Two-thirds of companies not fully measuring IT value and neglecting competitive advantage
Sep 24, 2009 Comments (0)
Conducted by ISACA, an association of 86,000 IT governance, security and assurance professionals, the Value of IT Investments survey found that half of the respondents believe they are realising between 50-74 percent of expected value from their IT investments, and nearly a fifth believe they are realising 75-100 percent. Yet, half measure the actual value only to some extent, while one in 10 does not measure it at all.
Paul Williams, IT Strategy Chair and IT governance adviser to Protiviti UK stated, this survey illustrates the massive potential for value destruction from ill considered IT related business investments. The lack of value measurement can lead to misleading and unreliable business cases and the consequent approval of discretionary projects that are unlikely to add to value creation. A more robust approach to all aspects of IT investment governance can lead directly to improved financial and operational performance.
At the same time, half of the respondents reported that accountability for such value measurements is delegated to the IT function itself, instead of remaining with the business, where it belongs. Full results of the survey can be obtained by contacting email@example.com.
John Thorp, chair of the Val IT Development Team for ISACA and president of the Thorp Network, commented, The results of this survey reinforce findings from earlier studies that, while most enterprises feel they are realising value from IT, few have a clear understanding of what value means, and even fewer measure it. This raises the question, On what basis are spending decisions made? Additionally, enterprises that do not fully measure value are unable to determine which investments are successful and which need to be cutand thereby are likely to miss out on revenue-generating opportunities, pursue unsuccessful investments and neglect competitive advantage.
Adds Thorp, These findings support the results of a number of other studies, anecdotal evidence and my own experience that most decisions related to value from IT are subjective, and all too often are based on perception and emotion rather than on facts. Organisations will not come close to realising the full value of their IT investments until they adopt effective value management practices and assign accountability for the realization of value from those investments to the board and CEO, rather than abdicating it to the CIO.
Thorps view regarding the lack of business accountability for value from increasingly significant and complex IT-related investments is reflected in the 49 per cent of respondents stating that the CIO or IT managers are responsible for ensuring that stakeholder returns on such investments are optimized. Only 15 per cent said responsibility lies with the board, 11 percent the CEO and 9 per cent the CFO. Remarkably, 8 per cent said no one was responsible.
On a positive note, 76 per cent of respondents are aware of the Val IT framework, and 44 percent of organisations questioned have such a framework or guidelines in place to select the investment that will result in the highest value.
Additionally, despite the challenging economy, 30 percent of companies are increasing their investments in IT this year, while only 13 percent plan to reduce spending and 14 percent plan to freeze it at the current level. In the UK this average isnt replicated, as just 19 percent of organizations intend to increase their investment while 20 percent plan to cut spending across the board.
Interestingly, among the benefits organisations receive from their IT-related investments, respondents cited improved customer service (35 per cent) and cost reduction (24 percent) as the two most important. Somewhat surprisingly, only 16 per cent named new or improved products and services as the top benefit. India stands out, with improved customer service as the top-ranked benefit, at 45 per cent.
Organisations should be careful not to ignore the value-generating opportunities of IT in favor of cost cutting. IT has the power to add competitive advantage and significant business value, so it is critical to focus on those opportunitiesparticularly in troubled economic times, said Robert Stroud, CGEIT, international vice president of ISACA. The implementation of Val IT can help enterprises identify more effective metrics, leading to successful investments in IT projects that better align with the strategic goals of their business.
The survey identified some regional differencesspecifically between established economies and fast-growing ones. Of the nine countries surveyedAustralia, Canada, France, Germany, Hong Kong, India, Mexico, the UK and the USthe India-based participants were the most advanced in adopting effective value management practices and assigning accountability for those investments to the business. Seventy per cent of respondents organisations in India have a framework for selecting the IT-related investments that will result in the greatest value and 57 percent fully measure value. In addition, almost half of Indian organizations are increasing IT-related investment based on potential or expected contribution to business value, and 63 per cent said there is a cross-departmental understanding of what constitutes value in IT investmenta figure significantly lower in the UK, at just 22 per cent, and the US, at 34 per cent. Top-down management responsibility for optimizing IT investment was also evident, with one-third of respondents indicating board or board chair level.