IT Value Metrics: How to Communicate ROI to the Business

CIOs are always faced with pressure to justify their IT expenditures. Now, new research can help correlate those IT dollars spent with business value accrued.

1 2 3 4 5 Page 2
Page 2 of 5

How to Get Out of the Budgetary Death Spiral

Getting that balance wrong could result in a race to the bottom, says Bob Zukis, a partner at PricewaterhouseCoopers. “It becomes a death spiral,” he says. Cutting costs can impair the CIO’s ability to deliver technology’s benefits to the enterprise, which makes the enterprise question the value of technology, which leads to more cuts, fewer benefits and less value.

It’s the CIO who needs to make the case that IT should not be regarded as a cost to be contained.

“The average C-level executive doesn’t know how to evaluate if a technology investment is doing what it’s supposed to do,” says Richard Chang, CEO of the consultancy Richard Chang Associates. Thus, these executives focus solely on cost, looking for some easy metric such as tying IT spending to a percentage of revenue or benchmarking your IT spend against your industry.

But “that’s a reductio ad absurdum,” argues Bernard “Bud” Mathaisel, CIO of IT outsourcer Achievo and former CIO of Solectron, Ford and Walt Disney. “Spending needs to be in context. If you’re in investment mode, your IT spend will be higher than for your industry as a whole,” he says.

The trick is to change the terms of the discussion. If IT is a cost, Rubin points out, naturally, it needs to be contained. If, however, IT is an investment, “you want to manage it.” The key is to make the argument convincing. After all, every CIO tells his execs that the money he wants to spend on tech¬nology constitutes a critical business investment.

“The holy grail is to understand the inflection point of how much to invest in technology,” says Jim Noble, managing director of global infrastructure solutions at Merrill Lynch.

Rubin says he has found a way to help CIOs permanently alter the nature of technology’s conversation with the business. Based on 25 years of industry benchmarking and research as an executive at the Meta Group, IBM and PriceWaterhouseCoopers, plus direct consulting with dozens of large enterprises, Rubin now believes he can show which spending metrics correlate to real business value and how individual companies compare to peers within specific aspects of their technology portfolios. The happy consequence will be to allow CIOs to focus their spending assessments more deeply.

“This research will turn up the heat significantly on CIOs who can’t prove their value creation,” says Pricewaterhouse-

Coopers’ Zukis, since now there is a way for them to do so. “The days of ‘trust me’ are over,” concurs David Howe, North American vice president for benchmarking at Gartner.

1 2 3 4 5 Page 2
Page 2 of 5
Security vs. innovation: IT's trickiest balancing act