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Moving Midmarket IT Groups From Cost Centers to Value Centers

Barbara Gomolski

3 © 2015 Gartner, Inc. and/or its affiliates. All rights reserved.

What's the Value of an Exercise Machine?


It is All About the Stakeholder

• Most IT status reports are all about what IT is doing.

• What interests stakeholders is what IT is doing for everyone else in the enterprise, external customers included.

• A simple approach to measuring and communicating business value is essential to move from a cost center to value center.


Basic Principle: IT Value Is an Enterprise Outcome

• Value is never expressed in terms of:

– IT activities themselves

– The functions and features of the technology IT supports

– The performance of the machines IT manages on behalf of the enterprise

• Value is always expressed in terms of progress toward enterprise goals and improvements in enterpriseperformance

• Reports to the executive team on IT performance must focus on value, not activities


What's the Value of an Exercise Machine?


Business Outcomes are the Key To IT Value

Weight loss

Lower BMI

Run Faster

Customer Retention

Sales Efficiency

Time to Market


Focus on Enterprise Outcomes

Start with enterprise priorities.

Talk about how IT is contributing to these priorities.

Discuss what IT is doing to improve its own performance.

Highlight any issues that will require executive attention.

CIOs in midmarket organizations often have better access to executives than do their counterparts in large enterprises.


IT Has Two Basic Value Propositions

RUN the business

GROW the business

TRANSFORM the business


Use IT to Enable New, Digital Business Models

Rationalize Application Portfolio; reduce IT complexity

Implement process improvement, business restructuring and

innovation

Implement cost-savings technologies in conjunction with

the business

Reduce Unit Costs via IT Procurement/Vendor Mgmt.

Consolidate, virtualize; exploit outsourcing and Cloud

Identify opportunities to reduce IT costs

Get the best pricing and terms for your IT purchases

Sig

nific

ant IT

Sa

vin

gs P

ote

ntia

l(I

T &

Bu

sin

ess R

ed

uctio

ns)

Mo

de

st S

avin

gs P

ote

ntia

l (I

T C

ost R

ed

uctio

n)

Gartner’s IT Cost Optimization Framework

Deliver Units Differently

Reduce Unit Costs

Deliver Different Units

Reduce Number of Units

Inc

rea

sin

g B

us

ine

ss

Va

lue

Inc

rea

sin

g L

eve

l o

f E

ffo

rt

1

2

3

4

Four paths that can be taken individually or together for compounding effect


• The “right” amount of investment in IT is driven by the enterprise’s strategy.

• There is no such thing as an “ERP” project.

• LAN uptime is not a value metric.

• IT goal is not to align with "the business" — IT is the business, just like sales or manufacturing.

• "The business" is not IT's "customer."

• When in doubt, apply the "head of sales rule": If the head of sales wouldn't say it that way, neither should anyone in IT.

Stakeholders Understand IT Value Best When Value is Presented in a Business Context


Cost Focus

• Cost cutting

• Looking at constrained opportunities within IT

• IT supports the enterprise

• Cost accountability stays in IT

• Single view of the IT budget(General ledger view)

• "Good enough" cost transparency

Value Focus

• Value adding

• Looking at multiple opportunities outside IT

• IT is a key partner

• Cost accountability passes to the business

• Multiple views of the IT budget

• World-class cost and value transparency

Change the Approach to Move from Cost to Value


3 Things That Translate IT Cost to Value

Talk Business

First

Project Portfolio

Service Portfolio


Enhance IT Credibility by Translating IT Jargon Into Business Language

Reduce cost of gaining new customers

Improve business process

Retail point-of-sale reliability

Support business growth

Get and keep customers

What IT Often Says What IT Should Say

Virtualize data center

Deploy ERP

Network uptime

Expand IT infrastructure

Install CRM


Use the IT Service Portfolio to Connect IT Activities to Business Impact

A Service …… Is an Action, Not a Thing

… Is Described in Terms of Benefit to the Customer

… Focuses on What Value Is Delivered, Not on How It Is Delivered

These Are Not Services

Security Systems

End-user Devices

Computing Systems

Networking Equipment and Services

Storage Systems

Middleware and Infrastructure Software/Services


Communicate the Value of IT Services Using Business-centric Value Statements

Service — Workplace Management

Action Value

Anytime, anywhere

work capabilities

Improve employee effectiveness

Improve recruitment and retention

Minimize employee training and

downtime

In order to

Business Metric*

Enable virtual

collaboration

Reduce travel expenses

Minimize carbon footprintIn order to

Reduce time to market through

"follow-the sun" project work

Improve access to global talent

Skills Inventory Index

Recruitment Effectiveness

EmployeeTraining Index

ConversionCost

ConversionCost

Time-to-marketIndex

RecruitmentEffectiveness


Start with the enterprise priorities, and build the IT value story from there.

Educate stakeholders about the two, distinct value propositions of IT.

Always discuss IT’s contribution from the point of view of business leaders, and use their language.

Never discuss price outside of the context of performance.

Use an IT service portfolio to connect IT activities to business outcomes.

Recommendations


Monday Morning:

– Evaluate existing communications around performance and value against the recommendations in this presentation.

Next 90 Days:

– Experiment with the techniques described here. Exploit the R/T/G framework as a simple way to convey the two basic ways IT adds value.

– Solicit feedback from stakeholders.

Next 12 Months:

– Continue to adapt the communications around IT performance and value, with a goal toward making it continually more business-focused.

Action Plan for CIOs


10 Absolute Truths for Measuring the Business Value of ITMichael Smith (G00273911)

Toolkit: CIO Sample Structures for Communicating Performance Metrics to Strategic StakeholdersKurt Potter, Michael Smith, Jim McGittigan (G00275822)

Measure the Value of the IT Organization from Your Stakeholder’s Perspective Michael Smith, Richard Hunter, Jim McGittigan (G00255372)

Three Key Steps are Needed to Show the Value of IT ServicesMichael Smith, et al. (G00267245)

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