Understanding the real value of IT and proving it to the business

Measuring cost and value

Effective engagement between IT and the business is vital for the survival of the IT function, and IT chiefs need to be able to analyse the value of IT operations related to their financial costs. 

“It is important to measure not only the services that are used, but also the business results that come from their use,” says Open Group’s Harding.

This is particularly the case for organisations wishing to adopt an internal pay-as-you-go model associated with a private cloud environment, to give an accurate assessment of where resources are directed and to help better plan for future service provision.

“Focusing on business value will focus IT management; better business conversations will follow as a result,” says Tarzey.

Being able to demonstrate where resources should be directed is also central to having productive conversations with the business about future innovation. Understanding IT and cost data can help with the planning of future services and drive further efficiencies by preventing unnecessary IT investment.

“The real issue here is how business processes can be flexibly and affordably supported where costs can be shown to be high, and how much virtualisation and cloud will reduce costs, and so on. With the use of flexible IT resources, processes and business ventures can be pushed harder without the need for huge upfront investments in IT infrastructure,” says Tarzey.

Future planning

Tools are now emerging that allow IT managers to combine operational information with day-to-day running costs, helping them to build an accurate picture of the true costs of IT to better plan for the future.

KPMG’s Carter says CIOs are beginning to build a more agile IT organisation that is able to manage forward supply: “This internal capability gives the CIO greater control over their business.”

IT leaders are becoming more interested in disciplines designed to help them manage IT more as a business than as simply an engineering capability. By looking at tools to help gain insight into the true costs of IT, they improve the level of transparency of IT costs, and can more effectively underpin any IT-enabled business agenda, he says.

Unless IT can prove it is providing cost-effective and relevant business support, it will lose the sponsorship of various lines of business and become irrelevant

Bob Tarzey, Quocirca

“A service-based approach to cost management enables the CIO to manage business demand, because of the transparency of costs,” says Carter.

A service-based approach to cost management can also be the basis for demonstrating the true productivity and business contribution of IT, which is particularly relevant in a virtualised environment.

Roy Illsley, principal analyst at Ovum, says cloud and virtualisation of IT services has pushed the IT department into a transition.

“It is important to find a model where IT can conduct a conversation with the business by demonstrating how much IT services are consumed, especially if IT wants to support chargeback,” says Illsley.

Having the right model to show the real cost of IT services in a virtualised environment allows for better business planning and governance.

“Organisations can have central governance and create a strategy for IT spend if they can see where the money is being spent,” says Illsley. 

“Just like any other valuable and effective resource, they can understand the value of IT. There is no way of valuing IT if it is just a thing at the side of the organisation. All parts of an organisation need IT – how it is used from a support function through to mainstream business activity needs to be analysed so better decisions can be made.”

Deploying software that facilitates a service-based approach to cost management should be explored in tandem with the transformation of the datacentre through cloud and virtualisation.

“IT leaders can look at the costs and go back to the people in the business and say, ‘This service is costing x pounds, do you want to keep it as an IT priority?’ and future planning can improve,” says Illsley.

Chargeback opportunities

Many organisations are interested in discovering the true value of IT to instigate some kind of consumption measurement or chargeback facility.

“Organisations are getting serious about measuring IT consumption with money changing hands,” says William Fellows, analyst at 451 Research. “A CIO with the necessary financial tools can create an invoice for IT that can be charged to lines of business.”

He says the trend towards remodelling IT departments to think more like businesses will continue as they seek to turn them­selves from cost centres into service delivery organisations that focus on delivering value to the business.

Although this evolution does not guarantee the survival of the IT department, Fellows says it makes it look a lot healthier in the eyes of the CxO and IT can return to innovating for the business.

Transformation lag

However, different business sectors are addressing the cultural shift from the cost of IT to the value of IT at varying rates.

“The higher education sector in the UK is really beginning to understand the value of IT and reach out and talk to students. Banking is beginning to realise the value of online services and customer retention, and retail knows the value of online shopping. Other sectors are beginning to come to terms with the value of IT, but they do not fully under­stand its significance,” says Illsley.

There is a propensity for some elements to be very blinkered and not look beyond given boundaries. The risk of this blinkered approach is being unprepared for the agility and change demanded in a fast-paced world, where successful businesses are the ones that can accurately predict where to devote resources.

“If there is evidence that IT resources are tied to an uncompetitive part of the business, then it can open the door to a discussion about getting a different model or finding other opportunities. However, these conversations are not always easy and are unlikely to happen overnight, but they need to happen,” says Illsley.

Ultimately, all organisations should aim to make IT a transparent cost, to move towards providing IT as a service that can better support the business and deliver tangible benefits.

“To some extent technology has to tread water while organisations catch up and understand how they should best use IT services and structure the IT department to operate in this new world,” says Illsley.

“The internal datacentre is going through a transformation and there is a need for new ways of asking questions about IT value so the business can grab the information and IT can help how the business innovates and operates and move forward,” he says.

“The challenge is finding the best way to get the information you have within the datacentre out to the business – you need to visualise it to get the message across,” says Illsley.

Focus on business goals

Getting that message across is important to the forward-thinking CIO. “The CIO of the future is one who is collaborative and knows how he or she can help the business progress. To do that effectively, it is essential to realise and appreciate the value of IT to the organisation and find the tools to change the recognition from cost to value,” says Illsley.

If the CIO gets it right, there are significant gains for the business, as IT and cost data help with mitigating the risk of planning of future services in a dynamic new world.

“There are many exciting things happening in IT, particularly in the new areas of cloud computing, social media, mobility, big data, and the internet of things. These are leading to innovative business models,” says Harding.

“Keeping track of use of IT services and understanding how they contribute to business results provides the best basis for planning of future services. Innovation usually involves risk. Understanding the underlying factors and models helps keep the risk to a minimum.”