Moving IT from Cost to Value

I believe this to be a universal truth for successful companies:

We invest in things that create value.

This is true in our personal lives too. I don’t just mean financial investments, it includes personal relationships, or decorations for our homes, or the car you drive. The value often times is an emotional one. In fact, I would say the most valued things create a positive emotion. When we engage in something that has perceived value, worth,  you feel better, right?

IT shops in many companies are seen as predominately a cost center, which is very often viewed as anti-value. We de-emphasize IT, by cutting budgets, when a company doesn’t see the value it creates.

This simple graph visually depicts the danger of continuous IT budget cuts.

IT Misconceptions cropped

Over time, continuous cutting of an IT budget will cause the misconceptions about IT to become realities. There is a point where the burden of disparate technologies, lack of resources to deliver to timelines, under utilized assets, and lack of coordination about strategic product plans will simply overwhelm the IT department as the budget shrinks. When this happens, the misconceptions are further strengthened, leading to additional budget cuts, eroding more business value.

If you agree with me that creating value ought to be the mission for IT, then what we need is a set of disciplines to manage IT like a business. This is where the concept of Technology Business Management (TBM) can help.

It is imperative that IT leaders act now to reposition their work as creating business value before this point of “No Return” is crossed. Adopting the TBM framework allows an IT organization to focus on value creation and pivot from the typical cost dominated view.

We can break the TBM framework into two broad categories: Run the business and Transform the business.

  • Run the business : establishes the cost efficiencies needed to invest savings into the transformational work to create value. It also provides credibility which will be leveraged to garner support for future investments. Items in this category include:
    • Financial transparency
    • Consumption based metrics
    • Optimizing for cost
    • Establishing technology standards
    • Reduce the complexity of the IT portfolio
    • Modernize the tech stack and application deployment workflows
  • Transform the business: items here improve the way we do business by growing revenue, providing for better decision making, and improve business processes.
    • Innovate for growth
    • Become business partner consultants
    • Increasing agility
    • Make data-driven decisions
    • Leverage technology trends and competitive differentiators in new ways

The TBM Council makes this very astute observation, “Since run-the-business spending is often fixed and non-discretionary, budget cuts generally come from our change-the-business initiatives first.”  The first steps in a TBM adoption must be in support of establishing credibility and meaningful impact in the run-the-business items to protect the necessary transformational investments.

I plan to share more about the TBM journey I’m working on as this series continues. For now I’ll provide a snapshot of where we are on that journey timeline. I have broken this down into 3 broad phases:

  1. Modeling and transparency
  2. Evangelism and Education
  3. Moments of Impact

At AOL we spent the better part of twelve months building our TBM model and completed the bulk of this work in 2013. Last year we concentrated on educating and getting into a rhythm of monthly showback and chargeback models for every line of business. We now account for every dollar spent on IT and can trace this back to the business decision that was the catalyst for the spend. We aren’t entirely done with our evangelism phase, and likely we will require some level of constant dialog here.

In 2015 we will spend more time doing data analysis and business consulting to allow us to find improvements and innovations we wouldn’t have discovered without the rich data we are now producing. Those “moments of impact” are on the horizon for us.

I’d encourage you to take a look at the TBM Council website, which provides an overview of the framework, resources for how to begin your own transformation, and an engaged community of IT leaders around the planet who embrace the idea that IT must be about business value creation.

Next week we’ll talk about common IT misconceptions. Join me then for part three of my series on IT business transformation.  This twelve part series began last week with a post entitled, “IT is a Strategic Weapon“.

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