Not too long ago, my wife and I spent a long weekend in Venice to celebrate our anniversary. Ahead of our special trip, we investigated hotels to stay in. The Hilton on Giudecca Island caught our eye. Located in a wonderfully restored flour mill factory, Molino Stucky, the building boasts a rooftop pool and bar. And, as the weary international travellers reading this will attest, indulging in decadent extravagance of that sort now and again does appeal.
I then turned to TripAdvisor to get extra insight on the place. I always find the “poor” and “terrible” categories of comments enlightening and quickly came across a revealing post. It read: “No little chocolates on your pillow after turndown. In fact, there is not even a turndown service!”
Seventeen words that changed our worldview. We could not possibly stay at Hilton Molino Stucky. How can a five-star hotel charge 350 euros a night and not provide a square of chocolate? The place had no sense of value.
In some ways, IT and digital leaders are faced with the same challenges as the Hilton’s general manager in Venice: (1) that meeting the expectations of customers and users is getting harder, and (2) that price and cost are rarely the same as perceived value. In fact, even for the many who try, measuring the value of IT to the enterprise still remains elusive.
In this pair of blog posts, I reflect on why this is. Based on my recent experience of working with two organisations aiming to assess the value of IT, I’ve come to the view that there are four causes at the root of this value challenge:
- An insufficient linkage between corporate strategy and IT priorities
- An imbalance between financial and non-financial returns from IT investment
- The lack of data culture across the organisation
- An unhealthy fascination with visualisation technology
This article covers the first two aspects, and part 2 will cover the others.
Link strategy and IT priorities to deliver valuable outcomes
It’s unfortunately often that the link between IT and strategy is not made. This was the issue faced by one of my clients, who had a well-articulated corporate strategy with four objectives towards 2022 covering revenue growth, earnings, employer reputation and market share.
Because the four objectives were very much oriented towards the market and the company’s customers, the IT and digital group was finding it hard to connect its priorities to the strategy. How did we get around this? We actually started by what made the most sense. First, the earnings objective — familiar territory for IT leaders who have learned to drive efficiency. Those digital efficiency improvements, such as unit cost of a digital visitor, could be related to cost savings, and from there margins and cash flow, hence earnings.
Employer reputation was next. By setting an ambition to be the best IT partner in the industry, evidenced through a track record of innovation and technically challenging work, we hoped to attract and retain IT talent. We framed the IT team objectives as questions, including “Are our IT people advocates of our brand?” to arrive at a clear KPI. Having warmed up on the two familiar topics, we then covered the remaining two strategic objectives: market share and growth. We connected the activities and outputs of the IT group to the objectives of the whole business, and its customers, to discover their shared value.
Measuring financial and non-financial value: finding the right balance
One of my clients is highly regulated. As a result, risk is central to the culture there. Cyber security, technology more broadly, talent and reputation are all potential sources of risk.
Quite rightly, then, risk management is the first category we included in the new benefit framework associated with the digital strategy. Whilst risk cannot be eradicated, every effort is made to manage it down. The benefit framework now has only four categories, partly because the previous one had eight and was not used. By making it simpler, we’ve seen adoption rise in the IT department.
Business cases and benefit realisation now revolve around risk, embedding digital working practices, customer and user satisfaction, and finally efficiency and effectiveness. That last category is the only one with a financial dimension that’s relatively easy to measure. In reviewing the cases proposed for next financial year, we found a good balance, with no one benefit category accounting for more than 30 per cent or less than 19 per cent of the total.
The point? Value is not the same as money spent, but is expressed across a range of benefits that customers will recognize. Like a chocolate bonbon on a pillow.