There are many ways of measuring how IT adds value to business. It is very important that a CIO (chief information officer) or even the IT director knows different ways to measure the value that IT adds to business so that he/she can make a plausible presentation to the superiors and thus justify the annual budget requested or granted to IT. However, many CIOs do not understand the different ways to measure the value of IT.
We have recently seen companies downsizing IT because today, IT is no longer viewed with the wonder and awe that it was viewed with several years ago. Today, it is all about value. If it does not contribute to the ROI, then it is not really worth having. And this holds true of any other department. Unless it can be seen to add value to the business, it is not worth having.
All things said, unless you know how to measure the value that IT adds to business, well, you could be facing a downsizing soon enough. In addition, if you do not know the value that IT adds to business, you will not know what systems to improve, what to scrap away and what to hold onto.
Measuring the operational value of IT
This is one of the ways for an IT team to measure the value it adds to business. Consider a bank that offers mobile banking services and therefore brings IT to align the internal and external systems such that the customers access all the information that they need and choose the products they need, all on their own. This would in turn reduce the number of customer representatives, and the rest can be deployed to other departments.
In measuring the operational value, IT should use the key performance indicators, such as how fast the business has been able to achieve certain goals because of implementing an IT system. For example, did the time in which customers get through to the sales reduce because of the integration of CRM?
In 2014, when Kenyan mobile operator Safaricom moved its mobile money transfer platform from Germany to Kenya, the speed of transaction improved from a minute to a few seconds, meaning that more transactions could be completed within a day. That is operational value for you!
Here, the IT director should think of a business that offers more than one service. For example, a bank may have a department for asset management, credit, retail banking, capital markets and others. IT can make processes run smoothly in all these departments. For example, IT can be used to streamline the consumer finance operations thus enabling the department to cater to more consumers per day than before.
On the other side of the scales, the operating costs can be measured against the revenue that they contributed to. How much did you spend to get a certain value? If after adopting a certain technology more revenue was realized, then we can say that technology has contributed directly to increasing business value.
The value of IT to a business can be developed as the systems are being used. To maximize IT’s value in use, well, the chief information officer should join forces with the chief financial officer because the latter knows how to get the utmost value out of investments. However, note that the CIO joins forces with the rightful department, only going by the objectives of the business. For example, to reach the optimum operational excellence, then the CIO should partner with the HR manager.
What is important here is to define what the tool of technology that is about to be deployed is supposed to do so that if there is need for training, IT will join hands with the HR to ensure that the end users of the system are sufficiently trained to get as much value out of the system as possible.
You can see there are many ways in which to measure the value that IT adds to business. If more sales are generated after the installation of a new CRM system, well, there you have it. We can say that IT will have generated value for the business because of the effective deployment and use of the CRM system.