Strive for Financial Metrics
Mannington Mills' reduced system downtime may be a good indicator of basic competency - a prerequisite for any viable IT business. But there are other ways to measure success when running IT like a business. The most often used metrics, according to our survey, are internal customer satisfaction scores, IT leader performance reviews and executive committee reviews, industry benchmarks and performance against internal service-level agreements.
But for IT to be seen as a true, credible business, performance metrics need to measure business value in dollars and cents. "Ask most CIOs if they have performance measurements in place, and they'll often pull out a notebook filled with percentages of uptime. But they don't have any measurements for IT business value," says Mark Lutchen, senior vice president at PricewaterhouseCoopers, and author of Managing IT as a Business.
At Intel, Busch has made measuring the dollar value of IT a top priority. The IT department launched its own business value program with a goal of delivering $US100 million in new value for Intel. The rules are strict: Busch won't count anything that saves money only for the IT group. To be included in the value tally, initiatives must be new, not extensions of old programs. And the total return that can be accrued from any one system is capped at $US20 million. Busch measures the payoff with post-implementation audits - the same tool used by 74 percent of our survey respondents. But he doesn't stop at implementation; he continues to calculate the value accrued over time. The Intel finance organization validates the numbers at the end of the year. The total - $US184 million by 2003's reckoning - represents the business capability IT is delivering to the internal customer.
Along with a value measurement program, CIOs need a communication program to get the good word out. "Having the absolute best value measurements is meaningless if you don't have a communication program," says Lutchen. "You can build a stellar IT organization and still have it be viewed as a failure."
Reap Rewards
What's great about all this effort is that it truly pays off. When a sampling of the survey respondents were asked to rate the success of their IT business make-overs, 66 percent gave themselves a seven or higher on a scale of 1 to 10. And the most often-cited benefits match the goals that led CIOs to make the attempt in the first place - better alignment with the business and increased IT credibility. Other benefits CIOs have realized include greater customer service and loyalty, IT quality improvements, increased staff productivity, cost and value transparency, and better staffing and outsourcing decision-making.
Stronger alignment is palpable at Mannington Mills. "There's no longer the need for constant realignment of priorities. The IT staff truly gets it," Sloane says. "All the IT managers are watching their budgets closely and are not requesting expenditures without first explaining the benefits to the business. The entire staff understands that we exist to service the needs of the other departments in our organization. They are our customers."
CIOs no longer need to panic when they are called on the carpet to defend IT spending. According to Busch, "If someone is concerned about how much is being spent on IT, we can say: 'Here's the Web site that shows our unit-cost strategy, what you're paying for IT, a history of our cost reduction, and what we're planning to do next year.'"
The full visibility of IT cost and value also helps the business make fair comparisons when considering outside providers. Gartner's Gerrard points out that outsourcing the help desk might seem like a no-brainer, unless someone realizes that the internal help desk organization also does asset management and tracking. "A whole chunk of service may be done behind the scenes," says Gerrard, "but the general description is 'help desk'. So when the cost is compared to the outside entity, it's unfavourable." Within the first week of an outsourcer taking over, it will become painfully apparent what tasks the external provider is not doing that the internal organization used to handle.
Although it may take more time to make over a deficient IT department in the image of a business, the results will be all the more dramatic. Five years ago, Northeastern University's IT group was "behind in every category you could think of - value to the customer, reliable technology, budget justifications," says CIO Bob Weir, who has spent the past five years trying to run his university IT like his former employer IBM ran its business. "We're prioritizing resources to get the biggest bang for the buck in a repeatable and measurable way," Weir explains. Today, service-level metrics are up, anecdotally customer satisfaction has increased (Weir is instituting a formal survey this year), and Weir won enough credibility to be able to double his budget and increase his headcount by 50 percent within his first three years at the university.
It was no picnic for Huntington Bank's Gottron either. "It was tough. At times I was ready to throw open the window," he reflects. "But I'm glad I went through it." That hard work may very well be the reason Gottron and his staff are still in business. Last year, Huntington took a serious look at wholesale IT and business process outsourcing, but Gottron squelched the idea by effectively demonstrating the value and performance of his in-house IT function. Or rather, his IT business.
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