6 steps to measure the business value of IT

IT is no longer perceived as a cost factor or a pure support function at many organizations, according to management consultancy 4C Group’s Markus Matschi. And the digitization push during the pandemic accelerated this. But despite such advances, the question of the value contribution of IT isn’t always clearly answered. “Due to the increasing relevance and added value of IT in companies, it’s essential for CIOs to not think in terms of costs, but value contributions,” says Matschi.

In a joint study with Markus Westner and Tobias Held from the department of computer science and mathematics at the University of Regensburg, the 4C experts examined the topic by focusing on how the IT value proposition is measured, made visible, and communicated. From many discussions with CIOs and current data, they developed a process model for practice.

“To develop a practical approach, it was important for us to understand the current challenges of the CIOs together with scientific findings and then integrate them,” says Martin Stephany, another consultant at 4C. 

Although the discussion has been ongoing for a long time both in science and practice, there’s often disagreement on the basics. “It starts with the fact IT value contribution is defined in various ways and there’s no uniform understanding or definition of it in companies,” adds Westner.

Because the contribution to value and innovation is often unclear, employees from business-related departments perceive IT as a black box and can’t always judge what it does and what added value it entails. This is also why some companies appoint a CDO to close the gap of value contribution between business and IT.

IT must be able to show the departments and the management team their possibilities and the added value, says Heiko Weigelt, CIO of Funke Media Group. But because it’s determined by the respective stakeholders and not by IT itself, transparency and understanding are necessary in both directions.

A challenge for determining the value contribution is the selection of suitable key figures. According to the study, IT departments today primarily use technical and IT-related metrics. That is legitimate, but in this way, there’s no direct connection to the business.

Plus, there’s often a lack of affinity for meaningful KPIs, both in IT and in the specialist departments, says Jürgen Stoffel, CIO at global reinsurer Hannover Re. Therefore, in practice, only a few metrics suitable for both sides would be found, and the result is the IT value proposition is often unseen.

“A consistent portfolio of metrics coordinated with the business would be helpful,” says Thomas Kleine, CIO of Pfizer Germany, and Held from the University of Regensburg adds: “Companies have to get away from purely technical key figures and develop both quantitative and qualitative metrics with a business connection.”

In order to make progress along this path, the consultants developed a process model with several development and evaluation phases, using current scientific findings and speaking to CIOs. They also tested the concept in a German mechanical engineering company. This resulted in a process model consisting of six steps, with which the IT value proposition can be measured and communicated.

1. Analysis of business goals and business environment

The consultants raised concerns that many CIOs start with their own metrics without knowing what’s vital to the business. IT managers should first look at the business goals and the business environment since without knowing goals and market trends, it’s difficult to link added value with IT.

2. Analysis of stakeholders

The next step is thorough analysis of stakeholders with continuous and organized management since it’s key for CIOs to identify and prioritize key stakeholders. Then they should talk to them individually and find out what their goals are and where IT can help. “CIOs should act as stakeholders’ partners in these discussions,” says Stephany, adding that the core question must be: “How can IT create added value so we can become better together?”

3. Modeling the business capabilities

In order to create a common basis for discussion, more transparency is needed at the interface between business and IT, the study authors explain. Business capabilities structured in a business capability map (BCM) can serve as a starting point. It all revolves around what the company is doing today and where does its future potential lie. “The BCM can be the central tool for discussions with stakeholders,” explains Matschi. In this way, companies could find out for themselves which business capabilities are differentiating and how IT can support them.

4. Model the business-IT relationships

Based on the BCM, dependencies and relationships between business and IT can be made visible. CIOs can demonstrate how and where their IT provides concrete support today and in the future. This serves as a starting point for measuring IT value proposition. In this way, maximum transparency is achieved and, according to the authors, the IT black box is solved.

Christian Büchner, CIO of SachsenEnergie, has already gained BCM experience: “At SachsenEnergie, we work with a BCM that’s arranged according to business-related departments and all of our more than 600 applications, or IT capabilities, are assigned to these business capabilities,” he says. 

Christian Graf, CIO at toy manufacturer Schüco, is taking a similar approach. The points of contact with IT are mapped and managed along the digital customer journey.

5. Measure the value proposition

“We’ve learned in our discussions and from scientific findings that there is no general, standardized measurement with definitive key figures,” says Matschi. “Each measurement is individual and dependent on the stakeholder and the business case under consideration.”

Against this background, the consultants developed a 3×3 matrix structured according to IT- and business-oriented key figures. Both quantitative and qualitative measurement approaches are presented in order to measure the value contribution individually for a stakeholder or a business scenario. Depending on the focus of the activity (operation, projects, innovation) and business architecture (IT capabilities, business capabilities, business goals), different types of added value can be derived, behind which there are certain metrics.

Discussions with the CIOs made it clear where the hurdles lie in the measurement. It’s particularly difficult to measure the IT value added, for example, in day-to-day operations, especially in network or workplace ​​commodity IT services, says Holger Blumberg, CIO at mechanical engineering company Krones.

6. Planning the communication

Once the value contribution is identified in its respective forms, the next step is well-planned communication. CIOs should consider what information they want to provide to whom. From 4C’s point of view, the form of presentation is also decisive for success, which must look different for qualitative metrics than for quantitative ones.

In order to get more added-value visibility, and find out where IT can provide even better support, CIOs go different ways. Kleine from Pfizer Germany, for example, introduced IT ambassadors in the departments that support communication. Büchner, CIO of SachsenEnergie, relies on the additional role of “demand managers,” or IT employees with business skills who act as an interface between IT and business, and take care of the communication with the department.

The sum of its parts

Discussions with CIOs have shown that the process model can be used in practice. Krones CIO Blumberg, who helped develop the model with his team as a practical partner, reports on successful piloting and success in cooperation with stakeholders. In addition, the survey revealed other useful results that could help make the IT value contribution more tangible. Matschi and Held add there’s no single value behind it, but a conglomerate of metrics. These can be of a qualitative or quantitative nature that ultimately show how satisfied stakeholders in the departments are with IT. It’s important to connect facts with perceptions, and that metrics are measured in dimensions that are relevant for respective stakeholders. The bottom line is it’s about shared success across departmental boundaries. Both IT and business departments should be able to see how IT affects business performance, so neither can create value on their own. In the end, it’s the combination of IT and organizational skills that counts.

(This post is based on an article from our sister publication CIO Germany.)