Mar 1 ’03

IT Sense: Back to Reality: The Quest for Business Value in IT

by Editor in z/Journal

The popular science fiction author Frank Herbert once wrote, “A beginning is a delicate thing.” So it is with editorial columns in IT trade press publications.

To be successful, the columnist needs to gain the confidence of the reader in 750 words or less. In short, he must convince you that what he has to say merits your attention and will be worth your time. He must demonstrate a discernable value to you in order to compete with the many other activities and issues that command your attention.

Value is what this column is about: The value of information technology to business, value that is assessed in commonsense terms and demonstrated in measurable results.

It is the central contention of this column that technology has no intrinsic business value whatsoever. Technology is, at best, an overlay or support infrastructure for business processes aimed at accomplishing business objectives.

Evidence of the truth of this position has been provided by other writers, including Paul Strassman, whose extensive research into the relationship between business IT spending and bottom line corporate profitability has revealed no correlation whatsoever between the two. From Strassman’s findings, it is clear that profitability has improved in as many firms that have minimally increased annual budgets for IT spending as in those that have made large and significant IT spending increases. Conversely, many companies have seen their profits decline regardless of how much or how little they spent on IT.

Does this mean that technology contributes nothing to a business? Of course not. The argument could be made that IT is an “arms race.” In order to compete, one company must have the same level of investment as its nearest competitor in applications, systems, and networks.

There is some truth in this metaphor. Clearly, IT spending is part of the “price to play” in contemporary business. But it is not a de facto determinant of who wins and who loses in the marketplace, regardless of the slick television or print advertisements you may see from prominent technology vendors. The bottom line is that the formulation and implementation and management of successful business models determine success and failure. IT has no intrinsic business value and it cannot impart success to bad business models — at least, not for long.

From this common-sense premise, many corollaries can be derived. A key one is the need to impose business sensibilities on IT acquisition decisions. Any technology worth having should have a sound business value justification.

I’m not talking here about the much-misused acronyms “ROI” or “TCO,” which have lost much of their meaning in the hands of vendor marketing mavens. Real business value isn’t how quickly a technology investment will produce sufficient cost-savings to offset its acquisition price tag.

A real business value case for an IT investment needs to consider the measurable cost-savings, risk reduction, and business enablement contributions that the IT investment will make. After about a 10-year hiatus in la-la land, both business leaders and their IT managers seem to be wizening up to this point once again. The economy is tightening corporate purse strings and forcing IT guys to blow the dust off those old circa-1980 books talking about doing more with less. The proverbial feet of CIO, CTO, and IT managers are being held to the fire everywhere to discover technology investment choices that actually deliver value to the firm.

Doing so requires that you consider technology options with an eye toward assessing both the value to the company when the technology is operating efficiently, and the impact on the company if and when the technology fails. In truth, acquisition cost is more than the price tag of the widget that you are buying. These days, acquisition cost must also include the price of the extra widgets you must buy to safeguard against the failure of the primary widget. Another way to put it is that you must ascertain both the performance, capacity, and maintenance costs of the technology, and the requirements and costs to protect the technology that you are considering in order to make a sound choice.

One industry smart guy with several decades of “solutioneering” experience suggests that only 20 percent of an IT acquisition’s business value has to do with its performance in support of business processes. He argues that 80 percent of its value is derived from availability – just showing up for work consistently and dependably. Truer words were never spoken.

My 750 words are up for this inaugural issue of z/Journal. Going forward, I look forward to making “IT Sense” a practical and actionable source of information about business-relevant technology. I welcome your feedback at jtoigo@intnet.net. Z