|
At Forrester Research, we think we have an answer to the often-asked question about why business executives continue to be disappointed by IT performance: They each look for different results. Business leaders constantly ask their CIOs to rationalize IT's spend—usually expressed as a percentage of revenue—but they don't ask the CIOs to demonstrate the overall effectiveness of this spend. The major reason? Business execs who still see IT primarily as a cost rather than a strategic investment have no other good way to monitor IT progress over time. In light of this disconnect between business and IT, we recently surveyed 84 senior IT executives to assess their performance using our IT leadership-maturity model. This model explores three dimensions: the link between technology and business strategy; operational excellence; and how well IT manages its relationship with business stakeholders.
 |
|
|
The results substantiate what many already know: While IT gets the operations side of things right, challenges still exist when it comes to linking technology with business strategy and managing business relationships. We think this is true because IT too often stubbornly focuses on operational, cost, and efficiency metrics instead of business metrics and investments in innovation—even at large companies such as those we surveyed.
Most of the IT executives Forrester interviewed are employed at companies with more than $1 billion in annual revenue. Although they were selected at random, respondents participating in this study work at better-than-average IT shops based on our definition of their ability to efficiently manage IT spend. The respondents' IT spend was 75% of the industry average, measured as a percentage of revenue in their sector. And they spent 35% of their IT budget on new investments versus an average of 25%. This tracks with the results of the Optimize "Defining the CIO" study, which shows innovation spending stymied by ongoing maintenance spending (see related article, p. 20).
We determined the overall maturity for our sample at middle-of-the-road; a 3 on a scale of 1 to 5, where 5 is most mature. They did best at running IT's operations but less well at both linking technology to business strategies and developing IT's relationships with external stakeholders. Low adoption of business-impact metrics was the single largest problem.
Weakest Links
Respondents' effectiveness at linking technology to business strategy ranked just below the middle, at 2.8. But this overall score hides some significant deficiencies, including the following:
IT has strategic plans but doesn't set aside specific funding for innovation. Seventy-one percent of the companies we examined have set IT direction in a regularly reviewed IT strategic plan. But these plans mostly reflect business as usual. Only 39% have funds earmarked for innovation-focused projects. For this study, we say that innovation occurs when inventions intersect a business process and change the way something is done, experienced, or created.
IT's business-value metrics focus on costs, not business impact. When it comes to post-production metrics, survey respondents test only 29% of their investment projects to see if they achieved the expected results, and even then, less than half (46%) of the interviewees focus on operational costs and efficiencies, while only 21% look at business issues like revenue and market share. This isn't the way chief executives think.
IT operates well as a business but lags on metrics. IT's core operations exhibit the greatest maturity—with an index of 3.4—led by portfolio management, architecture, and IT processes. Yet IT continues to lag when it comes to demonstrating business-impact metrics because it remains focused on cost and efficiency, to the exclusion of business results.
In fact, IT has never been good at tracking business results. There are several reasons for this: For one, project, application, and IT-services portfolio management have taken root. Eighty-three percent of respondents reported some level of project portfolio-management adoption and 81% do application-rationalization review; 68% have a catalog of IT services.
 IT seeks stability with enterprise architecture (EA) and IT-process methodologies. Eighty-nine percent of interviewees have EA in some stage and have a continuous-improvement process in place for IT operations and service delivery.
Performance and costs dominate IT's view of metrics. Seventy-seven percent capture reliability, performance, and costs in post-implementation metrics, but only about half (49%) have some form of a balanced scorecard methodology to track the complex interactions of IT's business impact. And while 68% use IT process methodologies for improving operations and service delivery, only 47% use these methodologies for driving overall performance improvements.
The data all points to the fact that IT tracks IT-related metrics like reliability and costs, not business-related metrics like improved operations and business service delivery. Simply put, IT's relationship with business stakeholders needs better management and more attention.
Portfolio management keeps our respondents' score for managing stakeholder relationships at an average of 3.0, while pricing and performance management underscore the challenges. The strong acceptance of project, application, and service portfolios helps establish the transparency required to keep business and IT aligned. And the IT leaders we interviewed report that a high 68% of their IT investments have a standard business case built as part of the project prioritization process.
Additionally, pricing management is taking hold through chargebacks, which occur in 57% of companies that use it for variable (consumption-based) operations or services costs. Sixty-one percent charge back for fixed costs, based on business factors. But for 37%, the fixed-cost chargeback is still absorbed in corporate overhead and doesn't directly impact business-unit P&L statements.
Moreover, performance management lags due to the slow uptake in metrics. IT's focus on cost and efficiency metrics, rather than on tracking the business impact of investments and ongoing operations, makes it difficult to establish IT's business performance.
Maturity Needed
We believe CIOs should adopt an IT-maturity assessment framework to put IT spending in perspective. CIOs need to explain to their CEO and CFO why their IT budget as a percentage of revenue is above or below that of competitors. While most business executives assume that a lower ratio is better, this isn't necessarily the case. Lower-than-average IT spending can hinder business success. Take, for example, a manufacturing company that tries to expand globally, only to find it doesn't have an adequate technology platform to tolerate the rate of business change. The result is failure to realize expected returns.
CIOs can also use the assessment tool to develop the foundation for an ongoing IT improvement program. Regular analysis, peer benchmarking, and other forms of self-assessment can be aided by a regular IT-maturity checkup. CIOs can track change over time, or across significant transitions like a merger or acquisition. Either way, it keeps them focused on improving their IT practices.
 Finally, CIOs must put IT/business alignment on the front burner. For all the talk about it, CIOs still have to focus on getting in sync with the business as part of an overall IT-maturity program. IT's alignment with business is an ongoing issue for most CIOs. Part of the challenge is that there's no single action they can take to improve things.
What CIOs need is a complete view of IT maturity, including linkage with business strategy and business stakeholders in addition to IT operations. Once they have this, CIOs can begin to shift the landscape in their favor.
Bobby Cameron is a VP and principal at Forrester Research.
|
