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March 3, 2006

Driving IT Bang for the Buck: Evolution, Improvement, or Innovation?

When we think of effective IT spending, we're focused on making the best current use of the money, given competing alternatives or emerging options. But increasingly, the basis of effectiveness in business spending on IT proves to be in how the business manages its reliance on IT.

Sometimes we don't have enough visibility of legitimate alternatives and options. The urgency of our attention to the purpose that justifies the spend means that this lack of perspective could be left unsolved. But for that reason, a diligent evaluation practice looks for opportunity costs that should be factored in. As part of this diligence, what remains to be emphasized even more is not how the IT will make the organization work, but rather how the organization is going to make the IT work.

I.

In the full cycle of management, the business first conceives and identifies why IT is needed before it makes any other decisions. To avoid taking the need for granted, this first decision means describing the business model in terms of what potentials are granted it by available IT. That is immediately followed with a forecast of how sustainable those potentials are -- which necessarily means identifying and selecting how to make them sustainable.

When that architectural aspect is clarified, the next part of the decision cycle must create a "delivery" organization that can constructively practice the architecture. This means two things:
- establishing the sources and resources that will produce the infrastructure from the architecture, and
- establishing the processes that will link IT production cycles to business operating cycles.

At that decision stage, reliable design and reliable production easily wind up being qualifying criteria used to distinguish the various opportunities, organizations and risks that the business will incorporate as the elements of realizing of its model.

Thus, investments in their incorporation aim to relate reliability to the goals of business. That aim immediately offers a perspective from which a high-level assessment of the current business investments might be done. Normally this makes us think of metrics; but as pictured below, the main point is to allow the perspective to stage comparisons and guide questioning. Here we might just catalog known commitments by critical business goals.

II.

Those commitments might then involve or indicate spending on IT. But, as described there and below, the associated "IT investments" are not about IT per se but rather about the application of IT. We can understand the idea of "application" by considering the purpose of the IT utilization.

- At the highest level of distinction, the business goals of incorporating the opportunities, organizations and risks are recovery, health or growth.
- Within each of those goals, sub-goals are development, maintenance, and change.
- And within each of the subgoals, another sub-level features assessment, design, and control.

Consequently, it is possible to ask questions at the management level such as, "Can we control the maintenance of our health?" or "Can we assess the development of our recovery?"

These are not IT questions -- but they are questions that present opportunities for IT to enable successful management outcomes. In turn, management is focused on enabling successful business outcomes.

Taking that framework of IT incorporation as the main perspective, it is easy to appreciate that business utilization of IT is nearly always altering something -- either a behavior or a current state.

The importance of how IT is managed, though, is in how well IT supports management's ability to intentionally change how the business can behave. (From here on we'll consider "change" in this larger context.)

III.

The observation just made emphasizes that we can and should compare the kinds of value offered by different classes of change, and then associate IT's effects to those values -- as contributions.

To demonstrate that, compare evolution, improvement and innovation.

Relative to each other, these kinds of change differently affect the state of the business:
- evolution permanently modifies the fitness of the business's model to the dynamics of the environment in which demand develops;
- improvement modifies the fitness of its conduct to the current and targeted demand;
- innovation modifies the fitness of its output to the needs of the environment's population.

According to perceived conditions regarding recovery, health or growth, business executives must determine when any of these three modes of change requires higher-priority attention. A timely reaction is mandatory, but proactive change is potentially strategic to optimizing the benefit versus risk of those conditions. That may result in new or extended initiatives to create the necessary related sponsorship and opportunity, including competencies and technical support that might drive spending.

To support a proactive stance, a good device to have would be a framework for envisioning, monitoring and ultimately predicting circumstances that we can agree will signify a need for change. Not coincidentally, those circumstances have the look and feel of key ideas offered within the business justifications for IT spending. That device might look like the following:

IV.

But given those considerations, executives and managers together should ask the "big picture" questions -- for example, whether an improvement initiative is the most likely candidate to produce better recovery, as opposed to an innovation initiative. At the same time, it is important to recognize that one kind of change may be an element of another kind and acquire priority that way. After all, form allows conduct, and conduct (i.e., production) allows product. As another more specific example, innovation may accelerate evolution, and improvement may create more opportunity (security, income, knowledge, etc.) for innovation. Thus, an improvement initative can strategically foster the goal of accelerated evolution. But likewise, the requirements for supporting an adopted innovation may obsolete improvement efforts dedicated to earlier production, eliminating that legacy cost while potentially releasing resources for new purposes.

These interrelationships are characteristic observations in portfolio management.

IT management must be focused on applying IT to business operations present and future. On the one hand, it is typical that an IT budget might be evaluated in terms of how much spending goes to "maintenance" versus "R&D" and so forth. Those generic classes correspond to how IT responds to the business requests for support.

But the rollup of dollars into those classes can easily obscure the more important and time-sensitive issue of whether the right things have been selected for maintenance, or the right things are being pursued through R&D. By calling for a distinction between wise spending and merely approved spending, we get to a conversation about how management leverages IT for the business -- as opposed to mere responses. In that conversation business and IT organizations together find the logical path to measuring the effectiveness of the decisions, and to measuring how much that effectiveness was worth.

The view that unifies their concerns is not one about how "IT investments create business value", but rather one that business value subscribes IT.

Posted by Malcolm Ryder at March 3, 2006 8:16 AM

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