During the financial downturn of 2008-09, Gartner asked leading IT companies and CIOs to do something unusual and rather counterintuitive. Even as the financial world crumbled and businesses went belly up, Gartner advised IT leaders to start preparing for business growth. It was imperative businesses did this, Gartner said, if they wanted to avoid falling behind their competitors once the recession ended. At the time, one of Gartner’s analysts said that CIOs must step forward and offer longer-range, innovative ideas for IT to support the future of their firms.
However, a McKinsey Global Survey conducted in December 2009, showed that IT leaders were taking a more immediate approach to helping their businesses. According to its report, corporate and IT leaders say IT was an important player in capturing efficiencies across the enterprise. In fact, the survey showed that over 45 percent of IT leaders expected IT investments to grow soon! This at a time when capex pools were drying up everywhere.
How did these IT leaders manage this incredible feat?
Probably by focusing on projects that had well-defined outcomes; projects that showed hard ROI; projects, in short, that were hard to say no to. The logic was simple: As long as there was clear payback, businesses were willing to invest. (Many of the IT investments made during that time, according to the report, were geared toward improving business operations, both to lower costs and improve effectiveness.)
And that’s something that the recession (and the slowdown in India) changed, pretty much, forever.
While businesses have always looked for clear ROI and clear outcomes before okaying an IT—or any other—project, the amount of scrutiny got a lot higher with the slowdown. And once the bar was raised, it stayed there.
Outcome-based IT had reached a tipping point within the enterprise and there was no going back.
Easier Said Than Done
This stress on outcomes-before-investment might surprise many. After all, isn’t it common sense to make sure you pump money into something that will get you returns? Not so much. The truth is, there are other variables at play when making a decision to invest in a project.
For example, many of us, says Satish Das, VP-Sales (India) at Cognizant Technology Solutions (and former CSO), make decisions based on the amount of effort required to accomplish a defined outcome. Plus, he says, goals can change. Then there is the fact that metrics of success aren’t always black and white.
“We forget that we can get questioned if these defined outcomes—which change a lot during execution—are not realized depending on perception, or bias. Therefore, it isn’t easy moving from an input (efforts) based decision-making approach to an outcome-based one,” he says.
While it may be a tough job to make the transition, says Alok Kumar, vice president and global head, Internal IT and Shared Services, TCS, it’s not impossible. In the past, traditional IT governance models delivered business value like improving internal efficiency, productivity and controlling cost.
So what is outcome-based IT really? Kumar shares some examples. Take, for instance, he says, IT-driven payroll processed on-time with zero errors. That’s a business outcome for the human resources department. Or, in the case of a telecom service provider, a business outcome could be the number of correct bills generated within a well-defined SLA, he says. All these projects, he says, will be driven by ROI, he says, meaning that the only reason for commencing these projects would be because there’s an ROI attached to it.
The Strategic Question
Caught in this transition to an outcome-based model are strategic projects. More often than not these initiatives may not demonstrate clear financial returns but are still key business drivers for the business. Think of projects surrounding data security, compliance, or projects that lead to greater user satisfaction. And the fact is that a large number of IT projects driven by CIOs fall in a strategic bucket. In fact, strategic projects are what many CIO reputations are built on.
“The truth is that often IT leaders are mired between return on money invested against strategic initiatives,” says Tamal Chakravorty, director IT & Test at Ericsson Global Services India. “Typically, all IT initiatives are ROI and benefit-driven,” says Kumar from TCS. “However, we should also focus on the qualitative aspect so as to measure how it can create more business value, enable regulatory compliances, enhance brand value and realize direct
These projects pose a dilemma for CIOs. For years, organizations have implemented different systems to capture various types of transactions and the process of enumerating benefits becomes complex as these would typically contribute in ‘improving quality of decision making’, ‘giving companies a business edge in relation to competition’, says S.T. Sathiavageeswaran, executive director-Information Systems, Hindustan Petroleum, something that Gartner calls as “systems of differentiation.” For instance, systems like ERP, CRM and BI are some of the initiatives which don’t result in hard ROI numbers for business.
Chakravorty suggests breaking up projects. “For large business transformation projects, the ideal way is to realize an outcome in phases,” he says.
There is also the question of who decides whether an outcome is good enough. A CFO might have a different understanding of project success. A CFO could look at business outcomes from the point of immediate ROI, whereas a CEO would be bothered more about strategic outcomes. According to Gartner’s 2013 CFO Technology Study, the CFO’s influence over IT is growing. About 39 percent of IT organizations report to the CFO’s office, which continues to have a significant influence over IT investments.
TCS’ Kumar says that who you report to isn’t as important as having continuous dialogues with them to ensure that the IT project portfolio is in line with business outcomes. He suggests starting by collecting business priorities from the CEO or the CFO and then setting out to define and rationalize the IT project portfolio and align it with business priorities.
Chakravorty says that CFOs perhaps are only custodians of budget versus spend. To meet the CFOs requirements, he says, an IT project should have short timelines, and nearly immediate paybacks. To be able to do that, IT alone won’t be able to write a project document and, therefore needs many patrons. “If one of them happens to be a CFO and he is the final authority, he will be easier to convince since other people would have already promised benefits,” he says.
Gartner’s CFO study recommends that when the CFO is approving projects, it’s important to become a key strategic partner with finance or the CFO to steer the IT function. They stress on building the mindset that there are no IT projects—only business projects.
Big Fuss Over Nothing
As important as the topic of outcome-based IT (or outcome-based anything) has become, and despite the amount of focus it is getting, there are some CIOs who believe that it’s old news.
Hitesh Arora, director and head-IT at Max Life Insurance, says the concept of outcome-based IT is equivalent to benefit realization and therefore, he says, is old wine in a new bottle. Vijay Sethi, VP and CIO at Hero MotoCorp, agrees. He recalls how even 15 years ago, while implementing an ERP solution, a lot of time was spent in evaluating and justifying the benefits and ROI. Then Sethi throws in an idea that questions the rationale behind having this discussion at all. “The truth is that one may perform fantastic ROI computations,” says Sethi, “but these are generally forgotten once project goes live. Very few companies do real follow-up on the benefits of a project.”
Therefore, he says, “I think one needs to take a holistic view and realize that not all projects will give a quantified ROI. There are projects that are strategic initiatives and could act as building blocks for other projects,” he adds.
“I think all this talk about business outcomes is only making the CIO role more important,” says Hero MotoCorp’s Sethi. “There’s one area that we need to focus on,” he says, “and that’s benefit realization post a project go-live over a period of time. It’s important that we make this a
Citing an example of outcome-based IT, Chakravorty says, in the 1990s, a logistics company invested a lot of time training its external customers how to track orders online. Two decades later, they are more focused on creating new services without worrying about the customer. All IT projects, he says, ideally should be based on how a company acquires new customers. Operational stability will only be useful to retain old customers. A CIO’s focus should be more towards delivering projects towards operations or sales. “It keeps us relevant. For instance, today if I talk about a sales funneling tool that will be delivered in a matter of five days, people sit up and listen,” he says. He adds that outcome-based IT will help ensure IT is streamlined, trimmed and made easily accessible to the last line without each person trying to figure out how he should go about things.
Meanwhile, developing business expertise within the IT team is an important initiative as it will develop a greater appreciation of business strategy and business understanding among the IT team. “IT should have a team of business analysts or business processes experts who understand business as well as the end customer,” says TCS’ Kumar. The milieu could work out business benefits for each initiative, manage project execution, monitor it post implementation, and communicate back to the business all benefits achieved, he says.
It’s eventually a CIO’s onus to put in place a framework for people to work for outcomes while taking into account existing business processes. “If the CIO is seen as a trusted advisor by business leaders, then outcome-based system will take off without a hassle,” says Cognizant’s Das.
This approach towards deployment, which probably started four years ago is here to stay. Going forward, expect to see more project prototypes which only commence only once CIOs and business leaders identify a business outcome attached to implementing a project.
At least, there’s one thing that came out of the not-so-good old recession.
Shubhra Rishi is senior correspondent. Send feedback on this feature to email@example.com