CIOs have long heard the advice from the C-suite, consultants, analysts, and the press: Stop focusing on constantly rebuilding your engine and get strategic about IT as a business value generator. Now there's proof from The Hackett Group that this advice is true.
According to Hackett's research, when compared by industry to the typical US$22.3 billion Global 1000 companies, top IT "business value management" performers generate US$1.1 billion more operating profit on an annual basis and US$645 million higher net profit. In addition, not a single company in the Hackett study was able to deliver superior financial performance without also being a top performer in IT business value management.
Business value management has four aspects: business value governance, performance management, portfolio management, and IT financial management. According to Hackett chief research officer Michel Janssen, "The IT [business value management] processes we've identified represent only 3 to 7 per cent of the overall IT processes and resources. Yet by excelling in these areas, companies can drive dramatic bottom-line benefits."
In practice, top performers manage their IT project pipeline much more effectively than their peers, according to Hackett. They weed out the least promising initiatives early on, approving and funding only half as many project proposals (40 per cent versus 88 per cent for typical companies). Then they initiate and complete a much larger percentage of the projects they approve. Finally, top performers are nearly two times more likely to meet cost targets on IT projects as typical companies and nearly three times more likely to meet benefit targets.
Ironically, they achieve those financial efficiencies as an effect of their IT business value management approach, not from a focus on cost containment. Most companies - those that don't get the strategic IT value - focus on maximizing the efficiency of IT, viewing it simply as a cost to be contained, said Eric Dorr, a senior business adviser at Hackett.
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