8th

It can be very challenging to manage a cost center where the CEO feels that the value provided is insufficient for the costs.  Yet that is the very situation many CIOs face every day.  How did such a difficult circumstance arise, and what can be done to overcome it?

If the CEO thinks IT doesn’t deliver enough value for the buck, that can’t be a good thing

Years ago I recall reading that the purpose of technology within a company is three-fold:  increase revenue, reduce costs, and enhance the differences that cause a Finding Valuecustomer to select our company over our competition.  But while we understood this in a theoretical sense, IT at most companies became primarily dedicated to cutting costs.  Many of the factors contributing to this were addressed in my post on Moving IT from Cost-Cutter to Difference-Maker.  As this post indicated, cost centers are typically managed by continually reducing their budget.  This results in an even larger percentage of the IT budget dedicated to keeping the lights on and fewer dollars available for technology projects to move the company forward.  It is important for IT to move away from being seen as a cost center toward being a business driver.

But even being seen as a cost center does not necessarily cause the CEO to believe that IT costs are too high for the value received.  After all, you don’t often hear that cost centers like Accounting or Procurement are too expensive.  And while the size of the technology expenditure quickly shines a spotlight on IT, that in itself doesn’t mean that the company is not receiving enough bang for its technology buck.

How is the CEO supposed to know the value IT brings?

Too many CEOs do not know the value being brought by IT…they just know that they need technology to operate.  Their IT budget just looks like a black hole.  They hear complaints from others in the organization about all the projects that are not yet being addressed.  They see significant dollars spent on IT projects that promise to cut costs or increase revenue, but are often unaware if the desired benefit was actually achieved.  They may look at IT cost benchmarking studies, but these typically only tell them if they are spending as much as other companies – not if they are receiving as much value for their expenditure.  They read articles about other companies moving their infrastructure to the cloud and wonder why their CIO keeps asking for more money to spend on servers.  Even if the CEO asks about it, the answer received is often steeped in technical jargon that only generates fear, uncertainty, and doubt.  They wonder about outsourcing some (or even all) IT services, but again, their queries are not met with business-based facts.

What can be done to help IT transform from being seen as ‘too costly’ to ‘providing great value’?  Here are some practical steps to help:

  • Understand the company’s strategic plan and goals.  Gain a grasp of what metrics will demonstrate the success of the strategy or if the goal was achieved.  Also get a handle on any other metrics important to the C-suite.  Then work to frame all technology investments in terms of how they contribute to moving the needle toward attaining these strategies and goals – or how they improve those other metrics desirable to the C-suite.  Be careful not to overstate IT’s contribution to this effort since most of the time, additional endeavors will also be needed by other areas within the business.  Trying to segment off the benefit gained from the IT portion is usually futile.  I heard one Gartner analyst compare it to trying to determine what percentage of the taste of a chocolate cake comes from the eggs.  Position it as a partnership in which all partners contribute to an overall win.
  • Promote cost transparency and prove good financial stewardship.  Define each service that IT provides in terms that the business understands and in such a way that promotes an easy comparison to similar services offered by outside vendors.  Compute the unit cost of each of these services being careful not to add costs that an outside vendor would not have to incur (unless they are paid to deliver that specific service).  For example, the cost of developing and coordinating enterprise policies and standards should not be included in the unit costs.  After identifying the cost of each service, perform a formal comparison against outside vendors.  Remember that this should not just be a cost comparison but also needs to assess service, long-term direction, etc.  Remember also that offloading of many of your tasks required to keep the lights on will free your time and attention to concentrate more on innovation and the strategic agenda.  Be prepared to outsource the service if that promotes good financial stewardship.   And do not neglect to share the results with the rest of the C-suite.
  • Change the conversation.  Steer discussions away from costs to focus instead on value.  The question really isn’t about costs but about whether the anticipated return justifies the investment.  Quit thinking of corporate IT in terms of being the lowest cost provider but instead strive to give the best value for the investment.  Ensure that the entire IT department intimately understands the corporate strategy, goals, and metrics.  Then coach them to stress the desired business outcome in every conversation with someone from another department.  After all, the company targets improvement in enterprise performance.  Technology is simply a tool to help accomplish that.
  • Emphasize project accountability.  Many companies do a good job of tracking the percentage of IT projects delivered on time and within budget.  But relatively few even try to track whether the anticipated benefit was gained for the investment.  Perhaps this is due to the CIO often only being in charge of the cost side of the equation while another business area is to reap the benefits.  Many times the C-suite sees these as IT projects – especially if the costs were all attributed to the IT budget.  I have seen business sponsors resistant to measuring and confirming their benefits.   When no one knows what value was received from the investment, questions arise about the value IT is providing.  It can be a good approach is to enlist the aid of the CFO or Internal Audit in auditing the results of all projects over a certain size.
  • Let ‘em know!  Word about IT failures spreads quickly throughout your company.  What about the word of IT successes?  Too often that information seems to almost be hidden to all except for the few who happen to benefit from a specific project.  IT becomes almost like the electric company… no one remembers they are there until the lights don’t come on.  When this occurs, it’s no wonder that the CEO doesn’t think that IT is delivering sufficient value.   Get the word out!  Frame IT successes in terms of business benefits, and ensure that everyone in the company is aware.  Be sure to involve and give credit to the efforts of those in other areas of the business.  In fact, it is best if you can enlist their assistance in publicizing the successes.

What other suggestions do you have to help improve the perception of IT from being an organization that is too costly to one that delivers great value?

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