Wednesday, March 18, 2009

IT Value Management to increase performance and improving commercial outcomes.

Value management as a concept goes way back, to the 1940s and 1950s, when Lawrence D. Miles pioneered value analysis techniques. But he was primarily concerned with product cost reduction. Since then value management has enlarged its view to also address increasing performance and improving commercial outcomes. So what ‘value goals’ will help drive an IT function to optimize commercial outcomes? To answer that I want to turn the question round and ask, ‘What should we measure in order to get a balanced picture of IT performance that includes “commercial outcomes”?’

Well, there are many ways of measuring the performance of an IT function (in the sense that we are using the word here – we are not talking about MIPs and MHz!) but in my experience most tend to focus on either or both of the following four key characteristics:
1. Cost-efficiency, i.e. how commercially appropriate is the level of spend with the ‘IT solutions and services delivery factory’? To put it another way, ‘how economic is the IT function?’ And how productive is the ‘IT solutions and services delivery factory’, i.e. how much output per unit of input/cost? That ‘output’ might be, for example, business system functionality delivered or mainframe resources delivered or laptops supported.
2. Effectiveness, i.e. how close to ‘best practice’ are the processes of the ‘IT solutions and services delivery factory’? And do they actually produce a better outcome?
3. Value-added, i.e. how much value is the IT function adding to the business?
4. Quality, i.e. are the products and services of the IT function of the right commercial quality and are the customers of the IT function satisfied?

Here, we develop a more complete picture of the value of IT as encompassing cost-efficiency and effectiveness on the ‘supply side’ (the IT function) of the ‘IT business’ and value-added and quality on the ‘demand side’ (the business served) of the ‘IT business’. Cost-efficiency and effectiveness often have an adversarial relationship, their relative importance being largely determined by the strategic role of IT in support of the business.

Further relationships exist between the four quadrants:
A. Improvements in cost-efficiency can improve quality because ‘quality’ here is commercial quality (i.e. necessary and sufficient quality for the price).
B. Improvements in cost-efficiency can also improve value-added because improved staff productivity can reduce ‘time to market’ for projects (and their benefits) and because value is a matter of net benefits (i.e. the cost of IT product and service delivery is the ‘flip side’ of the benefits of the products and services supplied).
C. Improvements in effectiveness by deploying systems and service delivery best practices (e.g. SSADM, ITIL) can improve the quality of products and services supplied.
D. Improvements in effectiveness can also improve the value-added by products and services by deploying IT management best value practices (e.g. demand/portfolio management).



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