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Finally, a Real Way to Measure IT's Value

 
 
 
 
 
 
 
 

We've all read plenty of gloomy headlines lately, but one bright spot in the IT world has been the services sector.

And the continued strengthening in that area offers one unexpected—and perhaps happy—result: the ability to finally put a real value on corporate IT departments.

That's what Barry Brunsman, managing director with consulting firm Alvarez & Marsal, sees happening. His thesis is simple, but not something that we hear mentioned often. The growth of IT services has created a healthy market that essentially puts a price on IT, he says. The establishment of that value, in turn, allows IT shops to quantify their own performance against what's available in the market.

"The 'value' of IT has been a debate; in the future, by 2015, it won't be a debate--it'll be, you're either beating the market or not beating the market," Brunsman told me during a discussion about the future of IT organizations."

The big idea here: by comparing their value versus what's available outside, CIOs and their deputies can ultimately—finally—prove their value to their bosses.

Brunsman understands that it might sound like a "full-frontal assault" on IT, but he posits that it's the opposite:

"I've done a lot of IT assessments and I've never seen a case where that IT organization isn't better than the market at something, maybe even lots of things. If you hold yourself to the standards of the marketplace and can show and demonstrate time and again that you're a better provider than the marketplace, that translates into shareholder value."

Brunsman's right that the value of IT has been a debate for many years. His idea that IT services provide a good measuring stick makes a lot of sense.

He concludes:

"There's been great frustration with the idea of IT as a commodity. The truth is, the emergence of IT as a commodity creates a fundamental opportunity for IT organizations to price their services relative to the market. If you're beating it, you're winning. You're delivering value to the organization that is not readily available in the marketplace. That's a very powerful thing."

So what do you think, IT managers: do IT services give you a solid basis for comparison for your own shop's ability? Are you thinking about it in those terms?

 
 
 
 

11 Comments for "Finally, a Real Way to Measure IT's Value"

  • Tim Currie November 03, 2008 9:23 am

    There will always be an array of services that IT provides that are commoditized, and an array of services that provide strategic as well as intrinsic value within an organization. The problem with the market -- and with the general spin of this article -- is that it assumes there is a "mark-to-market" equation for all services. It is precisely those services that provide the most value to the organization that somehow get targeted by management consultants (I use the term loosely), short-sighted CEOs/CFOs, and disingenuous marketing organizations. Space, power, bandwidth, WAN networks, desktop & printer support -- these are commodities. Everything else, including application development, are relative to the organization and should be analyzed accordingly without expectations or an intention to commoditize. Otherwise, everything will look like the proverbial nail.

  • Zaharan Haleed November 02, 2008 1:32 am

    Very interesting comments, gentlemen. Very informative. While I agree on all these concepts of determining IT value, I would like to suggest something very primitive that we might have overlooked. In an enterprise environment, compare an accounts department using IT and not using IT; compare HR using IT and not using IT; compare online tickets/patients booking vs. manual. Check the cost difference. Now this difference is, in simple terms, the IT value. Now, lets add complex formulas and theoroms and make this very complex!!! :D

  • CB October 31, 2008 5:40 pm

    IT provides the technology platform on which the company runs. It is a cost center. It does not produce profit. Just like accounting, HR and maintenance, IT provides a service that is necessary to the business but is not sufficient to define the business. If you want to check the reality of this, go to Monster...how many IT positions require knowlege of a specific business practice? How many developers, infrastructure people or CIOs care if they work for a paper company or auto manufacturer? By and large, they don't. IT is a service that often has dreams of becoming a business unit. So IT invents the CIO who builds an IT empire and we have endless discussions on the "value" of IT. Outside the context of the business in which it is deployed, IT has no value. Inside the business in which it is deployed it is another bolt in the business engine but it is not what makes the engine run.

  • Bruce Barnes October 31, 2008 5:07 pm

    For companies that look at IT as a cost center, shame on you...and I feel sorry for your shareholders. You are simply not asking (demanding?) enough of your IT organization. As I see it, and as many of the top-tier IT leaders in the country will attest, there is only ONE true measure of IT value: "How much improvement in positive contribution to the company's bottom line is directly attributable to IT?" How much today, and how much is expected (and will be carefully assessed) tomorrow? Companies that have not given serious thought and study to that question degrade into looking only at cost, which is taking the easy way out and saying that IT is simply a commodity, as opposed to a real source of competitive differentiation on a strategic level. (Can you say, Nicholas Carr?) Cost efficiency is a preliminary requirement to pursuing value at a higher level.....it is not the destination. Some of the previous posts appear to already understand that. I'm not sure, though, that Mr. Brunsman does.

  • GW October 31, 2008 12:39 pm

    To determine the true value of IT within an organization, unplug all the hardware (desktops, servers, mainframes, data/voice communications devices, etc) and see how long the company survives. The amount of revenue lost, amount of fines from regulatory agencies, and the total amount of employee salaries during that outage combined will equal the most accurate dollar value of IT. Of course, this method is not practical, therefore the true value can never be accurately determined no matter how many ways we try to slice and dice it.

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