|
Page 1 of 2
by Craig Symons with Alexander Peters, Ph.D., Alex Cullen, and Brandy Worthington
EXECUTIVE SUMMARY
CIOs frequently ask what IT should measure and report to business executives. The key to success is choosing a small number of metrics that are relevant to the business and have the most impact on business outcomes. The five metrics that meet the criteria for relevance and impact are investment alignment to business strategy, business value of IT investments, IT budget balance, service level excellence, and operational excellence. These five metrics should form the core of an IT performance scorecard.
METRICS FOR IT'S PERFORMANCE MUST MEASURE RELEVANCE AND BUSINESS IMPACT
Most IT metrics efforts lack relevance to the business and are not well linked to business outcomes. They tend to be IT-centric and operationally focused on the underlying technologies, such as WAN availability or server downtime. It's difficult for the business to understand how these measures relate to its objectives, and they provide little insight into the value that IT delivers. As a result, the business typically focuses on the one metric that they understand—the cost of IT and how to reduce it—and this leads to a continuous cycle of cost reductions. To break this cycle, CIOs must create a scorecard that is:
Understandable and relevant to business executives. Often IT and the business speak different languages. Server availability, network throughput, help desk call volumes, capacity utilization, and other IT metrics are not relevant to business executives. These types of metrics must be translated into something the business understands, such as availability of business applications or the cost to support a business area. The IT-centric details should be kept within IT.
Connected to business outcomes. Business executives are concerned with introducing new products and services, improving customer loyalty and satisfaction, increasing gross margins, and growing market share. IT metrics must be linked directly to these business outcomes, specifically demonstrating how IT initiatives contributed favorably to improving these outcomes.
FIVE ESSENTIAL METRICS PROVIDE A BALANCED PICTURE OF IT'S CONTRIBUTION
The five metrics forming the core of an IT scorecard are investment alignment to business strategy, business value of IT investments, IT spend ratio, critical business service availability, and operational performance. These metrics provide a balanced view of IT performance to IT stakeholders including the board of directors, C-level executives, and other business leaders. As simple as these metrics may seem, they require a fairly high degree of IT management and process maturity to capture and report the data and perform at a high level.
advertisement
Metric #1: Alignment Of IT Investments To Business Strategy
You can't deliver sustained business value if the IT strategy and the business strategy are not aligned and tightly linked. Despite years of making this the No. 1 priority, the 2007 membership survey by the Society for Information Management (SIM) found that IT and business alignment was the No. 2 management concern with 42% of respondents (see endnote 1). Alignment implies that business strategy and IT strategy are developed concurrently, not as an afterthought. The IT portfolio should be a reflection of the strategic business objectives or themes. We can show the recommended way for measuring and communicating alignment in one powerful yet simple graphic that displays four important alignment parameters (see Figure 1). This graphic:
Clearly articulates the strategic themes. In this example, the firm has five important strategic themes, which are growing revenues, improving margins through greater efficiency, improving quality of service, expanding strategic partnerships, and expanding its customer-facing applications.
Differentiates mandatory investments from discretionary ones. The graphic segments the portfolio into two major categories: 1) the nondiscretionary or mandatory investments that must be made for compliance or other similar reasons, and 2) the discretionary investments based on the five strategic themes.
Shows the level of investment by strategic theme. The size of each circle represents the amount invested in that portion of the portfolio. In the example below, investments in efficiency-related initiatives have the highest level of investment. This would imply that this initiative is the No. 1 priority. If this is not the case, then the portfolio should be adjusted and funds moved from efficiency-related projects to others with a higher priority.
Communicates the expected return of the portfolio. In addition to showing the relative size of the investment, it also shows the expected return from each of the strategic themes. In the example, the nondiscretionary initiatives have a very low expected return while those focused on revenue growth have a very high expected return. One might argue that more of the portfolio should be invested in growth initiatives. After seeing this, IT and business executives may agree to shift investments from efficiency initiatives to growth ones.
Figure 1: IT Portfolio By Strategic Initiative
Enlarge Image
Download this figure [Powerpoint File]
|
