IT departments and companies need to show they are adding value to business in response to a shift in the way businesses are seeing IT, according to a Gartner executive.
If you are going to the future, take lots of money.
Christopher Renn, VP, Gartner
Speaking at a conference hosted by MGX in Johannesburg this week, Gartner VP Christopher Renn said the prevalent IT-related question being asked today relates to the appropriate amount to spend to add value to business.
As a result, IT needs not only to add value, but to show that it is doing so.
IT adds value in three ways, he said. These are to lower baseline costs, improve the enterprise performance by enabling business processes, and serve as a platform for business leverage by developing innovative channels to market.
Lowering baseline costs relates to basic functions such as payroll systems, where everyone is spending. Enhancing business processes involves spending in areas such as enterprise resource management.
Where IT can truly add value is in taking the business where others have not been, developing innovative technology that puts the business ahead of the competition.
IT spend as a percentage of revenue is increasing, even though it is predicted that growth in IT spend will slow.
Renn said there are several drivers behind the proportional increase in spending on IT, including the fact that the switch in IT`s role from a back-office function to a revenue-generation vehicle is permanent, although a nostalgic yearning for IT spending levels of the past is a waste of time.
Efficiency vs. effectiveness
He added that business models that once supported lower levels of IT spending no longer exist in many industries.
"If you are going to the future, take lots of money."
Renn said there are still many businesses focused on efficiency, doing the right thing, instead of effectiveness, doing it right. In terms of the efficiency model, IT is seen as a cost centre. It is focused on process, is enterprise-wide and runs with the status quo, thus being predictable.
IT touches the business directly at two points - the PC and the helpdesk, which is why many companies are spending a lot in these areas.
Christopher Renn, VP, Gartner
Under an effectiveness model, IT is seen as a profit centre. It is project-focused, business-specific and is innovative.
"If you want to know how your IT department is viewed, look at how it is managed," Renn said. "Does it report to the finance department?" If so, it is seen as a cost centre.
He said there are three groups in an organisation which define value: the executive team, the management team and the operational teams.
"IT needs to talk to the higher levels because they are more stable and long-term in their assessment of alignment in the organisation."
He cautioned that IT needs to begin by getting the basics right or it will not be trusted to add value further up the chain.
"IT touches the business directly at two points - the PC and the helpdesk, which is why many companies are spending a lot in these areas." If PCs are constantly failing, the conclusion will be that the IT department is not getting things right.
Renn said there are ways in which IT`s alignment with the business can be measured. A business spends money only on what will help it achieve its goals, and so an IT department should be there for the same reason. Spending on IT applications and infrastructure must be related to achieving the business`s goals.
Any alignment assessment should lead to a specific recommendation for improvement.
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