by Hakan Altintepe

IT effectiveness – Everyone’s desire, yet no one’s mandate

Apr 17, 2018
Digital TransformationFinancial Services IndustryTechnology Industry

Technological innovations have been the primary driver of digital transformation until now. To maintain the momentum, digital transformation needs a corresponding wave of innovations in technology management. IT effectiveness is the strive to achieve the best business outcomes from the available technology spending.

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Credit: Thinkstock

In “IT effectiveness – the engine of digital transformation – is ailing. Why?” I discussed why the enterprise IT effectiveness is ailing now as manifested by missed digital opportunities, increasing costs, lagging innovation, growing technical debt, demoralized workforce, rising shadow IT and diluted technology know-how, among others. We uncovered that IT organizations spend a significant effort on outputs that are never utilized (i.e., dormant output) or delivered too late with a little value (i.e., cost of delay). We called them the unintended IT byproducts, demonstrated that they are a natural consequence of the industrial-age and efficient IT management practices and concluded that they cannot be avoided within those practices.

In this article, we will discuss what is being done today to improve IT effectiveness and whether those strategies are working.

What is the current state of IT effectiveness?

During the industrial-age, technology spending was governed as a cost of doing business. In the digital-age, technology has become a source of economic value. The former focuses on efficiency and cost controls, whereas the latter thrives on productivity, speed and ROI; however, management perspectives of technology governance have not been transformed at many organizations yet.

The business perspective:

Recently, I was explaining a business leader why giving IT more time to deliver projects by involving them earlier would save money. He said: “I would still be charged the same and my projects would take longer to complete. Rather, I demand more in less time and manage for the best”.  His response was a pitch-perfect example of a prevailing assumption among IT stakeholders: From outside in, IT is a black box with potentially many improvement opportunities. A demand overload combined with funding controls ensures that those opportunities are effectively seized.

The IT perspective:

IT has a mandate to deliver outputs but cannot control outcomes. Within this context, IT must focus on the effective use of technology spending, that is, try to do more with less. This can be ensured by maximizing the demand intake while minimizing the unit cost of IT inputs, e.g., $/developer hrs and $/server.

Both perspectives assume that demand in excess of capacity helps improve IT effectiveness. We conducted an empirical study – one of the most comprehensive analysis of the system behavior of enterprise IT organizations to date – to better understand the factors influencing IT effectiveness. Our research disproves the above assumption:

IT throughput, a component of IT effectiveness, fallows an S-shaped curve as the organization size decreases while demand is kept unchanged. When demand significantly exceeds capacity, IT organizations starve for resources. Tasks take longer to complete, delayed dependencies cause a ripple effect throughout the organization, shuffling tasks and firefighting become a norm, and ad-hoc executive interventions produce suboptimal prioritization decisions.

This finding has far-reaching implications on the current state of IT effectiveness in today’s enterprises:

  • A persistent demand overload inhibits IT effectiveness. Budgets and schedules may seem unaffected, but functionality and quality suffer due to relatively weaker controls applied to them. Concerned stakeholders call for additional oversight and funding controls, which further tightens capacity. This loop of events repeats itself, and IT effectiveness continues ailing.
  • IT teams implement high-stakes strategies like cloud/XaaS, automation, offshoring, sourcing, consolidation, rationalization and modernization. These initiatives successfully deliver efficiency but also lead to overconsumption; consequently, the anticipated savings rarely materialize, e.g.:
    • A global company invested significant time and money in testing automation. Although the cost per test went down, the overall cost of quality increased. Further analysis revealed that as testing became cheaper, the upstream design and development teams shifted their focus away from quality.
    • Offshoring initiatives reduce the daily blended rate of resources, but offshored applications become harder to rationalize, modernize and eventually decommission.
    • A global bank implemented a comprehensive cloud strategy that yielded over a 50% reduction in the unit cost of virtual servers. However, the overall cost take-out targets were not realized as the demand for virtual servers soared, and the legacy infrastructure environment could not be decommissioned.
  • Current executive goals and metrics inadvertently disincentivize the business and IT leaders from eliminating excess demand due to the concerns about losing control or funding. This phenomenon is consistently observed during the rationalization and modernization initiatives – a redundant or obsolete functionality is often upgraded but rarely decommissioned.
  • Pace, or time-to-market, is yet to be formally introduced to the technology management literature. It is nearly impossible to find KPIs, management controls and performance improvement processes formally targeting the pace of IT delivery, anywhere. In the end, what most enterprises get is an ASAP culture – a.k.a., everything is urgent – that is fixated on quick-wins with grueling implications on IT effectiveness due to increased complexity and technology debt, delayed or incomplete functionality, concerned stakeholders, and demoralized workforce.

So what?

At enterprises where technology spending is still governed as a cost of doing business rather than a source of economic value, IT effectiveness remains to be everyone’s desire, yet no one’s mandate. These organizations spend significant time and money to make IT more efficient, responsive, agile and innovative, but their current strategies aren’t working well because they single-mindedly focus on the unit cost efficiency of IT inputs and forget about the pace and volume of IT outputs. Consequently, consumption grows, and IT teams end up spending their time on IT byproducts, such as outputs that are never utilized (i.e., dormant output) or delivered too late with a little value (i.e., cost of delay).

In summary, IT byproducts represent an untapped opportunity to improve IT effectiveness and to accelerate digital transformation. Innovative technology management practices that optimize the volume and pace of IT outputs can successfully minimize IT byproducts.  The adoption of these practices accelerates with an increasing emphasis on governing technology spending as a source of economic value rather than a cost of doing business.

Innovation in technology management can potentially become a major driver in the race for digital transformation. The question is who is up to the task?