Summary
Ventana Research recently completed a research study, “Unlocking Value from IT” (sponsored by Planview and Business Objects), the purpose of which was to determine how companies might benefit from having greater visibility into their IT spending and taking a more disciplined approach to managing their IT processes. The results of the study make clear that companies that have well-defined processes, relying on fact-based metrics, likely will report a higher level of IT spending effectiveness than those with less consistent processes and poor data. Moreover, when it came to the overall effectiveness of respondents’ IT spending, there was often a gulf between their perceptions of their processes and the details of how they actually worked. Over the past five years, corporations have improved IT governance greatly. However, they have focused most of their improvement efforts on capital spending and have not done enough to improve control of day-to-day operations. Ventana Research recommends companies address the next level of IT governance issues by focusing on ways to execute consistent business management processes, increase spending visibility and institute rigorous reviews of their operations.
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The results of our research study demonstrate that the difference between being “good” and being “great” comes down to consistency and attention to detail. We find that IT organizations driven by metrics and processes perform better and deliver greater value to their companies than others that are not. In a nutshell, those that focus on organizational effectiveness usually achieve greater operational efficiency. IT groups that are able to deliver business value also are able to minimize unnecessary spending and thus have more of their budgets to devote to innovative, “build the business” efforts. And those that deliver this business value to their company find it easier to justify higher levels of spending than those that always seem to be fighting fires caused by inconsistent or poor processes.
Most IT managers think they are doing the right things, but our study revealed a gulf between their perceptions of their processes and the details of how the processes actually work. For example, when it comes to having a formal process for upgrading or eliminating applications that are underused or do not provide much value to the business, only one-fourth said they have a scheduled review to find them. One-third have a formal review “from time to time,” but the largest group (just over four in 10) said they eliminate them on an ad-hoc basis. We found that those that have a formal process were three times more likely to rate their overall IT spending very effective than the others.
Managing vendor-supplied maintenance and support is another area where companies can improve. Only one-quarter said they do not overspend in this area, another 15 percent said they do and that it is a problem, and one in five said they were not sure. However, the largest group (just under four in 10) said they do overspend but that they don’t see it as a serious problem. The cost of this complacency is measurable: Companies that do not think the problem is serious rated their IT spending effectiveness substantially lower than those that do not pay too much.
The research also confirmed the commonsense assertion that companies that track costs accurately spend their budgets more effectively than those that cannot. For instance, almost all that said they are aware of all the costs associated with their business applications described their cost allocation systems as very accurate or accurate, compared to just 43 percent of those that track total (but not individual) costs and 21 percent that do not track the costs at all.
The results of our research lead us to conclude that IT organizations with greater visibility into how they use their IT budgets are more able to demonstrate they are good stewards of company resources and therefore are rewarded with more resources. Having more to spend – and doing so wisely - enables them to deliver more and more valuable services to the rest of the organization, confirming the value of trusting them with scarce resources. There also was a close correspondence between faster IT spending growth and the percentage of the budget devoted to innovation. The reverse is also true: CIOs who feel they are chronically underfunded should determine whether they should be addressing more fundamental management issues.
Assessment
Having the right resources to do the job is critically important to a CIO’s ability to succeed. Yet based on the results of our research, Ventana Research concludes that many do not pay close enough attention to setting the processes and metrics to manage the day-to-day operations of IT organizations as effectively as they should. The importance of achieving this next level of IT governance may be overlooked, particularly if they feel they are “sort of” addressing these issues or if the operations are in such disarray that their focus is mainly on “fighting fires.” It seems obvious that companies must strive to achieve higher levels of IT spending effectiveness; to succeed in this, they need to have the right processes, systems and information. About the Author
Rob heads up the Financial Performance Management (FPM) practice, focusing on the intersection of information technology and the finance organization. The FPM research agenda includes the application of IT to financial process optimization and collaborative systems; adaptive control and analytics; and advanced budgeting and planning. Rob has been a technology analyst for over 20 years. Prior to joining Ventana Research he was an equity research analyst specializing in enterprise software at Primary Research Partners , Senior Vice President at First Albany Corporation (an investment banking and institutional brokerage firm with a strategic partnership with META Group), a securities analyst with Drexel Burnham and Morgan Stanley, and a consultant with McKinsey and Company. Rob was an Institutional Investor All-American Team member and on the Wall Street Journal All-Star list. Rob earned his BA in Economics/Finance at Hampshire College, an MBA in Finance/Accounting at Columbia University, and is a CFA charter holder. Rob can be contacted at .
