Customer-Driven, Value Based Enterprise IT
I've heard some CIOs say they think the increasing focus on IT value is great because there will be less focus on IT cost control. I listened politely - and then I told them they were totally off base.
If you ask a CEO or CFO if they want enterprise IT to focus on producing the most possible value for the enterprise or focus on minimizing IT expenses, they will probably tell you enterprise IT needs to be doing both. Maximizing IT value while minimizing IT expenses is the reality of enterprise IT in today's highly competitive world.
To maximize IT value and minimize IT expenses, I advocate creating a customer-driven, value-based enterprise IT structure that forces enterprise IT to operate like a standalone business in a highly competitive industry - with constant pressure to provide the best possible products and services at the lowest possible cost.
There are two components to customer-driven, value-based enterprise IT:
1. Ensure IT Expenditures are Targeted to Produce Maximum Value
A competitive business targets its expenditures and resources to produce the most possible profit for the enterprise. It should work the same way with enterprise IT. IT expenditures and resources should be targeted to produce the most possible value for the enterprise.
It's hard to argue with the logic of targeting IT expenditures and resources to produce maximum value - but there's a problem. Enterprise IT has only limited ability to actually create value.
Wait a minute. First I say maximizing enterprise IT value is critical, then I say enterprise IT can't create value. Let me explain. It isn't enterprise IT that creates value - it's enterprise IT's customers using IT capabilities to improve the overall performance and profitability of the enterprise that creates value. It is important to understand that value is created by enterprise IT's customers, not by enterprise IT.
I'm not saying enterprise IT has to turn over control of IT expenditures and resources to its customers, but I am saying enterprise IT needs an effective way to let its customers determine where IT expenditures and resources should be targeted to produce maximum value for the enterprise. That's why companies need to create customer-driven, value-based enterprise IT governance structures.
The first step in creating a customer-driven, value-based enterprise IT governance structure is to define financial and non- financial factors that increase the overall value of the enterprise. For a publicly traded company, value is created by increasing the price of the company's stock. The most obvious factors that drive increases in stock price are increases in current or future profits - however, other factors can also drive increases in the value of a company's stock.
It is more difficult to accurately track the impact of value creation in privately held companies and governmental organizations, but the factors that create value for the company or organization need to be identified and tracked.
After defining the enterprise's value creation factors, the second step in creating a customer-driven, value- based enterprise IT governance structure is to implement enterprise IT resource deployment, project justification/prioritization and budgeting processes tied to the value creation factors. Tying these processes to the enterprise's value creation factors will ensure IT expenditures and resources are targeted to produce the most possible value for the enterprise.
2. Constantly Optimize IT Performance, Agility and Cost Effectiveness
Another characteristic of a standalone business operating in a competitive environment is constant pressure to improve performance and reduce costs. The best way to simulate competitive pressures for enterprise IT is to track customer-driven, value-based enterprise IT metrics.
In addition to maximizing value, enterprise IT's customers are concerned about three things when it comes to enterprise IT - quality service, quick response and cost effective solutions. Instead of tracking traditional IT operational and performance metrics, customer-driven, value-based IT metrics focus on the quality of enterprise IT services, enterprise IT agility and enterprise IT cost effectiveness.
The factors that are important to enterprise IT's customers are the factors that should be used to measure and drive enterprise IT performance. Focusing on customer-driven, value- based enterprise IT metrics creates the same kind of pressures that force competitive companies to constantly improve performance and reduce costs.
Transforming enterprise IT into a customer-driven, value-based business will ensure enterprise IT is producing maximum value, optimizing performance and minimizing expenses.
About the Author
Bruce Skaistis is the founder of eGlobal CIO. He began his career as a consultant with Arthur Andersen and was CIO of a large bank group before forming his own management services firm. He has extensive enterprise IT management, process optimization, and action facilitation experience.
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