Where is the value in IT?

by Jeff McCracken-Hewson, Associate Consulting Director, Fujitsu Australia

When international IT strategy consultant John Thorp first came to Australia to launch Fujitsu's book on the value of IT, there was one slide in his presentation that always brought a profound silence from the audience. The only sound was the click of mental light bulbs switching on as they realised that someone had at last articulated a truth they had long been groping for.

The slide simply said:

"There is no such thing as an IT project, only IT-enabled business change"

Put another way, IT has no value except through what it enables. Beyond that, it simply has cost.

Our book was launched in 1999, but that insight remains vital to understanding IT value. Whenever we lose sight of it, we will surely become confused.

Different sources of value

If we agree that the value of IT lies in the things it enables, it is important to remember that IT can enable many different kinds of things. It can help us simply carry on doing what we are doing today. It can enable us to do the same things faster, cheaper or more reliably. It can enable us to do more of the same or to do the same thing differently. Or it can help us do new things. These different sources of value need to be assessed and managed in different ways. So effective IT value management depends on the correct categorisation of investments in IT and in IT-enabled business change.

At Fujitsu, we typically develop an investment categorisation scheme to fit the needs of individual clients. A basic principle is that different strategies are required to manage different classes of investments depending on the degree of freedom involved. An example of a categorisation scheme, running from least to greatest freedom to act, is:

An alternative approach from META Group is to base categorisation according to the project's fit on the following spectrum of business objectives:

• Run the business
• Grow the business
• Transform the business

Benefits of investment categorisation

In Fujitsu's experience, failure to categorise properly is one of the most common causes of confusion and frustration around IT value.

It is fruitless to try to assess the relative value of an investment to renew IT infrastructure against an investment to bring a new service to market. Such investments are quite different and should not compete against each other. They should be put into different categories. The categories should compete for their share of investment, whereas individual investments should be prioritised within these categories.

Investment categorisation enables two key aspects of effective IT value management.

The first is to get an appropriate balance in the IT investment portfolio. Re-balancing the current mix of investments across different categories can provide a quick win in the battle for increased yield on the IT dollar. Many organisations are overweight in 'run the business' spending and underweight in the other categories. This means they are not using IT as effectively as possible to support business innovation, growth and transformation.

The second is to apply a method of IT value assessment that is appropriate to each category of investment (more on this later).

What is 'value' anyway?

This brings us to the fundamental question: what is value?

One of Fujitsu's value management clients put the answer in a nutshell. "Something is valuable to my organisation," he said, "if it enables us to do what we want to do."

In other words, value is specific to a context. What is valuable to one organisation is not necessarily valuable to another. Value is in the eye of the beholder. But we need to sharpen up our perception of value so that it becomes a more reliable guide to decision-making.

Making money is something most organisations want to do. So financial value is one form of value - but it is not the only one. An initiative can be valuable to a police force if it increases public safety - even if it also increases the cost of running the force.

Such non-financial, or strategic, value is not simply a public-sector phenomenon. All organisations have strategic goals that are not defined in purely financial terms. Examples include customer service, technical leadership and product innovation. Of course, if these goals are well defined, they will typically lead to financial benefits as well.

In fact, research by Professor Bob Cooper, a world expert on new product development, shows that alignment to strategic goals is actually the most reliable method of value assessment. Largely this is because our judgments on strategic alignment are more likely to be correct and to stand the test of time than our judgments about financial worth. How many net present value (NPV) results come out anywhere near what the business case said?

Adjusting for risk

One of the most neglected dimensions of IT value is the need for a thorough risk assessment. Buying a lottery ticket offers the possibility of a huge return, but in reality there is also a huge risk that the return on the investment will not be realised.

Fujitsu has developed a comprehensive risk framework that goes well beyond project delivery. It evaluates risk relative to four key questions:

In fact, our entire approach to value assessment can be neatly summarised in our 'Four Ares' framework shown below.

To put the Four Ares framework into operation, we tailor a set of assessment instruments to suit the individual client's needs. This involves asking a set of structured questions around each of the Four Ares, and then applying a set of rules for scoring and weighting the answers.

Putting it all together to deliver value

If we now come back to the investment categories, we can see that the Four Ares need to be tailored to each category. For example, we don't need a sophisticated strategic alignment analysis for investments designed to ensure that IT infrastructure can support increasing business volumes. We know the business has to support the volumes. So the critical questions for evaluating this kind of investment centre on cost (Is there a cheaper way of doing it?) and risk (Can we deliver it? Will it work? Will it last? Are our volume projections correct?).

Each client's approach to value assessment also needs to be tailored to the maturity of their organisation. Some clients have literally no reliable financial data on their proposed investments. In this case, they are forced to rely on strategic alignment criteria to evaluate investments. Even applying a thorough risk analysis can provide a surprisingly useful guide to action. In the face of uncertainty about everything else, IT managers should at least do the things they know they can deliver and that they know will produce results.

Of course, assessing the value of IT investment is only part of the picture. We must also be able to manage the delivery of initiatives to realise measurable business value and to demonstrate that we have realised it. Success requires effective governance of both delivery and value realisation. We will return to these topics in future articles.

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More information

Fujitsu Australia's Consulting Services