Translating IT value into business terms requires constant chats across corporate aisles. It means that every project fits into the company's game planReader ROI Pick up tips for talking about the value of IT See what non-IT execs say about the worth of IT projects Get the skinny on four key IT categoriesWhen he took a really good look at his company, Rolls-Royce Marine, Geir Balsnes saw lots of data about its products but very little in the way of infrastructure for accessing this data or checking its consistency. Balsnes, the division's director of business process improvement, could see iceberg-like headaches ahead for his division of the famous Derby, England-based automaker. If his company couldn't quickly verify the specifications for replacement ship engine parts and other machinery, it would suffer delays and other problems in responding to its customers' needs. And among those customers are 30 of the world's navies.
The nuts and bolts of the problems were all about IT. Along with more modern ERP applications, Rolls-Royce Marine had 30-year-old legacy data it needed to access and validate. The company's lack of infrastructure - and its limited ability to distil a useful view of all this data - also threatened to give inaccurate answers to important questions. More problems were ahead if, for example, Rolls-Royce Marine did not have the accurate specifications required to make or ship replacement parts for its products, Balsnes realised.
To Balsnes, these conditions spoke of the clear urgency for building a data warehouse to provide his company with the answers it needed from disparate stores of data. "We're trying to make sure that we configure the products that are best to produce," he says, adding that the data warehouse is about "having a consistent product, from sales to delivery". Balsnes also figured that what was clearly valuable to him as an IT investment might not be as clear for other executives at his company. Balsnes says he realised that showing executives the value of a data warehouse would be a lot more effective than just telling them.
IT projects, when proposed, must come across as critical to an organisation's success to win approval. But communicating the value of projects is a game that does not always have easy-to-state rules for CIOs and their business counterparts to follow - especially when precise, by-the-dollar return-on-investment figures aren't available. Those with experience say expressing IT value works best when it's part of an ongoing conversation among CIOs and other business chiefs, and when all parties have established their credibility with each other from past collaborative decisions. These executives also say success in communicating about IT value follows when a CIO states a project's benefits in terms of a company's overall strategy and its competition's plans, and when an IT executive acknowledges the user training that comes with technology investments. Two other factors lend credibility to a CIO's message: when there are pilot tests that give early signs of a project's tangible worth and when there are follow-up reports establishing the value of projects in progress.
While this article delves into how to convey IT value, executives and analysts say certain kinds of projects typically come up in these value discussions nowadays: CRM, supply chain projects and their related vertical industry marketplaces, application integration work (like the Rolls-Royce Marine data warehouse) and wireless technologies. Short pieces accompanying this article provide some quick insights into these kinds of projects.
TAKE A TEST DRIVE
At Rolls-Royce Marine, Balsnes decided that the best way to show the value of his proposed data warehouse was to have his team set up a trial run to give executives an idea of the type of benefits - in cost savings, specifically - they could expect from a data-warehousing initiative. Pilots have worked for him in the past, he says, because they help people visualise the upside. "Everything you invest in, you have to show the benefit of it," he says. In the case of the data warehouse, he adds, "everyone is aware that information is there, but they don't really know how to get at it. [The pilot] showed there is information, but it's not consistent. We [had] to use a couple of examples where visibility of information is critical to the business."
By consolidating information into a data warehouse and gleaning updated, accurate procurement and inventory information, Balsnes and his IT team proved that Rolls-Royce Marine could bring consistency to its manufacturing processes and products. Balsnes' team also showed that the company could eliminate costly redundancies in spare-parts procurement and reduce the time needed for parts procurement from three or four weeks to literally seconds. Balsnes' team used the data-warehousing pilot to bring to life a business case for an IT project.
Balsnes' experience shows that there are tangible steps CIOs can take to express the value of their IT plans in terms other businesspeople can grasp, while also making sure they are on track to deliver that value. The ultimate goal, decision makers on both sides of the table say, is for projects to go so well that CIOs establish credibility with other business leaders and improve the IT-business alignment by creating an atmosphere of teamwork and trust.
DOLLAR SIGNS DO HELP
Some initiatives are easier to justify than others, of course. Executives love to hear business cases expressed in terms of cost, and CIOs who can attach dollars and cents to their projects are at a great advantage.
"It's what I call the pure cash flow impact to the company," says Michael Costa, director of finance information technology and controllers' processes at The Dow Chemical Company in Michigan. "If I put in this [investment], then I don't need X number of people or I reduce travel costs. There is an expectation from senior management that for every IT dollar we spend, there is an amount that we will deliver back to the organisation over time."
But such dollar-for-dollar comparisons are rarely readily available. Many IT projects - especially those involving infrastructure and integration investments - bring returns that can be better expressed in terms of efficiency and competitive advantage than cost savings. In those cases, CIOs sometimes have to work around executives' need to see a bottom line. Balsnes' pilot strategy can be an effective tool. Another tactic is to paint a picture of the company without the proposed IT investment and explain how the company will fall behind if it fails to make a critical technology move. This is the route 3M Corporation CIO David Drew and his IT staff took when they sought to build an ambitious e-commerce and content-management infrastructure.
"We did some estimates of the things that we could put dollar values on, but we also talked about what would happen if we didn't do [a project] - that we would end up making similar investments in suboptimal ways in various parts of our business," says Drew. "We didn't want to make piecemeal investments later on. We presented it under a banner of digitisation - that we had to digitise our assets in order to compete in an e-business world. We made the strong case that if we didn't do it, we would be unable to participate [in e-business] at the levels we wanted to."
Drew's company is in the process of building that infrastructure, which includes investments in online marketplaces and other e-commerce initiatives.
It turns out that keeping up with the Joneses is a message that resonates with other executives. Martin Brodigan, president of Ricoh Canada, has heard it as an executive and has used it when justifying projects to Ricoh's corporate brass. Specifically, Brodigan's IT team presented him with the idea of creating a customer-service portal that would allow customers to enter and check on service requests for Ricoh copiers and other machines. Brodigan liked the idea despite the fact that it did not come with a specific potential dollar value attached to it. When he presented the idea to Ricoh's corporate executives, he justified it by invoking a message of competitive pressure. Ricoh Canada has since built the portal.
"In our application, [the company] probably doesn't save a dramatic amount of cost," Brodigan says. "But there's a huge amount of benefit that we see [for] our customers having [this application] as a differentiator. To be a player, this is the required cost of doing business."
PATHS TO CREDIBILITY
After justifying a project's worth, a CIO needs a method for tracking that value. If calculating cost savings is out of the question, CIOs might need to establish other metrics to track.
At General Motors in Detroit, David Clarke, director of IT operations and infrastructure, says he looks to user surveys because they can help indicate the success of a project. Clarke says executives pay attention to numbers that prove an implementation is helping users. He says his company has conducted surveys of help-desk users that reported satisfaction before and after a technology implementation. And those surveys do more than measure satisfaction. They also serve as a determinant for the IT department's performance and, in some cases, a gauge of a CIO's salary.
"Our leadership culture is very metrics driven," Clarke says. "We strive to attach a meaningful measurement to everything we do. It's important to be able to articulate exactly how something was successful. My compensation is tied to achievement of objectives."
Another way to measure success is to take a project through "gates" - setting goals before a project begins and determining the worthiness of a project by checking progress toward those goals at predetermined times. Of course, CIOs who use that approach must be prepared to slow or kill a project that is not working.
"It behooves any CIO not to get defensive on projects but to take a realistic view of [them]," says Jiten Patel, senior vice president and CIO of H&R Block, the Detroit-based tax preparation and financial services company. "We have to be able to come back to the table and say, This is not going to fly; it's not worth pursuing.' That only works if you've laid the groundwork up front."
The best way to gain the confidence of upper management, of course, is to implement several successful projects. But CIOs can follow a few simple practices that will help them maintain strong relationships with those who hold the company purse strings.
THE BOTTOM LINE
First and foremost, every project must meet a strategic business goal. The best way to ensure that projects align with business objectives, executives say, is for CIOs and business executives to constantly discuss those objectives. IT executives "don't come to us and say, We want to do this project,' nor do we come to them," says Sandy Rogers, senior vice president of corporate strategy at Enterprise Rent-A-Car. "We sit down and say: What is our goal?'."
Mapping out goals on a consistent basis also leads CIOs to prioritise projects. Rarely will CIOs get the go-ahead to complete every item on their wish lists. But determining what problems within a company need the most immediate attention and attacking them one by one cannot only help companies meet strategic goals, but can also help CIOs stay credible in the eyes of other executives.
"There is always a lot of neat initiatives on the table, but you really have to be correct in picking your blue chips because you're only going to get so many done," says Steve Hamlin, vice president of operations at retailer QVC's Internet group. "It's recognising and understanding that that becomes important."
Ultimately, though, CIOs should clearly communicate that technology itself cannot usually solve business problems. It can be a tool for executing better business processes, but there is no cure-all for company dilemmas contained in the bits and bytes of a single application. In that sense, CIOs must communicate that their job - picking and implementing technology - must constantly be augmented by the work of employees and executives outside IT if a project is to succeed. Among the most important aspects of any technology implementation is user training, and CIOs must know up front that their colleagues are willing to spend the money and time necessary to bring users up to speed on new systems.
"I can't think of a single technological innovation or a single piece of hardware on the reliability side that I would characterise as a silver bullet," Clarke says. "It all comes down to whether you implement [projects] well. A lot of it is good, hard process work that has to be done to take the delays out of the processes."
When a CIO has established executive credibility, he cannot take it for granted. Value prediction and measurement must be a constant give-and-take, both from the IT side and from the business-executive side. But CIOs who proactively monitor and report on their projects will be at an advantage in future negotiations, Dow's Costa says.
"Once I get my piece of the pie, I'm continually reviewing it to make sure that I'm delivering the most value that I can for each dollar of my technology investment," he says. "The way to ensure you have resources available is to deliver the most value that you can." vCustomer Relationship Management To keep your public happy, these systems require motivated people behind them CRM stands for the much-publicised, customer-facing technology that can include everything from call centre applications aimed at helping customer-service representatives answer questions to order-tracking systems designed to give customers visibility into where their purchases are and when they will arrive on their doorsteps.
CRM is hot because it is external. While ERP applications straightened out internal processes, CRM systems are designed for customers to use - directly in some cases. The idea is that customers will like a company's customer service so much - because it's enhanced by CRM applications - that they will become loyal to one company over its competitors and will channel their purchases toward that one company and boost that company's revenues.
"By using this set of tools and capabilities, if we are able to retain our customer base and add to it but add to it more by word of mouth, we are limiting our cost of [customer] acquisition," says Jitan Patel, senior vice president and CIO at H&R Financial Advisers. But CRM will only drive revenue if the sales representatives themselves choose to be more productive, says Barton Goldenberg, president of Maryland-based consulting and analysis firm International Systems Marketing (IMS). Goldenberg says those who do can realise 10 per cent revenue boosts per sales rep for the first three years of the application.
Supply Chains and B2B Marketplaces
Realising payoffs to these IT investments demands long, hard planningAutomating a supply chain cuts to the very definition of running an e-business: managing inventory in real time, speeding the processes of ordering and fulfilling orders, and procuring materials from suppliers. The concept of a supply chain is best expressed in context with strategic procurement and the explosion of B2B exchanges. If a company can streamline its order and fulfilment processes, get the best supplier deals and make rapid changes in inventory and demand forecast, it can realise significant cost savings. (See "The Big Payoff", CIO, November, 2000.) "Business is a real-time entity in a way that it wasn't before," says Joshua Greenbaum, principal at Enterprise Applications Consulting in California, explaining why CIOs are looking to automate the supply chain.
For instance, he says, a computer company that purchases chips from a supplier in Taiwan might be in serious trouble if a natural disaster strikes that part of the world. But if that company can immediately replace those chips with a secondary supplier, it can avoid lost customer orders.
B2B marketplaces are designed to let companies and their suppliers meet in an online exchange through which suppliers can compete for companies' business. Some are industry initiatives, as in the case of automakers; others are set up by independent parties.
While participation in a marketplace can yield cost savings, it often leads to further IT investments. For instance, 3M is beefing up its content management capabilities in order to keep track of information about marketplace suppliers. David Drew, 3M's (US) CIO, says the cost savings a marketplace can offer when properly used should justify the need to improve technology.
Last, before jumping into an online marketplace, companies need to evaluate the quality of their supplier relationships. Julie Fraser, principal at Massachusetts-based research agency Industry Directions, says companies should be careful not to turn their backs on trusted suppliers simply in an effort to lower costs.
Application Integration
Neglect this, and you undermine everything else Even the best-laid plans for CRM and supply chain applications are likely to fail if a company can't use the information it already has on customers and suppliers. A lot of that information is still trapped in legacy systems or is moving in batch mode - not in real time - from system to system.
"The biggest difficulty [in setting up an e-business] is having a good information picture," says Geir Balsnes, director of business process improvement for Rolls-Royce Marine, headquartered in Derby, England. "Without knowing what we know, we can't do anything. You can't just kill [legacy systems]. There's 30-year-old information that we need."
Enter data warehousing and application integration. Data warehousing essentially allows companies to store data in an accessible location and format. Application integration allows information to move from one system to another without errors and from legacy systems to Internet applications. Integration is the glue that holds a system together.
New kinds of applications "all have to coexist with what the CIO has in store", says Joshua Greenbaum, principal at California-based Enterprise Applications Consulting. "There's no way the CIO can go to the board and say e-business is so important that we can throw out our $100 million investment in IT and start from scratch. The cost justification for [application integration] is relatively simple because either you integrate what you've got and pay for the glue or you get a whole new system."
It isn't easy, though. David Drew, CIO at 3M (US), says integration consumes as much as 40 per cent of the work on a given project. And so-called enterprise application integration (EAI) tools still cannot handle all the layers of application integration a large company needs.
The lack of tools capable of fully automating the process has left CIOs and their staffs working overtime to design integrated environments. However, the potential value of having integrated systems justifies much of the labour costs involved in creating those environments. Quite simply, a lack of investment in integration diminishes the value of other systems.
Wireless Technology
Right now, its promise is untethered to its performance Wireless technology's promise to deliver information to systems, gadgets and their users on the go is still in a relatively early stage, so it's not for everybody - at least not yet.
For Rolls-Royce Marine, it's critical. The company uses a global satellite network to communicate with ships that use its equipment. "When it comes to tracking information on ships, either you do it via satellite or you don't do it," says Geir Balsnes, the division's director of business process improvement. "If someone has a ship running around the world, we need to know where the ship is, what's on board."
But for other companies, wireless applications are hardly a priority. David Drew, CIO at 3M (US), says his company is doing experimental work with wireless LANs but notes that wireless technology is not ready to support more robust applications such as CRM. And the continued development of wireless technology means that potential problems abound. Consultant Barton Goldenberg, president of Maryland-based International Systems Marketing (ISM), notes, for example, that latency in wireless networks can still cause 40 per cent of information in a given transfer to a wireless device to be lost.
However, the need for on-the-spot information will continue to drive advances in the technology, he says, adding, "In three years time, the vast majority of CRM applications will be wireless".
Join the CIO Australia group on LinkedIn. The group is open to CIOs, IT Directors, COOs, CTOs and senior IT managers.