IT and the new metrics: Measuring business technology performance

In a world of convergence, IT and business are still searching for a common language.

A growing cultural divide between IT and business unit leaders is having a significant effect on how technology investments are measured. The gap has its roots in issues of communication and metrics, but a new Forrester Research report is suggesting solutions.

The June 2007 report, Stakeholder Centricity: The Metrics That Count, says we are evolving from an environment where the IT department is the primary solutions buyer to a business technology (BT) model where business departments and objectives are “substantially more important” deciding factors.

The problem is that execution by providers and businesses alike is lacking. As co-author and principal analyst Norbert Kriebel writes: “While many technology product and service providers have begun to change their corporate messaging, the metrics they use to provide their business value at the product or solutions level is still anchored in the language of IT.”

A game of show and tell

A simple vocabulary change is not enough to bridge the communications gap between IT and business mindsets. Corporate marketing messages that pay lip service to terms such as “business value” and “partnerships” do little to convince anyone of a technology investment's real worth. “Businesses are not carrying these messages through to the metrics they use to provide the value of their solutions,” writes Kriebel. “This creates a gap between what you say and what you show.”

What providers say and show appears to be influencing the opinions of non-IT business leaders. Forrester asked 172 IT and business decision-makers how well their best and worst IT providers performed in delivering metrics that allowed stakeholders to gauge a solution's business value.

In the best relationships, 15% of providers scored “very well” with the IT group, while 30% scored the same with the business unit leaders. Equally telling are their “worst provider” relationships. Here, providers achieved “very well” responses from 11% of IT stakeholders but dropped to just 2% among business unit leaders.

The relatively low scores indicate a significant gap between business and IT stakeholders. “IT is stuck between a rock and a hard place,” Kriebel writes. “They get lots of information, but not the business-value answers that would make their lives easier when they are looking for support from their partners in the business units and for funding from finance.”

Relevancy in vocabulary

Providers are now trying to define business value in relevant metrics to meet growing market demand for the new focus on BT. Forrester's research indicates that 60% of the North American organizations surveyed consider a business case very important for obtaining funding approval. This is integral to providing the key metrics examined in the report, which include vendor benchmarks, economic value added (EVA), internal rate of return (IRR), net present value (NPV), payback period, return on investment and total cost of ownership. The weight of each of these varies significantly based on individual organizational needs and business goals.

An added challenge, according to Pascal Matzke, principal analyst with Forrester Research in Germany and report co-author, is that evolving to a BT model is not a one-size-fits-all approach. “One element we discovered with the whole exercise is that there is not so much a difference [in metrics requirements] between verticals,” he says. “The differences are more tied to individual stakeholder functions.”

By way of a simplified example, a financial services stakeholder tends to be more strategic and inclined to look to more business-oriented metrics, while an IT representative may focus on cost and operational value, such as total cost of ownership and technical benchmarks. Conversely, a human resources executive may be driven by metrics relating to staff retention, efficiency and employee satisfaction. Underlying all this is the need to integrate vertical-specific metrics such as production yields for manufacturing, or transportation costs for a logistics operation.

Says Matzke, “Vendors are still struggling to understand that no matter what industry they sell into, they must move away from the pure feature/function proposition to feature-oriented metrics.”

The customer is always right

The need for IT providers to re-architect their business proposition to meet business unit requirements comes as no surprise, says Bob Courteau, president of SAP Canada. For SAP, the gap is being filled by significant human investment Over the past four years the company has doubled the size of its employee population in North America. Much of SAP's added expertise is specifically focused on understanding customer issues and value analysis.

“The industry needs to go after this problem and start putting solutions forward in a way that's meaningful to customers,” he says. “We have to learn how to develop business cases, roadmaps of solutions and how to put it all in a context that makes sense for the individual — not just the industry.”

“It changes from customer to customer,” adds Blair Makin, VP, Innovation Marketing, Bell ICT Solutions. “One bank may be looking at revenue and profit growth by acquiring new customers through their call centre environment. Another may be purely focused on reducing the costs of serving its own customer base and maximizing their existing capital investment.”

Phil Kaszuba, VP, Storage Group for Sun Microsystems of Canada in Toronto, agrees that vendors can no longer view themselves as IT organizations just delivering services. “We are seeing more and more customers wanting their vendors or partners to be tied to business value delivery. To respond, more and more providers are focusing on acquiring vertical market business expertise to engage in solution delivery.”

A change in perspective

“Clearly, decisions must be made in a broader business perspective,” says Anne-Marie Hubert, partner, Risk Advisory Services, Ernst & Young in Montreal. She sees expectation and communication gaps between everyday application users, business unit leaders and IT. “Users expect applications will be easy to use and available. Leaders expect [solutions] to be delivered on time and on budget. IT sees what this can do for the business. Unfortunately there isn't always alignment on how everyone communicates because they don't use common measure, monitoring systems, even the wording to describe what they want to do.”

But the industry is close to providing the required metrics outlined in the Forrester report, contends Makin. “Businesses are transforming their perspective to one that looks at their leading indicators [instead of] their lagging indicators. Leading indicators focus on the business value in what you are trying to achieve, setting the right objectives and targets, and understanding that investments being made will contribute to achieving success. Lagging indicators include the typical operational metrics that focus on efficiency and cost reduction. These offer limited merit in today's world.”

The challenge to understanding relevant metrics is not exclusive to the vendor side of the equation, says Forrester's Matzke. “Executives for their part need to understand the inter-relationships between technology, business functions and processes.”

Vancouver-based mining company Goldcorp maintains that it is rising to the internal communciations challenge. Over the past year the company has been revamping its IT value proposition by instilling a new mandate for IT decisions. This mandate requires all business units to consider six specific areas of growth. “Decisons are now made based on input from how business units operate and how IT aligns with that,” explains Mark Olson, VP of IT. “In additon, we have reworked that into a format that matches how the business units think about themsleves — and that is in metrics relating to people, safety and partnerships; then margins, production and reserves.”

Matzke adds that while some firms are working in that direction, there is much to be done — and a good deal of that starts with the profile of the people in charge. “In shifting from an IT to BT model, the strategic mandate for CEOs today is to get people into business leadership positions that have a more business-oriented IT approach so they can serve as moderators between business units and IT.”