I recently had the opportunity to listen to a Center for CIO Leadership webinar where Mark Ernest from IBM presented his model for determining IT Value. It was quite interesting but also underlined one of IT’s greatest inferiority complexes. Does IT add value to the organization?
As CIO’s we need to put this canard to bed and I’ve been asked to start this discussion on whether or not this inferiority complex is real and if so how it should be “put to bed”. Obviously I believe it is real and have heard the question raised by both IT and non-IT executives and many others over the course of my 30+ year career.
My premise is that the value of IT is embedded within organizations whether public or private. Incremental investments in IT over the past approximately 40+ years have vastly changed and enhanced the productivity, quality and speed of practically all business processes. Moreover, the current international scope and volume of business transactions could not conceivably be performed today without the incremental investments in IT that have been made in the past.
But how best to demonstrate the enormous value that we’ve experienced over so many years? I’m suggesting a seminal study that will document this embedded value of IT.
Let me begin by asking a few simple questions. First, what would business operations look like today without the investments made in IT? Second, what would be the cost of these operations? Finally, what would be the level of business activity if IT was completely removed from the equation? If we can encourage a think tank to do this analysis, it would end the debate about the “Value of IT”.
An interesting element of Mark Ernest’s IT Value Model is the Component Business Map (CBM). Essentially, and I’m sure I oversimplify, the CBM breaks the business down into major business functions such as Marketing, Sales, Operations, Logistics, etc… and key support functions such as Finance, Human Resources, Procurement and IT. The maps are further decomposed into sub functions such as Accounts Payable, Receivable, Fixed Assets, General Ledger, Reporting, etc…for Finance.
Using Mark’s CBM for Finance, how many clerks and accountants would be needed to capture transactions in sales, billings, receivables, payables, fixed assets, etc… without IT? Would it be possible to close the books to a P&L and Balance Sheet monthly or even quarterly for that matter without today’s financial systems including something as simple as spreadsheets or even QuickBooks? Would regulators like the SEC be able to implement 10Q’s or even 10K’s? How long would it take to produce these reports manually? Moreover the accuracy of this accounting information would be highly suspect and almost impossible to demonstrate.
I believe the conclusion of such an analysis would be that the cost of just accounting for today’s level of business would be gigantic and in many cases not even possible without IT. While this conclusion seems obvious it needs to be documented and proven, once and for all, to end the debate about the Value of IT. The Value of IT is inherently embedded in the value of the business and it’s ability to operate at the scale and volumes it does today. Let’s undertake this analysis for even a hypothetical business or governmental operation and put this canard (a groundless rumor or belief) to bed forever.
The real challenge the CIO faces should not be addressing the “value of IT” within his/her organization but instead how can “incremental” investments in IT further enhance the value of the business by supporting revenue growth, reducing the costs of operations, increasing the scale of operations, handling increased transaction volumes and yes lowering the costs of IT in supporting the business.
We should also understand that many IT services evolve without an ROI calculation. Prime historical example is e-mail. Who ever did an ROI on e-mail? It was simply a more efficient communication medium and over time with greater adoption the memo and all of those who typed and retyped them disappeared and moved on to better jobs. IT created this evolution and incremental ROI based investments continue to find cheaper and better ways to provide electronic communications.
I encourage your comments and participation in this discussion. My simple proposition is that business and IT management need to put to rest the topic of the value of IT through the seminal analysis I’ve suggested. Second, we need to add the adjective “incremental” to any discussion of the value of IT going forward.