Transforming Tech Investments into Business Results
Improving the Business Impact of IT Initiatives
The relationship between business and IT is becoming increasingly adversarial in many organizations. Failed projects and long delays in value capture create an environment where many are beginning to question the solvency of some IT assets. This article provides ideas on approaching these decisions around IT investment and business impact.
Focus on Outcomes
Identify the business outcomes you want to enable and select those with outsized impacts. For example, you can use a Balanced Scorecard (BSC) to communicate what the business is trying to accomplish for the period in scope. The BSC measures outcomes across four perspectives: Financial, Customer, Business Processes, and Learning & Growth. You set specific goals and key performance indicators (KPIs) for each initiative. For example:
- Improve Inventory Tracking and Rebalancing: Measure reductions in delivery fines (Financial), customer satisfaction with delivery times (Customer), the accuracy of inventory levels (Business Processes), and training effectiveness (Learning and Growth).
- Targeted Marketing: Measure reduction in discount costs (Financial), increased customer retention rates (Customer), effectiveness of targeted campaigns (Business Processes), and marketing team skills development (Learning & Growth).
- Contract-to-Cash Improvements: Measure reduction in days sales outstanding (Financial), faster response times to customer inquiries (Customer), efficiency of billing processes (Business Processes), and system integration capabilities (Learning & Growth).
The balanced scorecard encourages the development of metrics, the setting of performance targets, and the collection and analysis of data. This scorecard provides an effective mechanism for reviewing strategy implementation through measurement.
Whatever method you use to determine the outcomes you want to enable, start planning technology initiatives from an outcomes-focused perspective. Make sure you agree on the key metrics to measure the impact of your IT investments upfront. Without an agreement on how the success of an initiative will be measured upfront, it can be difficult to reach a consensus on its success or failure.
Audit Your Spend
Effectively auditing IT spending requires breaking down aggregate totals into detailed line items and analyzing each expense to ensure it aligns with business objectives.
Detailed Expense Categorization
Break down aggregate expenses into specific categories such as compute, storage, networking, software licenses, and support services. Use detailed billing statements from vendors and cloud providers to get granular data. Implement a tagging and labeling system for all IT resources. Tags can include project names, departments, cost centers, and usage types. This helps track and allocate costs accurately.
Utilize IT Financial Management Tools
Use IT financial management tools like Apptio, CloudHealth, or Cloudability. These tools provide visibility into IT spending, allowing you to categorize and analyze expenses at a granular level. Automate the collection and reporting of IT expenditure data to reduce manual errors and ensure timely and accurate reporting.
Activity-Based Cost Tracking
Apply ABC to allocate IT costs to specific projects or business activities. Activity-Based Costing (ABC) is a method used to assign overhead and indirect costs, such as salaries and utilities. This approach focuses on activities — specific tasks or units of work with defined goals. In software engineering and IT, activities could include functions like CI/CD pipelines, observability systems, or other platform engineering activities supporting strategic initiatives. The cost driver rate, calculated by dividing the total cost pool by the number of cost drivers, helps determine each activity’s overhead and indirect costs. Use project accounting techniques to track expenses related to individual projects by setting up project codes and tracking all related expenditures separately.
Cap-Ex vs. Op-Ex Classification
Identify and classify capital expenditures, such as hardware purchases and software development costs. These long-term investments provide benefits over several years and are different from operational expenses, like cloud services and software subscriptions, which are ongoing costs for daily operations. Proper classification ensures accurate financial reporting and budgeting.
Perform a Capabilities Gap Analysis
Do a gap analysis to determine your capabilities. This is the “You are not Netflix test.” To effectively perform a capabilities gap analysis, follow these steps to identify the skills your people possess, assess their competence, and determine which initiatives may not be a good fit for your organization.
Identify Existing Skills and Competencies
Create a comprehensive inventory of the skills currently available within your team. This can be done through self-assessment surveys, skills matrices, and HR records. Use tools like technical tests, coding challenges, and peer reviews to evaluate competency levels. Platforms like HackerRank, LeetCode, and internal code reviews can provide valuable insights. Track professional certifications and training programs completed by your team members to understand their formal qualifications. You can also consider hiring a consultancy to perform a skills assessment.
Assess Competency Levels
Conduct regular performance reviews to assess team proficiency and effectiveness. Use objective metrics such as DORA metrics to determine the performance level of your software teams. Implement 360-degree feedback mechanisms where team members receive performance feedback from peers, subordinates, and supervisors to get a well-rounded view of their competencies.
Determine Cost of Initiatives
Using the results of your spending audit, you can accurately assess the cost of your initiatives. Use your current spending as a baseline for estimating any new initiatives. Then, conduct a cost-benefit analysis for each initiative to weigh the expected benefits against the estimated costs.
Align Capabilities with Business Goals
Ensure that team skills and competencies align with the organization’s strategic goals. Identify gaps between current capabilities and the skills needed to achieve these goals. Only take on initiatives where the skill gap can realistically be bridged. Develop a targeted training and development plan to bridge identified skill gaps. This could include internal training sessions, online courses, or professional development programs. Finally, allocate resources to initiatives that match your capabilities and significantly impact your business objectives.
Cut Where It Won't Hurt
Remove technology and initiatives where the juice isn’t worth the squeeze.
Evaluate Usage
Report on key usage metrics like daily active users, session duration, etc. Identify underused software, tools, or projects that do not significantly contribute to business goals. Use monitoring tools and analytics to gather data on usage patterns.
Identify Redundancies
Identify areas where multiple tools or platforms provide similar functionalities. Consolidate overlapping technologies to reduce costs and simplify processes.
Engage Stakeholders
Involve stakeholders from different departments to get a holistic view of the importance and impact of various technologies and initiatives. Their insights can help identify areas where cuts can be made without significant adverse effects. Communicate the reasons for cutting certain technologies or initiatives and ensure that all team members understand the strategic rationale behind these decisions.
Implement and Monitor Changes
Implement cuts in a phased manner to manage risks and minimize disruptions. Monitor the impact of these changes and be ready to make adjustments if necessary. Regularly review and assess the effectiveness of your technology portfolio and continuously seek opportunities to optimize spending and improve alignment with business goals.
