CIO — It’s a view that dates back to the industrial age-but CEOs, business executives and CIOs alike still perceive IT value primarily in terms of a simple ROI measurement. This stems from basing the value of enterprises on their financial assets-such things as revenue, real estate or equipment.
But this is the shortsighted view. And it’s time for CIOs to battle this misperception. The reality is that business valuation changed a decade or more ago in the shift from an industrial to an information and service economy.
Your CEO and board are well aware that it is commonplace for the company itself to be valued at many times over the value of just its financial and physical assets. There is value in such things as a company’s trademarks, business processes, customer lists, knowledge, skills and relationships. But there isn’t any way for a business to simply plug such value information into an ROI computation when building a business case to do something new because it’s hard to quantify these in financial terms. So, more often than not, these types of value are not dealt with directly and are basically hidden.
Similarly, there are many types of value created by an IT organization that remain hidden and are therefore difficult to quantify. But an effective CIO shouldn’t let the opportunity to prove this value fall by the wayside just because it is a challenge. For example, best-practice IT organizations invest in portfolio management processes and continuously review performance of their application systems and infrastructure platforms. This process is used as a mechanism to replace, refresh and retire systems. Managing and maintaining this process has a cost that is typically 5 percent to 8 percent of the total IT spending. That cost is very visible. But the value of the process has to do with keeping the organization current and keeping the applications running at an optimum level. This sort of approach is extremely valuable to the enterprise, but it is also hard to quantify.
In addition, IT organizations are very focused on supporting business processes and providing the tools and platforms that effectively enable an enterprise to share customer information and knowledge. While such IT support to a business is essential, computing its value in financial terms is difficult because it’s a challenge to place a dollar amount on the worth of sharing information across a business. It’s certainly a hurdle, but not an insurmountable one.
Proving the hidden value of IT spending and support takes some effort and extra research but it can be done. If you want to tackle this problem and make all the value provided by IT to the business visible and "real" (and therefore useful for planning and business case analysis), here are some ways to accomplish this. The first step to bringing hidden value into the light is to break the problem into pieces.
