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Foreword |
The value of IT is its ability to improve business performance.
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No enterprise in the 21st century runs for long without capable IT. Whether IT enables current operations or contributes to enterprise competitiveness, it is essential to success. But businesses produce returns on investment, not IT, and many CIOs struggle to communicate the value that IT produces for the business.
This report addresses the question, How can CIOs communicate the business value of IT?
Business Performance Is the Value of IT was written by the Gartner EXP research team led by Richard Hunter (research director). He was assisted by Tina Nunno (vice president and research director) and Robert Akerley (research director).
Many organizations and individuals contributed to the research, including:
- The contributors to our interview reports and case histories: Butch Leonardson, BECU (U.S.); Ken Venner, Broadcom (U.S.); Luciano Corsini, Companhia Brasileira de Meios de Pagamento (Visanet Brazil); Guido Sacchi, CompuCredit (U.S.); Gonpo Tsering and Dieter Schlosser, DKSH Corporate Shared Services Center (Switzerland); Ken Harvey, HSBC (U.K.); Michael Schrage, MIT Media Laboratory (U.S.); Erik Brynjolfsson, MIT Sloan School of Management (U.S.); John Hammergren and Randy Spratt, McKesson (U.S.); Joe Walker and Kevin Vasconi, R.L. Polk (U.S.); and Bill Spooner, Sharp Healthcare (U.S.).
- Other members of the Gartner EXP research team: Dave Aron, Mark McDonald, Barbara McNurlin, Patrick Meehan and Chuck Tucker.
- Other Gartner colleagues: Audrey Apfel, Angela Atkins, Geir Balsnes, Jackie Fenn, Trish Jaffarian, Marcelo Soares Leite, John Mahoney, Lisah Maupin, Jonathan Poe, Michael Samsen, Christi Shore, Michael Smith, Jeremy Swartz, Laetitia Tempelman, Vicki van Alphen and Steve Weber.
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Executive summary |
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The business value of IT is expressed via improvements in business performance. This is as true of investments in IT infrastructure as it is of investments in informational, transactional and strategic applications.
All returns from business investments are business returns and must be communicated in terms of business performance. This is as true of investments in real estate as it is of investments in IT. Accordingly, IT value can be conceptually expressed as the ratio of business performance to IT investment, as shown below.
IT value can be conceptually represented as the ratio of business 
performance to IT investment
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In other words, IT investment is an investment in the ability to do business in a particular way, not just a cost. Business success ultimately depends on increasing the numerator in the value equation—business performance—and not merely on reducing the denominator.
IT can improve business performance and increase enterprise differentiation and competitiveness in four ways: tactically—by removing technical and operational obstacles; strategically—by embedding information into products, services and operations; and in terms of information or operational dynamics—using information or information technology to transform enterprise operations.
Beware of the “value traps.” Value traps are practices that prevent the business from understanding how IT investment improves business performance. Some value traps are basic, relating to IT’s ability to deliver reliable, cost-effective services. Other value traps result from IT’s inability to link technology to business performance.
When IT organizations avoid the value traps and deliver perceived high value, they frame increased investment in IT as an investment in improved business performance—not the result of higher business performance, but the driver.
High IT value starts with value for money. To communicate value for money, the CIO must translate IT operational performance into business performance and continually show that IT delivers value for money where it counts—in improvements to business performance.
CIOs who successfully communicate IT value do not report to business executives about internal IT technical operations. Instead, they describe how IT operations affect business performance.
In many enterprises, IT investment is seen as a trailing indicator for improved business performance. A more accurate viewpoint is that careful investment in IT leads business growth by providing capacity and capabilities in infrastructure, operations and management visibility.
To make the point that IT investment drives business performance improvement, the IT organization needs to benchmark and measure not only its own performance, but also the performance of business units.
Senior executives who clearly understand how their business is differentiated from competitors are more likely to see potential for differentiation via IT. CIOs whose executive teams lack competitive focus should therefore do all they can to help these executives understand their own business models and competitive strategies.
Being part of the executive team means thinking in terms of business performance. Above all else, CIOs must use the language of business performance and business outcomes to drive home the message that all initiatives are business initiatives, whether or not IT is a major part of the initiative.
Without a systematic approach to harvesting benefits, value may either not be achieved or will be impossible to prove. To capture the real impact of a large initiative on business performance, CIOs should begin to measure benefits a year after implementation and continue to measure for as long as is necessary to demonstrate increasing value.
Sooner or later, after treating every initiative as a business initiative, demonstrating value for money and measuring business performance improvement from every IT investment, the CIO will gain business responsibilities beyond IT.
Such responsibilities demonstrate that the business understands and appreciates the value that IT delivers—and that the CIO has become a business leader, not just an expert in solving problems with technology.
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