7 strategies to prove the value of your IT organization
Rich Wigstone | July 2, 2014
If you’re like many CIOs in the Fortune 500, you find yourself in a difficult position during annual budgeting: do more with less while minimizing IT cost per hour. This pressure might be coming from others in the C-suite, including the CEO, who may see IT as a cost center to be contained, minimized, and controlled.
Over-focusing on costs (especially cost per hour) prevents the IT organization from delivering the value it could if IT dollars were seen as investments that amplify earnings rather than costs that drain them. For example, if a $10/hour resource is chosen over a $50/hour resource who is five times more productive per hour, what value is lost in speed to market? If the IT budget is 2% less than last year, how many projects won’t be funded that could have helped seize market share, increase sales, improve customer service, or cut maintenance costs?
CIOs are eager to drive earnings, but they need support from the entire C-suite. Projects are often funded with shaky business cases stashed onto a shelf, never to be seen again. When those projects end, nobody hangs around to see if they improved any element of the business, and likely, nobody is counting the dollars and cents. Everyone is off to the next project to spend more money that never becomes anything more than sunk costs, even though everyone, at least at the beginning, agrees it’s an investment.
The IT org might get a bad rap, but it’s possible to turn things around with backing from the C-suite. Here are seven key strategies to prove the value of your IT organization and boost earnings.
1. Find the right sponsors for IT initiatives.
The key is to find a sponsor who has existing organizational accountability for whatever benefits have been promised. Adding new accountability that doesn’t figure into the executive’s bonus payout never works because, ultimately, that person isn’t personally invested in the outcome. That’s why sponsor absenteeism runs rampant.
Instead, find the executive whose performance is already measured by the benefits the project promises. If she’s willing to change her P&L forecast based on the project benefits, then you have a found a true sponsor who will be a relentless advocate for its success. If not, then maybe the project isn’t as great idea of an idea as its proponents say.
You also won’t need to worry about refreshing the business case while the project is being executed. If conditions change, your sponsor will be the first to propose changing the expected benefits, or cancel the project altogether. Nobody wants to spend millions on a fool’s errand and still be on the hook for benefits that will never materialize.
2. Anchor business case benefits in reality.
Now that your project sponsor’s bonus depends on your IT initiative, the business case needs to express the expected financial benefit using the same P&L line item your sponsor owns. You don’t want to invent metrics that aren’t grounded in reality—use the same existing financial metrics that power your company today.
The next question I always hear is, “How do I know that this project drove that line item, not another factor?” The key is to acknowledge that many factors influence performance, and to include those in the forecast as well. If a project’s benefit is to increase pricing power, factor inflation into the forecast. The CPI will undoubtedly differ from the projection, but this way it can be divided out so you can track the actual performance discounting the actual inflation rate.
3. Plan on benefit tracking from the beginning.
The mechanism for tracking actual benefits is often not overly complicated to execute, as long as it’s built in from the beginning. As the project elicits its requirements from stakeholders—users, customer support, application maintenance, etc.—the sponsor needs to be included, and the sponsor needs to levy a requirement specifying what financial outcomes should be isolated and tracked, and when reporting will be available. When included from the beginning, it’s easy for a project to design and deliver that requirement.
4. Change the project definition of “done.”
We need to realize a project isn’t done when the work is done. The work is simply the cost component of the overall investment. Once delivered, the warranty period needs to cover not only defects, but also problems in achieving the promised financial benefits. They need to be tracked, reported, and managed just like any other SLA. Only after the sponsor agrees that the benefits have been absorbed into continuing operations can the project really be considered done.
5. Engage the scorekeepers in finance.
If two kinds of blood run through your company, then information is one and currency is the other. While you are in charge of the flow of information, involving finance to help measure the flow of dollars can make it easier on you and turn finance into another advocate on your behalf. Involving finance early, while the business case is being developed, is key to making the results measurable later. Finance should be involved in transitioning the approved business case to the project manager so there’s full alignment on the project’s financial goals.
6. Empower your project managers as earnings agents.
Project managers need to be empowered to view themselves not as managers of work, not as builders of systems or creators of processes, but instead, as earnings agents. To achieve that, they need an ongoing two-way dialogue with the project sponsor and the sponsor’s steering committee. The project manager needs to report not on how many hours were burned or how many activities were completed last week or what the project’s schedule performance index is—those are internal project management metrics. Instead, project managers need to plan and report on achievement of key business outcomes that drive the promised financial benefits. These outcomes need to tie directly to cold cash that drives the sponsor’s financials.
In turn, the sponsor needs to report back to the project manager. How have business conditions changed? What has happened to the competitive landscape? What pending regulations could influence the future? How does all of that translate into the committed financial metrics, in black and white, that justify the project’s existence? The sponsor owns a P&L and, using our earlier advice, it’s that line item to which the business case is tied. Armed with the situation on the ground, the project manager can proactively course correct rather than reacting to a change request. The project manager knows the business case and the requirements. Hearing that a competitor is starting to take market share, the project manager can suggest re-shaping the project to fight back. What sponsor knows the requirements as well as the project manager? Probably none. So the project manager is in a unique position to influence the project’s value in ways the sponsor can’t on her own.
7. Use your PMO as an earnings measurement engine.
Many people believe that PMOs don’t measure anything relevant or worthwhile. Take all the reports your PMO produced last quarter and see if you can tie them in any meaningful way to your company’s last earnings report. Probably the only connection is IT spend, and depending on the quality of the reporting, it’s likely those numbers don’t foot.
The PMO should spend less time assigning status colors and policing compliance and more time on reporting that you and your sponsors can take to the bank. It should measure achievement of key business outcomes and financial benefits across the entire IT project portfolio. You can use it as a heat map to identify projects needing help and others deserving recognition. Your sponsors can use it to view their corner of the world and all the metrics that matter to them. Your CEO can use it as an early indicator to the most important financial metrics in the most visible, strategic areas of the company. Most important, it gets everyone on the same page about what needs to happen to achieve earnings.
Once drafted, your PMO can scrutinize this earnings report spanning the entire IT portfolio. Are two projects double-counting the same benefits? Is one project killing the benefits another is trying to improve? Can the portfolio be sequenced differently to maximize earnings realization?
According to Gartner, in 2011 only 20 percent of companies measured realized benefits. I’d argue that 100 percent of companies do: it’s their income statement. The challenge is in making the connection between spend in areas like IT and the results delivered to shareholders. As a CIO, you are charged with delivering technology that powers your company in so many ways: increasing efficiency, improving customer service, and reducing costs, just to name a few. It’s time to get the credit you and your IT organization deserve by showing how critical your team is to driving earnings.
Rich Wigstone is a solution principal in Slalom Consulting’s Delivery Leadership practice, where he enjoys helping companies with strategy and execution to get the most mileage out of their earnings engines.