Understanding How to Demonstrate the Business Value of IT

Business Value of IT

Let’s face it. We in IT are simply hopeless at demonstrating the value of IT and ITSM in business terms. Forrester states that organizations find it hard to move beyond typical IT metrics like speed and quality to business metrics like CSAT, competitiveness etc. Gartner adds that only 6% consistently demonstrate business value. And the Wilkinsonian pointy finger reminds us that IT has too little understanding of business impact and priority (this was the top ABC of ICT card chosen at itSMF Singapore, July 2018, facilitated by GamingWorks’ Paul Wilkinson).

These are fairly recent findings, but the problem has been with us for a while, and it triggered me to write a white paper Delivering Business Value with IT for the Open Group as part of my work for the IT4IT Forum (the paper is free to download after registration).

Please take a look at the paper for more detail  – it’s not that long –  if the following summary whets your appetite.

Understanding the value of IT in business terms

The purpose of enterprise IT is to provide the various lines of business with IT services that help them achieve business goals. For commercial enterprises, these are typically: more sales, better margins, and lower risks.

The IT function contributes to these goals by providing better, faster, and cheaper IT services. When used effectively, these services create more value to achieve sustainable competitive advantage.

In order to understand IT services better, and make the translation into business value, they can be broken down into three pairs of properties:

  • Better IT services
    • Fitness-for-purpose
    • Fitness-for-use
  • Faster delivery of IT services
    • Speed of delivery
    • Decision-making agility
  • Cheaper IT services
    • Cost of development
    • Cost of operations

These six dimensions are worth taking a closer look at, in particular how they related to business value.

Better IT services

Fitness for purpose – or utility as it is known in the ITIL world – is the primary source of business value. This is about the functionality of the information system, in other words what it does for the business. Traditionally, IT services have been used to automate manual work and in so doing, reduce costs. But increasingly, IT services are being used to affect the top line: revenue and prices. (For the purpose of this piece, I’ve reflected on a for-profit organization but the principles apply equally to not-for-profit organizations.)

An additional business aspect that’s affected by IT services is the organization’s reputation. When customers and other external stakeholders are confronted by the organization’s digital manifestation, they’ll undergo a certain digital experience, and this will influence their opinion – and therefore the reputation – of the organization.

Fitness for use (or warranty in ITIL terms) refers to the non-functional requirements such as availability, performance, and security. Warranty doesn’t actually add value: it prevents the value of utility being adversely affected.

Faster delivery of IT services

Speed of delivery in itself has no business value – it’s the value with which the utility is obtained, and of course the speed with which the costs are incurred.

Decision-making agility is an interesting one. It not only refers to setting the right priorities (do you have a mechanism to decide which piece of work should be done first?) but it also refers to the ability to change bets after the race has started. In other words, how do you reschedule work when priorities change?

Cheaper IT services

The cost of development and operations refer to the total cost of ownership (TCO) and must be regarded in relationship to the percentage of total business costs that IT represents. And this varies enormously from sector to sector.

While a retail bank with a heavy online presence will spend 20-30% on IT, an energy producer will spend ten times their IT budget on operational technology such as wind turbines, and IT may only represent at most a few percent of the total costs of the organization.

Fortunately, the discussion is shifting from the cost of IT to the value of IT, so that opens perspectives for IT functions that can articulate the business value of IT.

If you want to read more on this, and need a reminder, the aforementioned “Delivering Business Value with IT” paper is available at: https://publications.opengroup.org/white-papers/it4it (free to download, after registration).

Mark Smalley
IT Management Consultant at Smalley.IT

Mark Smalley is an IT Management Consultant at Smalley.IT, specializing in application management and business information management. He is affiliated with the non-profit ASL BiSL Foundation, APMG International, GamingWorks, and AllThingsITSM. Mark is an inaugural member of the industry initiatives SMCongress and Taking Service Forward. Also know as The IT Paradigmologist, Mark has spoken to thousands of IT professionals at more than 100 events on four continents.

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