10 Step Guide to Achieving Business Value of IT

Estimated two thirds of IT investments fail to achieve intended result.

Egham, UK, Monday 17 February 2003 — Gartner today said that despite ongoing focus on the importance of aligning business and IT, companies face increasing problems with poor business value from IT. Giving a preview into one of the key themes of its Symposium/ITxpo in Florence in March, Gartner today outlined a 10-step guide for CIOs to tackle the issue.

Business today cannot survive without technology, yet Gartner estimates that two-thirds of all major technology investments do not achieve their intended result. It said that over the next five years, a major reason companies will fail to maximize value from IT investments, will be that the value IS leaders deliver is inadequate or not recognized. It also said there is correlation between organizations whose IS organizations have low credibility, and poor overall enterprise performance.

According to John Mahoney, managing Vice President at Gartner, "Its not that we haven't tried or made any progress to align IT and business. However, the frontier continues to move." He continued, "Good alignment suffered a set back by the dot.com fall out and continues to be threatened by economic stress and business turbulence. The consequence of this has been three-fold; business and IT still fail to communicate and consequently value suffers, the IS organization is threatened and so are careers of IS leaders. Unless this is tackled, threats to careers will be realized sooner rather than later."

In addition, Gartner said companies continue to deploy industrial age approaches to evaluate and measure IT investment and benefits. It said services provided by IT can be categorized into three areas: utility, enhancement and frontier. Each has a unique value. However, while utility applications can be measured with traditional return on investment analysis, for enhancement and frontier applications, business value is often not only in terms of direct financial metrics. Rather it is proved by enablement of better business models and ability to gain a competitive advantage.

In tough economic times, IS organizations must repeatedly optimize investments. Gartner said companies must undertake regular, zero-based reviews of IT projects, with a view to stopping, within the first 60 days, any projects that do not confirm they will have a realistic expected payback. According to Mahoney, "Companies should expect to terminate about 25 percent of IT projects in this way until at least the end of 2005."

To stop the damage to enterprise value and competitiveness, Gartner urged companies to develop a discipline according to its 10-step guide to achieving business value of IT.

The Gartner 10 Step Guide to Achieving Business Value of IT

1. Admit your problem

Few companies know exactly why they buy technology or the full impact of their decisions, but few are willing to admit it. Few IT organizations have a methodology for evaluating IT investments that is in step with what technology is expected to do for the business.

Understand that as technology becomes more and more entrenched in the business, the risk of not understanding is increasing at the same pace.

2. Learn the basics

To achieve Business Value of IT, companies must provide measures that demonstrate how IT-related changes and investments contribute over time to improved business performance, competitiveness and economic growth.

Gartner has developed a framework of five essential pillars of benefits realization. Companies must ask themselves these questions:

• Strategic Alignment — will this investment help us achieve our strategic goals?
• Business Process Impact — what is the impact on our ability to transform business processes?
• Architecture — What is the impact on our IT architecture?
• Direct Payback — will this investment help deliver more revenue, cost savings or better management information?
• Risk — what business and technology risks could arise from this investment?

3. Surrender ownership and learn their language

Gartner estimates that more than 60 percent of all IT projects are now initiated by the business units rather than the IT organization. Technology has moved away from the glass box into the hands of almost everyone and it no longer makes sense for IT people to own ?IT projects?. All initiatives must be viewed as ?business-enabling? and input from the people who will be applying the technologies every day is a must.

To surrender ownership of IT projects to business leaders, IT people must first get their buy in. The only way to do that is to speak their language, or at least a common language both parties understand.

4. Reach for the top

Business value of IT is not just the concern of technology managers trying to improve credibility, it is a major re-tooling for both the CIO and the CEO.

CIOs need the same information to assess IT investments as for any other capital investment: what it will cost, what it will do for the business and what the return on investment is likely to be.

5. Build a framework

Inconsistent reasoning does not go down well with business people. In many organizations, technology reasoning is often inconsistent. Projects are justified in different ways.

Consistency is the key to business value of IT. Develop a system that can be used across any project and any organization. A neutral, objective, predictable, repeatable framework of rules and assumptions.

6. Hire good help

Being impartial about internal business values is tough. Tougher still is reconciling the politics, eliminating bad habits, holding off persuasive vendors, inventing new language, developing a proven framework and knowing whether or not the process is working once launched.

Choose an independent advisor with road tested methodologies that can be tailored to your enterprise.
You will enhance your credibility and simplify the complications.

7. Ask sobering questions

Sobering self-analysis must precede any major IT project. Can you make it happen? Will it be as beneficial to the company as you anticipate.

Gartner provides what it calls a Total Value of Opportunity (TVO) model based on seven basic questions:

• What kind of in initiative is this?
• How will value be measured?
• What are the capabilities of the technology?
• How much financial benefit will result?
• How much will it cost?
• How do we account for future uncertainty?
• What if our assumptions change?

8. Appoint Authority

A successful BVIT strategy requires governance. This can be invaluable in breaking the deadlock between business units and the IT organization, usually caused by lack of trust and credibility. Without governance, the loudest voice wins, ad hoc decisions are made, accountabilities are lost and lessons from successes and failures will not become part of corporate wisdom.

For major projects in large enterprises, Gartner recommends four governing groups:

• The IT Council — defines strategy, sets rules and spending priorities, coordinates between the CIO and business peers and makes decisions.
• The IT investment board — conducts thorough analysis of proposals and develops recommendations for the IT council.
• Office of architecture and standards — keeper of the enterprise technology standards.
• Project office — day to day leadership. Project managers work through this office with business units. Repository for best practices.

9. Know when to stop

Put the brakes on projects that no longer make sense. Gartner recommends companies should undertake regular, zero-based reviews of which projects should continue. Companies should stop, within the first 60 days, any project that do not confirm they will have a realistic expected payback.

Companies should expect to terminate about 25 percent of IT projects in this way until at least the end of 2005.

10. Stay with it — improve continuously

Business cases for IT investments should not become dusty documents once the implementation starts. With a BVIT framework, continue to check performance against targets. In the same way it tells you where you went wrong, it will tell you were you went right. It becomes part of the organizations stored wisdom.

About Gartner:

Gartner, Inc. is a research and advisory firm that helps more than 10,500 clients leverage technology to achieve business success. Gartner's businesses consist of Research, Consulting, Measurement, Events and Executive Programs. Founded in 1979, Gartner is headquartered in Stamford, Connecticut, and has 4,000 associates, including more than 1,000 research analysts and consultants, in more than 75 locations worldwide. Fiscal 2002 revenue totaled $907 million. For more information, visit www.gartner.com.