How to Maximize IT Investments During Economic Recession

Companies that are able to align IT initiatives with strategy, mobilize the right people, and effectively execute major projects are much more likely to outperform their peers. These are the firms with a high “Digital IQ,” an important measure of a company’s ability to gain the maximum value from their IT investments, according to research Diamond Management & Technology Consultants recently conducted with 451 senior business and IT executives at large companies.

But the research also finds that most companies still struggle to use IT to improve their financial performance. For example, companies that heavily involve the senior IT leaders up front in the strategic planning process are four times more likely to be top performers in economic terms than their industry competitors. However, only 20 percent actually include IT in strategic planning.

Only 29 percent said they are consistently successful in mobilizing the right mix of internal and outsourced IT resources to complete projects successfully.

Respondents also said their IT projects typically fall short on some critical measures. More than half (55 percent) said projects consistently miss delivery deadlines; 77 percent said that projects regularly exceed their original budgets. Most troubling, perhaps, only 16 percent said that IT projects deliver 100 percent of what was originally promised, which means a lot of expectations are unfulfilled and opportunities to save money or add new business capabilities are wasted.

How can senior executives increase the value of their IT investments and improve their organization’s Digital IQ? It starts by focusing on three tangible initiatives:

• Integrate IT leaders into the strategic planning process;
• Develop a detailed roadmap linked to the business objectives to guide implementation; and
• Focus on acquiring and developing the right execution skills.

Why Do I Need to Worry About My Digital IQ Now?

CIOs are increasingly forced to do more with less. According to our data, CIOs are responding by shifting their mix of IT spending to strategic projects, and outsourcing more commodity services to lower core costs or cancelling them altogether. At the same time, they are trying to make sure they continue to invest in the vital multiyear projects that will set their companies up for success coming out of the recession.

Our worry is that most firms are not sufficiently focused on increasing their capabilities in the key areas that drive a high Digital IQ, and are therefore missing opportunities to improve the likelihood of success from their current and future spending.

What Is Digital IQ and How Can I Improve It?

A high Digital IQ formula is made up of three components: strategic intelligence (the alignment of the IT strategy with the business strategy); mobilization intelligence (converting the strategy into an actionable roadmap and getting the right people with the right skills dedicated to its execution); and execution intelligence (clear assignment of responsibilities, measurement and management over the life of the efforts).

The most important component of strategic intelligence is the incorporation of IT leadership into the planning process. Companies that heavily involve the senior IT team up front were roughly four times more likely to be top performers than companies that do not emphasize including IT in the planning process (see Figure 1).

Mobilization intelligence is the capability in which firms’ performance varied the most (see Figure 2). Only 29 percent of respondents said they were consistently successful in mobilizing the right mix of internal and external resources to get the job done. While 58 percent said their firms have a strategic roadmap, four out of 10 firms do not have a roadmap for assigning responsibility and resources to ensure that strategy is actually executed. Only slightly more than one in three (37 percent) claimed to have a clear roadmap to guide their efforts. The remaining 63 percent of companies are missing an important opportunity, because having a clear roadmap is the single biggest predictor of success at this stage.

How much does this additional roadmap planning cost in additional time? Not much. We found that, on average, the most successful firms in our sample spent only about 20 percent more time and effort planning—increasing total planning effort from approximately 250 man weeks to 300 (both of which are way too much time). The incremental value provided is significant for large companies, particularly when compared with the millions of dollars at stake in a failed or delayed IT project.

Execution intelligence—a combination of executive commitment and critical skills—is the biggest single determinant in firm performance. Firms that execute well have strong capabilities in program and project management, enterprise architecture, business requirements management and stakeholder communications, and they maintain an ongoing commitment to reach their goals.

They also use a closed-loop management process, by which management follows up on whether or not project teams have delivered on promises they have made. We found that execution capability is mediocre at most firms, with many firms underperforming on important execution skills such as quality assurance and stakeholder communication. Firms that can deliver against these metrics are more likely to be top performers in their industries (see Figure 3).

A Programmatic Approach to Improving Your Digital IQ

Knowing your Digital IQ is important: Our first two studies show a clear correlation between a high Digital IQ and the ability to use IT to improve the business’ economic performance.

The first step to improve a company’s Digital IQ is to measure how your organization performs on each of the vital dimensions of strategy formulation, roadmap mobilization and execution. This analysis can give you an idea of the type of value you are potentially leaving on the table, and the unneeded risks that you are injecting into the business.

Second, after seeing how you compare against others in your industry, and the best in the world, you can conduct a gap analysis to determine what you need to change, and pinpoint the highest impact areas that will help move your organization forward.

Third, you need to create the right team of IT and business executives to create the roadmap for improvement.

Fourth, you need to create a measurement and management program to make sure the designed changes are implemented and that they deliver the expected results.

Current economic conditions only increase the pressure to ensure that how every dollar of IT spending helps move the company forward. We believe that companies with a high Digital IQ are best positioned to fulfill that commitment. For companies that lag on any of the key Digital IQ dimensions—strategic, mobilization or execution intelligence—it is not too late, even though it may feel like the clock is ticking faster than usual.

John Sviokla is Vice Chairman and the Managing Partner Innovation & Research at Diamond Management & Technology Consultants. Chris Curran is the firm’s Chief Technology Officer.