Prioritizing IT Projects Based on Business Strategy

By Sai Machavarapu
Sat, July 15, 2006

CIO

Most IT project evaluations are like the tail wagging the dog. They begin with IT strategy, rather than the goals of the business. In fact, IT strategy should be the third link in a chain that begins with business strategy, which in turn governs the product or service strategy, which then drives IT strategy. Let’s look at how this could work in the context of a fictional midsize CRM software company:

Business strategy: Increase the customer base by 20 percent in the next year by providing increased functionality such as business operations analytics and executive dashboards.

Product strategy: Develop an alliance with a business intelligence (BI) software company to add analytical capabilities to the CRM software.

IT strategy: Create a new software platform that allows for easy integration with the BI software company and others.

IT projects: Develop a Web services–based platform that offers universal data exchange and messaging between the CRM software and the BI software.

While this hierarchy reveals whether IT projects are aligned with the IT strategy (and therefore, the business strategy), it does not determine the specific value of those projects to the business. To do that, you need to look at four (and only four) distinct drivers:

Expense reduction: In this CRM integration example, the new platform reduces the cost of developing links to other vendors’ software because it is based on Web services standards.

Revenue increase: Overall revenue should increase as a larger customer base considers the CRM software.

Strategic: The software platform project has a direct impact on the CRM product and the company’s competitive position.

Legal/regulatory/security: Security is important in the new CRM software platform because sensitive data (Social Security numbers, for example) should probably not be stored outside of the CRM system.

Each project needs to be evaluated under all four of these drivers to determine their priority and value to the business. These drivers should not be considered in isolation from the others, however. They need to be linked together in a meaningful, repeatable process for process prioritization.

The Prioritization Mechanism

The first step in creating a prioritization model is to take a top-down approach and break down each driver into various parameters. This should be done by gathering insight from business leaders across all departments to understand business focus areas and performance measurements. At the CRM company, executives decided to break down the “expense reduction” driver into four parameters: customer service expense, customer acquisition and retention, back office efficiency gains and other expense.

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