How IT can mitigate the pangs of recession

NEW DELHI, INDIA: Economic downturn has hit the IT budgets and IT organizations are losing favor as a critical partner for business process outsourcing deals. The need for justification of the value of IT seems to be more important than ever. In such situations identification of strategic themes to leverage the benefits of IT to the business becomes imperative. It is also crucial to simultaneously define a framework to implement and operationalize these strategic themes.

The process of tangible value creation from IT seems more tasking than translating strategy into Key Performance Indicators (KPI’s) to create results. And above all it requires adjustments to evaluate the planned performance in a dynamic business context. Hence, the first phase is to define and measure the performance, than to control the performance and finally to predict the value.

The path of value creation is a path of building knowledge on the effectiveness and efficiency of an IT business model. This knowledge helps one answer questions like how will you make money on IT, how will you stop the discussion that IT costs too much, how will you take position in a market landscape where IT Outsourcing and Business Process Outsourcing gain market share against the internal IT organizations. Therefore organizations need to start today to build this knowledge in order to cope with the current challenges IT organizations face.

The landscape in which IT organizations are operating in is becoming more and more complex and competitive. The complexity is a result of the increasing heterogeneity of the IT environment in response to expectations of the business. IBM refers to this with their OnDemand strategy and Microsoft and HP both focus on the Adaptive Enterprise. The increased competitive pressure for the IT organization originates from both the demand and supply side.

From the supply side competition for the IT organization has stiffened due to the great number of (offshore) suppliers and the high cost/quality they are able to offer. The danger for IT organizations lays in getting 'stuck in the middle', with too little standing vis-à-vis specialized business parties and IT suppliers. To avert marginalization IT organizations now need to clearly define their positioning towards the demand side, concentrate on developing measurable IT business value, increase external control, create market alignment and develop dynamic capabilities. Hence, applying ‘performance management’ as a concept to tackle this problem is by no means new, but by approaching it from a slightly different angle helps it provide methodologies and metrics which support IT organization in coping with the ever increasing complexity and competition in their line of business..

The major challenges faced by IT organizations today are:

1.    Make the value of IT transparent to the business

The business manager of an IT organization is primarily interested in the effect of IT on a business services and business process level. Business Managers can measure the IT contribution to their business when they know how and where IT hit their profit & loss. This is business & IT alignment from an economic perspective; IT value aligns with business methodologies like Economic Value Added (EVA) and Activity Based Costing (ABC). In order to establish this economic link performance management tools like the IT Performance Value Framework enables business managers to maintain a transparent report of the value added by IT. The value assessment also indicates how mature the performance framework is.

2.    Implement strategic themes to cope with the trends

Strategic themes leverage IT to the business. In the strategic theme selection an organization defines the economics and the qualitative and quantitative measures of the theme. This is input for the creation of the strategy map. The strategy map forms the basis of how an organization expects to create value with a strategic theme and which existing KPI’s will measure it’s the contribution. It is essential to create a learning process for the organization in order to improve the acceptance of the KPI’s and to discover the economics of the KPI’s. At the moment IT managers discover their truth on the value of the KPI’s, IT organizations can formalize the use of the KPI’s. thus, successful integration of the KPI’s into the business planning and budgeting cycle enables an organization to absorb the changes of the dynamic business.

3.    Become more predictable in both the costs and the value creation

The IT performance capability is the result of the combination of knowledge of the IT business model and the level of value creation impact of IT. The performance capability identifies three stages measurable, controllable and predictable. With the growth of each maturity level the complexity of business & IT interdependencies increases and the impressionability of IT costs by the business rises. Hence it becomes crucial to control and measure the IT value costs in a more predictable manner.

Also, another issue is that business & IT managers do not seem to make the value of IT transparent. Possible causes of this problem are insufficient knowledge of the IT Business Model and insufficient knowledge how IT impacts the business performance. To cope with these challenges IT performance Value approach can be considered to be most impactful and efficient in defining the value created by IT in a business organization. Such an IT Performance Value approach consists of a model with five phases and focuses on supporting and training organizations to move from one maturity stage to another; increasing the IT performance capability. Organizations with a high IT performance capability are not only able to manage the IT costs effectively, but they are also able to increase the revenue by calculating the right price for the scarce information resources. Demystifying the IT value then enables organizations to make a difference and succeed in today’s competitive market.