Whose bottom line is it anyway?

Your CEO's understanding of the bottom line benefits of IT may be wildly different from that of the finance director, or senior...

Your CEO's understanding of the bottom line benefits of IT may be wildly different from that of the finance director, or senior managers in other parts of the group. Computer Weekly helps to navigate the maze

Good news for IT directors who wonder "what is it all for?" A report, Increasing Business Value with IT, from PA Consulting, confirms that IT does contribute to business value and chief executives firmly believe it.

"The overwhelming majority of senior managers (330 were interviewed across the world), particularly CEOs, agreed that IT will make a significant contribution to their organisation's differentiation strategy," the report finds. But that cheering news is diluted by its next finding, that when it comes to tying IT investment to hard business benefit, they are less enthusiastic.

"Achieving a successful transition from strategic intent to the practicalities of implementation is far from clear-cut," it warns. In particular, the perennial problem of doing the return-on-investment sums is raised. "There is a low level of confidence in the value justifications produced for IT investment business cases," it says.

This clearly puts considerable pressure on IT - high hopes plus low confidence equal room for improvement. "The greater the importance placed on IT, the greater the perceived need for improvement across the lifecycle," says the report.

It highlights six "could do better" areas for IT:
  • Harvesting latent business benefits - getting the most out of what is already there (77%)

  • Delivering rapid, adaptable systems - not being held up by slow implementation, or prevented from reacting fast enough to a changing business environment by inflexible IT systems (76%)

  • Better exploitation of IT's potential to make business more innovative (70%)

  • Better prioritisation of the IT portfolio (70%)

  • Focusing IT investment on differentiation (70%)

  • More focused expenditure (64%).

It is clear that improving IT alone is not enough. Senior managers want to see improvements in how IT is applied. To decide what IT should operate in a company it needs to be clear about what it should be doing and what makes the biggest contribution to business value - to the bottom line.

Different parts of an organisation, not to mention different industrial sectors or countries, have different ideas about what makes a company stand out, and some larger conglomerates have to take account of all these factors simultaneously.

Of the four ways of differentiating a company from its competitors - price; produce; branding; and service - most chief executives think that the most important is service. By contrast, finance directors and IT directors rank price highest. Insurance and finance companies rate service by far and away the most important, whereas oil, gas and chemical companies focus on price.

Also, says the report, one differentiator will dominate the others within each sector and this variation undergoes yet another permutation when geography comes into play.

Product quality, for example, is highly rated in Europe, but hardly at all in the UK and the US, whereas service is most important in the US, and almost as important as price in the UK.

If IT is to make a key contribution to the company it has to know where that contribution should be focused. For a company that considers, say, service to be the key differentiating factor, IT's efforts should be focused on customer facing systems - that is where the biggest contribution will be made, where it will create most business value for that organisation.

IT can only supply more focused expenditure and better prioritisation in the context of what the parent company thinks creates the most business value. So the first task of an IT director must be to identify key differentiators and target IT to them.

In organisations that operate in several sectors, each of which ranks the differentiators differently, and in many countries where priorities are not constant across borders, targeting is a complex and difficult task.

"This adds to the challenges that face multi-national organisations. There is no universal answer for IT at large," warns the report.

How can you target IT effort at the areas your business values?
John Little, global head of IT management at PA, suggests steps an IT director should take to maximise the business value of IT:
Use IT to find out what contributes most to the bottom line. For example, business intelligence systems could reveal what percentage of profits a particular product line generates, or reasons why customers remain loyal
Senior management will not take much notice of an IT director whose department cannot keep systems up and running or deliver projects on time. You will need to be squeaky clean in the day-to-day running of IT to get the ear of the chief executive
There may be as many key differentiating factors as there are executives at a meeting to identify them. Although many may indeed be significant, a company can only focus on two or three at a time. If business can not focus, neither can IT. An IT department running hundreds of projects cannot deliver on all of them
Do not apply a new technology which is searching for something to solve - look for technology to solve an identified problem
Companies which have the best relationships between the head of IT and senior management cite the least "wastage" in corporate IT.

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