation (ITO) from a cost centre to a value centre, and changing senior management perception of IT - is a strong CIO focus on four priorities:

- Inculcating value, cost and risk management into the IT culture - Using IT portfolio management as a communication and investment optimisation vehicle - Deploying human capital management processes to increase IT employee productivity - Ensuring that core IT processes are operationally excellent - singular and repeatable, well understood, consistent, measured, scalable and constantly improving.

When it comes to transforming ITO culture and winning senior executive buy-in, perception is reality. CIOs need to change the perception of the ITO both inside it and externally throughout the business - particularly at the senior management level.

The key to transforming the ITO into a value centre is to remember the three Cs. The CIO must communicate value, as defined by the CIO's audience. Communicating value requires it to be captured, and before that to be categorised, all in business terms.

The first priority - inculcating value, cost, and risk management into the IT culture - requires a change of focus for the CIOs and their direct reports. Cost management remains important but best-of-breed IT organisations have identified a clear business value in terms of their organisations' needs for each IT product and service. The ability to do this is a sign of strong IT/business alignment, which our survey identified as the top priority of CIOs around the world.

Focusing the ITO on value also requires a strong risk management programme, covering regulatory risk (the need to meet specific regulatory and legal reporting and financial monitoring requirements), financial risks (mostly traditional insurance-related risks), and business risks (the risks associated with gaining and maintaining competitive advantage and identifying and capitalising on new opportunities). Control Objectives for Information and related Technologies (COBIT) is one of the tools leading ITOs use to manage risk.

The second major focus, using portfolio management as the language to categorise, manage, and communicate the value of IT programmes and services, speaks directly to the issue of changing businesses' perception of the ITO. Regardless of how closely IT products and services are tied to the real needs of the business, if senior management does not clearly understand what the ITO is doing, it will be treated as a cost centre.

IT portfolio management is the key communications and risk management vehicle for dialog between the ITO and the business. IT executives who have implemented portfolio management have unanimously told Meta Group that it works outstandingly well at getting the business to understand where IT investments are being made in business value terms.

Once the business has agreed to the appropriate categorisation of IT investments, any further discussion about why some things cost too much or why amounts need to be spent disappear. IT portfolio management is a superb balancing vehicle for ensuring that cost, value and risk are appropriately balanced and deployed.

The third priority refocuses CIO thinking away from technology and onto optimal management of the most important ITO resource - people. CIOs and their IT leadership team often give this vital area less attention than it deserves, due to their strong technology focus. Optimising ITO value requires that CIOs focus on creating, maintaining and supporting highly productive workgroups in the ITO, and on supporting the workgroups in the business with appropriate collaboration and other tools. To accomplish this, best-practice ITOs establish proactive human capital management centres of excellence within their organisations.

The fourth priority is ITO operational (or IT organisation-wide process) excellence. The goal of having "singular and repeatable" operational processes refers to pattern-matching concepts. Just as an organisation needs a standard desktop environment that is well defined and repeatable on every desktop, it also needs to have a single process to accomplish each task. Every process needs to be fully documented so it can be duplicated wherever that task needs to be accomplished. An organisation with 10 regional help desks worldwide, for instance, should have a single help desk procedure that is repeated in each help desk - not 10 different ones.

As technology becomes more central to business success, CIOs need to transform their ITOs from order takers to value creators. To accomplish this, they should focus on developing an organisation that creates, measures and communicates business value. Such transformation should build on a foundation of effective life-cycle cost management that includes disposal of non-performing assets. To maximise the value of IT to the business, CIOs should leverage appropriate processes, such as value management, COBIT and IT portfolio management.

Meta Group is a leading provider of information technology research, advisory services and strategic consulting. Visit metagroup.com for more details or call +44 (0)1252 819494.

Luis Leamus is senior vice president International at META Group. He is an acknowledged authority on the IT organisation, business value of IT, adaptive infrastructure and integration & middleware. Luis has more than 20 years experience in the global IT industry in business development, marketing, financial analysis and strategic planning.