The challenge of demonstrating the business value gained from IT spending has been an issue for as long as there has been IT. This is particularly a challenge for financial services firms as they strive to respond to emerging regulatory requirements and drive a growth agenda in the current cost-constrained environment. But these challenges are not unique to financial services. Improving the ability to measure and communicate the business value of IT is critical for any organization in this challenging economic and regulatory environment.
One of the greatest pitfalls in linking spend to value is the common communications gap between the business and IT. IT professionals have developed a robust set of metrics designed to drive the management of IT; unfortunately, expressions like "four nines of availability" and the maintenance of "DASD utilization below 75%" are often meaningless to, say, the head of the wealth management business. According to David Reilly, Technology Infrastructure executive and Chief Technology Officer at Bank of America, "there is a big difference between management information and management reporting -- the metrics you use to measure yourself and run the business of IT are not necessarily the same things the business will use to judge your success."
To bridge this gap, a growing number of financial firms are building an IT business office. This function aids in managing IT value delivery by packaging and measuring IT services in business terms and improving the ability of the business to collaborate with IT to manage technology investments. It's a model that can work for any enterprise. The goal of this function is to increase transparency and accountability, both for IT and the business and, ultimately, to deliver the maximum value out of technology to meet the needs of the business.
IT business offices take different forms depending on the organization. Regardless of whether there is a formal entity called the "IT business office," or a rather informal adoption of business-aligned management and communication practices, we have found that two foundational elements are necessary to achieve the desired results.
Agreement on value components
A critical requirement for successful alignment is to get IT and the business to agree on a common definition of what is valuable to the business. Pascal Boillat, CIO of Fannie Mae, introduced the concept of an IT business office when he joined the government-sponsored entity and immediately focused on creating a common set of goals between business and technology. By agreeing on goals and standards of measurement, the "business gains transparency into IT and is empowered to make more informed decisions. The collaboration raises accountability on both sides," he says. Bank of America's Reilly emphasizes the importance of having the business take ownership of values and measurement: "You have to hold yourself accountable to what the business cares about; while this may be difficult, it is the business impact that matters."
Two kinds of value should be defined:
Transformative value. This is a change from the current environment to a desired future state. This type of value is often associated with significant strategic initiatives, such as implementing a new financial system. To keep focused on the strategic objective, the IT business office should ensure that business stakeholders and IT share a vision of the ultimate business outcome to be achieved through the effort, as well as value to be achieved over the course of the initiative. Transformative value can also be associated with more general, cultural or environmental changes, such as reducing complexity in the applications architecture or adopting a more mature set of IT processes. In both cases, IT is charged with moving the organization along a path; progress on the path should be visible and measured by definable business outcomes.
Operational value. This, essentially, is the effective delivery of IT. Typically, it is defined and measured by IT's ability to meet appropriate service levels. But it is important for "effective" to be defined in the language of the business. For example, translating the phrase "four nines of system availability" to "one hour of unavailability per year" may be clear language for a business executive, but still more information may be needed to understand its significance. In this case, an outage occurring as a series of events during peak trading hours will have a significantly greater impact than a single outage occurring overnight.
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