An IT Measurement Program

Based on the lessons from measurement in other disciplines, and from companies’ experiences with IT measurement programs in the past, it is well known that measurement accomplishes nothing unless it indeed drives improvement programs. Also, those activities should be measured where the need for improvement is greatest, and the needs of different audiences or stakeholders must be taken into account (in Chapter 2, the main stakeholders were identified, being the shareholders, customers, and employees of the organizational entity being measured). In practice, senior and IT management tend to violate this common sense. As Rubin asserts, lack of focus on the important issues, as perceived by the stakeholders, is one of the reasons for his observed IT metrics program failure rate of 80 percent, together with too strong a focus on individual measures unrelated to specific organizational goals.

Measures of the Effectiveness of IT

The effectiveness of IT should be related first to the role of IT in supporting and enabling the effective and efficient execution of business processes and business activities, and to the availability and characteristics of IT as perceived by the people who use it. These are the user-based and value-based dimensions of IT effectiveness. The more technical aspects, which stem from the architectural and infrastructure requirements of IT supplying functions, comprise the product-based and manufacturing-based dimensions of IT effectiveness.

Benchmarking IT

In this chapter, apparent benchmarking characteristics and the main conditions for success will be reviewed, followed by a description of the process of IT benchmarking. Also, the execution of the benchmarking process will be illustrated in three case studies, each demonstrating the practical application of benchmarking for different purposes and answering different management questions about specific aspects of the application and supply of IT.

The Link Between IT Planning and IT Valuation

This chapter aims to provide a currently lacking, comprehensive measurement framework, answering the basic questions: What to measure, and How to measure, to compare results from IT investments with performance improvements in the business, and in the application and supply of IT.

The Role of IT and Planning for IT Value

To determine the value of IT once it has been put into place and used, it is important to understand the context of the application of IT. Basically, the role of IT is to enable strategic change and improve business performance in several dimensions. IT enables the rapid delivery of top-quality, increasingly customized products and services, it supports organizations in meeting high standards in customer care, and it provides the means to compress design and development times in order to be the first to market. IT helps to launch new products more frequently, to explore and enter new markets faster, and to seek new distribution channels. All of these dimensions can give companies a powerful competitive edge, and IT is increasingly woven into them. IT does not stand on its own but contributes to realizing business objectives in today’s competitive, often global environment. To determine the value of IT once it has been put into place and used, it is important to first understand the context of the application of IT since it does not stand on its own but rather contributes to realizing business objectives. The first part of this chapter provides a review of the evolution of the role and application of IT, leading to its role in today’s information-based organization. Secondly, it is obvious that the best value from IT is gained if the “right” investment decisions for IT are made. To make the right decisions about IT in the context of business objectives, organizations need to carry out some form of IT planning. Planning-for-success is therefore the second main subject of this chapter. The evolution of IT planning practices is briefly described, leading to the most important attributes of contemporary, effective IT planning approaches. Finally, the chapter links the distinct roles of IT with the planning and valuation approaches for IT investments in relation to their business purpose.

Measures of the Effectiveness and Efficiency of IT Supply

The majority of companies, in both the U.S. and Europe, have adopted some kind of federal IT management structure. The federal IT management structure features devolved responsibility for IT to business units; the development of IT architectures for the business unit and derivation of business unit IT plans is an activity of each business unit. However, some form of corporate functional leadership for IT strategy and guidance of business units is held centralized to enable group-wide coherence in corporate information systems (e.g., financial reporting), data, computers, networks, operating software, etc. This is essential for internal coordination and communication within the corporation and, increasingly, with suppliers and customers.

Measures of the Business Value of IT

In any business a “dashboard” of vital performance indicators is needed to gauge how the company is faring. Such a dashboard, consisting of the appropriate measures to indicate strengths and weaknesses, provides a guide for management and forms the core of planning and control. A dashboard of performance indicators allows management to valuate the contribution of several factors that impact the overall performance of the organization. One of these factors is the application of IT. To valuate IT, a dashboard of relevant performance indicators for IT must be developed. The BtripleE framework offers the structure of the dashboard and identifies the distinct but interdependent levels of Business value of IT, Effectiveness of IT, and Effectiveness and Efficiency of IT supply. This chapter aims at developing the appropriate performance indicators (the gauges) at the first level within this structure: measures of the business value of IT.

The Need to Measure the Value of Information Technology

Living as we do in the Information Age, an immense amount of information is readily available through high-powered workstations, laptop computers, Personal Digital Assistants (PDAs), and other smart devices, connected through high-bandwidth data communication networks, including the Internet, Wide Area Networks (WANs), Local Area Networks (LANs), and upcoming Personal Area Networks (PANs). Evolving technologies are directly changing the speed and shape of competition and how business is done, rewriting the rules of the game in industry after industry. The rate of change in today’s business environment has pushed the need for technologies and acceptance of them to a continuously accelerating pace. The new technologies are enabling organizations to be flatter, networked, and more flexible, redefining our notions about everything from R&D to distribution, and in the processes making possible smarter, more customized products and services. As a result of these forces, organizations spend enormous sums of money on computer hardware, software, communication networks, databases, and specialized personnel, collectively known as Information Technology (IT). Leading-edge companies all over the world in all industries have increased their overall IT expenditures by double-figure percentages annually. Many organizations currently observe that up to 50 percent of their total capital expenditure is for IT.