The Hackett Group has published research on IT metrics at “world class” companies. These metrics measure things such as IT spending, spending per staff, spending on outsourcing etc. in an effort to provide benchmarks for others to follow.
I would have preferred starting with a precise definition of a “world class” company i.e. what makes a company world class? Then made the connection between this level of IT spend and the achievement of that status. In other words, how are we to know that their marketing investments did not get them to this coveted spot? Perhaps, IT had nothing to do with it. Perhaps, the current level of IT spending had nothing to do with it.
Benchmarking and IT spending metrics are meaningless in the absence of a clear and direct connection between the metrics and shareholder value. Some people have made a connection between IT spending levels and share price increases. I commend this effort, however, in the absence of other data, for example marketing or operations spend during the same period, or news on one time events like winning a patent lawsuit or M&A activity, there is neither a clear nor direct connection between IT Spending and shareholder value.
Conversely, one can examine specific metrics/benchmarks being quoted and see that they are meaningless:
World class companies spend 10% “more” than the “typical” on IT. Does it imply that any company spending 10% “more” on IT is world class?
World class IT organizations have 28% less staff than typical companies. Does this imply that any company with 28% less staff is world class?
These are rhetorical questions. Hopefully, they help understand the complex issue of IT value metrics.
Tread these murky waters with caution!
Sourabh Hajela is a management consultant and trainer with over 20 years of experience creating shareholder value for his Fortune 50 clients. His consulting practice is focused on IT strategy, alignment and ROI. For more information, please visit www.StartSmartS.com. Or feel free to contact Sourabh at Sourabh.Hajela@StartSmartS.com
IT Strategy: IT Cannot be a Profit Center (Friday, September 08, 2006) IT Strategy: Of late, there is a lot of emphasis on IT ROI. While this is commendable, extending this argument to convert the IT Organization into a profit center is taking it to another extreme. For example, are HR, finance, and marketing profit centers? Why not?
IT Value Mapping (Friday, September 08, 2006) Why do some IT organizations create unprecedented shareholder value, while others earn the contempt of their business leaders? It is no secret that aligning IT with business improves IT ROI, what is often in doubt is how to make it happen. Can you say with certainty that your IT is aligned with business? Can you prove it? If improving IT ROI is an imperative for you, read on. This paper will show you how to improve ROI by 10% or more…and
IT Strategy Framework (Monday, September 25, 2006) IT Strategy requires a process and a framework. The former provides the steps and the latter the toolkit. Together they help an organization get to an IT Strategy that maximizes IT ROI. This article addresses the latter.
Help! We are being treated as a cost center! (Wednesday, October 18, 2006) Let’s face it. An IT organization that has to justify its budget as a “cost center” has lost the respect of the business community somewhere along the line.
Talk to Me: The Disconnect Between Business and IT (Monday, May 07, 2007) The disconnect between business and IT is often lamented. A lot is spoken and written about this chasm. Ostensibly, a lot is done to bridge it. Yet, most would agree the chasm still exists.
Why IT ROI doesn't matter? (Friday, November 03, 2006) Does IT ROI matter? Great many intelligent people are spending sleepless nights and countless dollars calculating IT ROI. The author argues that they are wasting their time and shareholder dollars!
Putting IT Strategy in Context (Wednesday, November 08, 2006) Often, the emphasis is on creating an IT Strategy. Before you do, understand the context of IT Strategy i.e. what is its role and scope.
A Framework For IT Value (Monday, April 02, 2007) In this series, we will discuss IT Value - from its definition to a framework to measure and track it
Part II: A Framework for IT Value (Monday, April 09, 2007) Last week, we lay the foundation for a discussion on IT Value. This week, we look at specific areas where IT creates value.
Part III: A Framework for IT Value (Monday, April 23, 2007) Last week, we focused on revenues. This week, we look at the costs in the IT value equation.
Part IV: A Framework For IT Value (Monday, April 30, 2007) Last week, we discussed the cost dimension of IT Value. This week, we will discuss the time to market dimension.
Part VI: A Framework for IT Value (Tuesday, May 29, 2007) Last week, we focused on quality and its impact on IT Value. This week, we will take a look at productivity and its impact on IT Value
Part VII: A Framework for IT Value (Monday, June 04, 2007) Last week, we focused on productivity and its impact on IT Value. This week, we will take a look at customer satisfaction and its impact on IT Value
How to Succeed in the Global Economy? (Wednesday, August 01, 2007) The world is increasingly flat. While the inevitability of - and need for - globalization cannot be denied, the "global" worker must pay attention to the new imperatives for him/her. Enclosed is a very good discussion on the topic.
Measuring IT Value Using Intel's Business Value Index (Friday, August 17, 2007) Want to measure the value of IT? Intel has proposed a solution based upon its "Business Value Index." Attached is an introduction to the methodology
The Ultimate Proof of IT Value (Friday, October 19, 2007) A study proves the bottom line impact of IT investments. Case closed? Hardly!
Primer on Project Management Metrics (Thursday, October 25, 2007) What you can't measure you can't manage. The attached article provides a good primer on metrics.
IT Spending: CIO Survey (Tuesday, November 27, 2007) Where are CIOs spending their money? How do they view their future spending and direction? The survey says...
Enabling the Strategy Focused Organization (Monday, January 14, 2008) Is IT Value compromised because of the strained relationship between business and IT? How can the CIO overcome this challenge?
Measuring eGov ROI (Tuesday, February 05, 2008) An interesting discussion on eGov ROI. Lessons learnt can be applied to business. Good read!
IT Strategist as a Race Car Driver? (Tuesday, February 12, 2008) Learning from Mario Andretti sounds like fun but what has that got to do with IT Strategy? Read on!
Mission Impossible: Demonstrating the Value of IT (Monday, February 25, 2008) CIOs are caught in a vicious circle of "cost cutting" begetting more cost cutting expectation! How can you get out front and demonstrate IT's value?
Spending Smarter: Rebalancing IT Budget (Monday, February 25, 2008) How can a CIO create value when most of the budget is spent "keeping the lights on"? Is there a way out of this dilemma? Read On...
Influences on IT Strategy (Monday, March 03, 2008) Excellent overview of IT Strategy and things that have an influence on its outcome. Must read!
IT Strategy For Business Value (Monday, March 10, 2008) The paper presents a framework for developing an IT Strategy for business value.
IT Strategy Framework with SOA (Monday, March 10, 2008) A very good presentation that takes IT Strategy to solutions architecture using SOA. Good read!
Developing an IS/IT Strategy (Monday, March 17, 2008) A very good presentation on developing an IT Strategy. Must Read!
A Framework for Developing IT Strategy (Monday, March 17, 2008) A very good discussion on developing IT Strategy including detailed steps and explanations. Must Read!
IT Strategy for the Law Firm (Monday, March 17, 2008) A presentation on the challenges facing CIOs at law firms and how to create an IT Strategy to overcome them.
Cracking the IT Value Code (Monday, March 24, 2008) Does IT Spending Matter? The answer is an emphatic no. Then what does? Read on...
Understanding the Value of IT (Monday, March 24, 2008) Understanding the IT Value equation is critical to making IT Decisions. This article provides guidance using the education industry.
Managing IT For Value (Monday, May 12, 2008) "We conclude that no existing method is suitable for assessing the business value created by IT assets." Read On...
Managing for Shareholder Value in difficult times (Monday, June 02, 2008) Is there "managing" to anything else? Read this excellent discussion on how everything in an enterprise should be managed.
Beyond EVA (Monday, June 23, 2008) A good discussion on EVA and how to plug its shortcomings.
The History and Future of Value Management (Monday, July 07, 2008) An excellent presentation on measuring and managing "value" - discusses various frameworks. MUST READ!
DAM/VAM: A Structured Methodology for Developing and IT Strategy (Monday, November 17, 2008) Demand and value assessment methodology is a structured approach to quantifying the demand for and the value from IT investments. This guide provides a step-by-step approach to implementing DAM/VAM. Excellent Read!
Rss