I was asked a simple question the other day by a CIO of one of our Retail
Industry client. The question was in the context of business we were conducting
and he asked me, “what value your solution or technology provides to our
business? What impact can it have on our business imperatives? I am being asked
by my CEO to empower our Enterprise IT to make impacts on the overall business
and I am evaluating what technologies or platforms will enable me to do that.”

I tried to explain the business value, ROI and TCO of the technology investments
can provide to his portfolio but that was not enough. The question got me
thinking and I had been possessed by this question since then.

Let me ask you if you are an IT consultant, an IT manager or a CIO, “what value
do you provide to your organization? What impact have you made recently on the
key KPI’s of your company’s business which normally are revenue growth, profit
margin and market share growth? “

This is a serious enough thought that it requires deep introspection and analysis to
come up with an answer. Who knows, if you come up with something plausible, it
may save your job or may even get you a promotion.

Let us first define what these two terms mean and establish some common ground for
this discussion.

Value:  Value is something which you provide to
someone else through your service, product, knowledge sharing or an influencing
thought. It basically describes how much the activity is worth to someone.
Either in time, money or opportunity. In economics, value is calculated by
subtracting total costs from total benefits. The value can be tangible (as in
money) or intangible (as in satisfaction). If you post a review and that
influenced someone’s purchasing decision then you delivered something of
value. 

Now whether you can claim that the person making purchasing decision received ROI (Return on investment) from
the value you provided is sometimes debatable. In that sense not all value is
measurable clearly and that forms the basis for ambiguity of the value (Including
business value). In financial sense, we can say that the value exists in the
balance sheet and hence we can say that it is created over time and not in a
point of time.

Impact: An impact is the net result of the activity or the value you provided. Impact is a
measurable entity which results from an activity. May be your activity resulted
in new jobs, new customers, new revenue, new knowledge etc. Then it is said to
have made impact. Impact can have many potential measures of varying
definitions and degrees. If you provided a service or a product to a business
which helped that business in increasing their market share or revenue by x% in
a quarter then you made impact on that business’s bottom-line. In a financial
sense, we can say that the impact exists or gets reported on the income
statement and is something which can be created at a point in time.

So, if we agree on these two term’s definitions as discussed above then we can
proceed to discuss these two terms in the context of relationship between
Enterprise IT and the Organization while keeping the questions we asked of us
in the beginning. These questions are:

  1. What value does the Enterprise IT provide to the
    organization or in general, what value does (or should) the IT
    investments provide to the organization?
  2. What impacts can the Enterprise IT deliver to the
    organization or in general, what impacts can (or should) the IT investments
    deliver for the organization?

All of us have heard this oft-repeated comment that IT is an enabler of the
business processes. Some articles like the provocative HBR article “IT doesn’t matter” by
Nicholas Carr, even suggest that IT has become a commodity and really does not
matter for the organization since it does not create any business value.  You will find numerous articles, books and
presentation from the big IT consulting companies and the enterprise IT vendors
how much “value” their products or services or IT investments create for the
organizations. I am yet to come across an article or a case study where the IT
investments have delivered substantial bottom-line business impacts, the
impacts those are validated by a CEO or CFO.

Let me first differentiate between IT investments and technology investments made
by organizations. Most organizations today invest in engineering or product
creation functions which need investments in technology such as heavy
machinery, manufacturing lines or robotics. So, a company like Intel may have
made investments in technology for their chip manufacturing plants or a company
like General Electric may have made technology investments in modernizing their
turbine manufacturing plants or a company like Amazon may have invested in robotics
in their huge warehouses (Drones may be?). These same companies also run pretty
sizeable business support function in their IT divisions which support their
networking, servers, and storage investments to serve their communication,
collaboration, productivity and application processing needs. Let us keep this
distinction in mind during this discussion and focus on the value or impact of
these IT investments on the overall business.

We all agree that we need the IT to provide us with the corporate devices (such as
PCs, Macs, and Tablets etc), applications and the common services such as
email, communications and collaborations. 
IT also provides the control and compliance for the enterprise security
to protect the corporate information. These tasks by IT are now seen as
commodity tasks and in this “cloud” era, can be met with a variety of
cloud-based services. So, the argument here can be while IT is providing the
basic services required for an organization to function, these are not really
seen as “value-creating” activities. Especially when you think of value as the
business value or economic value to the business. Going back to our definition
of the term value, this becomes a question of how much business value does IT
create which is going to be a difference between the business benefits and
business costs. And that is the hot button issue today for the CIO.

Typical enterprise IT spend and budgets run in multi-millions of dollars and the CIOs
are always under the scanner to justify their IT budgets. Because of the nature
of the Enterprise IT today, CIOs need to plan and justify the IT spend first
and then purchase the infrastructure to deploy. Given how well the deployment
goes, this may or may not deliver expected business value to the organization. This
means that the deployed software or infrastructure may not enable the business
processes as expected or as desired by the business units. Then the business
units start questioning the business value they received from the investments
they agreed to. And the impact of these investments did not even enter the
discussion since everyone is now stuck on the business value question itself.

There are times though that the some rare IT projects do succeed and some business
value is delivered by these projects eventually to enable some business
processes. Business units and IT teams do come to an agreement that a given
project delivered some business value but then they often struggle to
accurately measure this business value or at least they can’t communicate this
business value to broader audiences since the metrics for the business value
are either not available or are not clearly understood. This is when the
question of “impact” enters the conversation.

Did the IT initiative or IT program make substantial impact to the organization
like to market share, customer acquisition or retention, customer success or
ultimately to company’s stock price? These are the thing the executive suites
really cares for anyways. Most of the time CIOs do not have clear answer to
this question because most of the IT projects are far isolated from making
direct impacts on these business metrics. So, you invested in new data center,
how do you relate that to the market share growth? You delivered cloud-based services
for CRM which may have reduced some costs but did that deliver customer
success? And even if the CIO can claim that any of his/her IT initiatives did
impact some business metrics, does he have concrete data to support his/her
claims?

So, if we are caught in this dilemma then what is the way out? It is clear that the
business value matters and that IT should deliver the business value but as is everything
in our lives, this is the expected outcome. The organization made some
expenditure on IT projects and it expects to realize the benefits of these expenditures.
That is the business value it would derive. It is just like if you bought a car
then you expect it to work and take you from place A to place B. You get the
value from that transaction because the money spent is yielding you benefit of
transportation. But does it impact your lifestyle in a positive way or improve
your commute in some way?

One way to handle this “Value vs Impact” quandary is to think about going beyond
the value creation and deliver "economic impacts" to the business.
The intent would be to enable the overall business to create "competitive
differentiation" and "operating leverage”; thus giving the CEO the
ability to create a "responsive business".

This means that the IT should not be just a supporting business function like Legal
or HR; but it should become another "core" business unit of the
organization. IT should have its own business plan which aligns with the
strategic plan of the business. This way it will have its own business metrics
which will bear direct relationship with the organization’s metrics. The CIO
should be able to report to the CEO that how much customer retention rate has
increased because of the investments made in that new data center which delivers
critical Software-as-a-service CRM to organization’s sales force, allowing them
to be more responsive to the customers. Another example would be to report on improvement
in inventory levels due to better matching of forecast data with the product
shipping data due to much improved analytics solution delivered by IT, which
now aggregates the disperse data and allows to make better decisions for
matching supply and demand in a region. This will surely make the CEO happy and
excited. This is where IT delivers the competitive advantage.

Now that we have reached a point in this discussion where we think IT should think
about delivering the impact to the business, let us shift gears and think about
how this can be made possible?

One answer could be Business capabilities led IT planning and transformation. I
will save it for the next article but to give you a sense of what it is, it is
the method of IT planning where you align business capabilities with technology
capabilities by modeling capability themes as IT priorities. This way as
technology continues to change that leads to opportunities to do things
differently. And using technology to do things differently provides the
leverage of gaining an advantage in the marketplace.