IT doesn’t add value, it multiplies it
IT’s value proposition to organisations spans a variety of meritorious activities, from monitoring system performance to running maintenance and upgrades, and more.
While many CEOs subconsciously understand that IT adds value to their organisation, they are often unable to specify precisely how IT value is characterised.
It is incumbent on the chief information officer (CIO) to balance IT and the cost/value equation, and importantly, to communicate the value that IT provides. He or she will not do that through enumerating and managing costs, but through proving value.
What is value?
The definition of value seems simple: it is the worth of something to someone. But that definition hardly clarifies the matter, other than adding a qualification that value is subjective. It's subjective to the organisation (and its goals) and to the CEO and other executives.
There are, however, some clarifying principles for value.
Value is relative: It is self-evident that the cost of achieving value should be one side of the equation. The cost/value equation also allows for related investments to be compared. But value may be derived irrespective of cost. For example, compliance with regulations is costly with no monetary benefit, but the value of fulfilling legal obligations is unquestioned.
Value has merit: It is deserving of attention. It is seen by the organisation as the right thing to achieve. It is commendable. So, while compliance with, say, POPI (Protection of Private Information Act) will definitely cost the organisation, and continue to cost over time, the merits of protecting personal information are sound.
Value is subjective: Value does not exist independently of an individual or organisation. Therefore, something that may be valuable to one organisation or individual may be valueless to the next. It then becomes essential to define value from the viewpoint of the beholder.
Value must be recognised: This is the crux of the IT value paradox. We “know” that IT adds value, but unless we can label, explain and often enumerate that value, it remains valueless.
Much of IT value is not ROI (Return on Investment) positive: This is another difficulty for IT. Much of its work is not directly attributable to direct revenue. Running the infrastructure and systems that enable business operations may not add value, but it does preserve the value of current business operations. Similarly, the value of system maintenance and patching has little direct ROI, but it has NPV (net present value) merit. It allows the organisation to sustain its systems into the future.
There are six types of IT value
IT’s value proposition to the organisation spans a variety of meritorious activities, and their value can be thought of as follows:
The running of existing infrastructures, systems, applications and IT governance, among the many operational activities, preserves the value of the business operation. Applying fixes quickly, running cost-efficiency exercises, and monitoring system and infrastructure performance all protect organisational value. It is simple (but unnecessary) to enumerate the preservation value of IT; it is the value of the operating organisation. Instead, preservation value should be recognised but not necessarily calculated. It is good enough for IT that “preservation value” is on the agenda.
Many IT activities have a value which will only be realised over time, or at some future point. Disaster recovery planning is a good example. While there is a negative ROI for immediate disaster recovery planning, the future value of having a disaster recovery plan is manifest. Other sustainability value activities for IT are maintenance and upgrades, training, succession planning, architecture, strategy and planning. Similarly, IT activities that comply with regulations sustain the value of the organisation.
What idle functionality resides in enterprise systems? It must be appreciated that all packages strive to provide the highest common factor of functions for all their clients. But these are still standard functions for the broadest possible client-base, and as such, some functionality may be unusable in specific organisations. However, much functionality that has been purchased is unused. "Value unlock" also applies to unlocking the value available in the database through analytics, or through the simple expedient of making data integrated and accessible to business units for analysis, or in training of staff where they are allocated to inappropriate tasks.
This concept is often used as an all-encompassing term for all value. However, CIOs need to be more precise, because the idea implies addition. Added value should be defined from an IT perspective as “the value that is added to existing operations, functions and capabilities.” This perspective implies that something already exists, and its value is being enhanced.
This value differs from added value in that the capability, function, process, product, service or capacity does not exist within the organisation. This is where ROI plays an important part, but in a disruptive environment, the value may have merit in merely providing the same new services as competitors, or even overtaking them.
An often neglected, but critically important value that IT contributes is to provide the organisation with opportunities that have hitherto been unavailable to it, or that are needed to execute on a strategy. This is a mirror of opportunity cost.
IT has provided, and will continue to offer value to organisations. It is the responsibility of the CIO to ensure that the organisation recognises that value.