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July 20, 2005

Managing versus Measuring: IT's Value to Business Performance

At CIO Decisions Magazine, Thorton May serves up results of an excellent survey of approaches being used to understand the value of IT to the business.

In general, the results indicate that the practicing managers of corporate IT range hugely in their established opportunity and intent for representing the way IT impacts business performance.

The survey does not investigate what lies behind the opportunities, so we don't get into the availability of time and tools that create the "business-perspective" visibility on IT. However, it is axiomatic that the way you look for something determines most of what you can see. In that regard, "formulas" that represent IT influence are more important than the tools and time used to apply them.

The four most important "takeaways" of Thornton's discussion are:
- IT is pervasive in the business the same way that management is pervasive, so it may be illogical to try to isolate "IT value" as a single global variable except in the various specific contexts (occasions) of IT usage.
- There is a difference between "value" and "performance"
- Measurements representing IT influence are not always numeric.
- Too much measurement is more bad than good.

One possible cause of the persistent confusion about value in IT is that the effort to connect IT Value to Business Performance doesn't make sense until after the connection of IT Performance to Business Value has been established.

If IT outputs are first associated with conditions that the business defines as important to the business, then a logical representation of "IT performance" exists. IT execution can be measured in those terms of performance, thus a picture emerges of when, how and why IT contributes to the enablement threshholds that the business agreed are needed for business functions to have their shot at meeting business goals.

Thus having the "business value" of IT performance defined, managing IT execution is a straightforward effort to have IT performance meet business needs. As a start, this is exactly what should be represented by a service level agreement (SLA).

Then, the performance of the business is nothing less than the results obtained from the business's execution of functions enabled by IT's performance. Presumably, the business has some functional targets to hit, which will be how business execution will be rated for its value to the business.

The biggest issue emerging from this is the need to separate the business's achieved capacity of enablement from the business's achieved competency of capacity utilization. IT can provide the capacity of enablement, but (contrary to the mythology of automation) IT simply cannot make the business use the enablement wisely.

If the business does not have working definitions of those two things, that furthermore unfailingly distinguish them from each other, there is no reason to believe that IT's influence on the business performance can be logically designed, tracked or analyzed. Naturally, this also means that no attempts to determine ROI are actually meaningful; instead, they are simply sophisticated statistical fictions prone to being evangelized or rejected by company politics.

The only exception to that assertion is the case of IT actually preventing a business function from being executed -- a huge issue driven by the way that the business relies on IT. In this case, we think in terms of a "negative contribution" -- one that is usually either unexpected or not officially tolerated. But in this case, what is important is to not suddenly have a double-standard of measurement methodology. If the contribution measurement philosophy is based on describing how IT relates to intended consequences, then the description must also neutrally cover how IT relates to unintended consequences. As we do this, it is important to neutrally separate IT's relation to desirable consequences and undesirable consequences.

This neutral and comprehensive perspective, which prevents arbitrariness in political tolerances, forms the basis of understanding otherwise neglected issues such as opportunity costs incurred by the influence of one IT implementation versus another. Since the business is responsible for deciding on those tradeoffs, it is clearly a matter of management and strategy more than of IT per se. When "negative contributions" occur, they must be defined and recognized -- as the results of:
- either bad decisions or bad enforcement that should not be politically written off;
- or bad luck (such as natural disasters or external attacks) that probably should be politically written off.

Posted by Malcolm Ryder at July 20, 2005 8:11 AM

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