First, what defines the best companies? To measure the best-run IT organizations, Alinean uses a metric called Return on IT (ROIT), which is a measure of a company's effectiveness divided by overall IT spending efficiency. ROIT does this by comparing the management team's ability to create shareholder value via Stern Stewart's well-respected Economic Value Add (EVA) metric, with running a tight ship (a frugal IT spend level). ROIT is stated as:
ROIT = EVA/IT spending
Where EVA = net profit – cost of capital (assets – liabilities) and, IT spending = formal IT spending + business unit IT spending
Here are the eight factors we found in researching these top companies that contribute most to IT success:
- Support competitive advantage -- aligning IT to support important business changes and establishing new businesses or ways to conduct business, product lifecycle re-generation, go-to-market programs and M&A activities.
- Manage IT/business alignment -- understanding, collaborating and aligning with the business unit to meet corporate and strategic goals, particularly focused on improving business operating efficiency.
- More agile - better at scaling
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- IT spending to meet market demand and conditions: when markets slow, IT spending can be pulled back and reduced, when opportunities improve, IT spending can be quickly increased.
- More frugal -- particularly during slow market times, but also when times are good, almost always spend less than most peers.
- Better project success/management -- minimize failures (reduce cancellations, delays, budget overruns, feature/function shortfalls), demand ROI and plan, measure for it with some discipline.
- Higher innovation spending -- spending more on average on innovation investments versus keeping the lights on spending and focusing on reducing TCO to free more investment in innovation.
- Benchmark performance -- invest in measuring performance versus peers, internal projections using both quantitative and financial measurements (such as project performance management, portfolio management, TCO/ROI analysis and KPI (Key Performance Indicators) tracking), as well as qualitative rankings (such as balanced scorecards, IT Infrastructure Library and customer satisfaction surveys).
- Charismatic/visionary leadership -- Sometimes the value of a leader can be overlooked, and although it is never a single factor of success, having a leader who is a strong positive force -- a change agent with a clear vision of where the company and group need to go -- is vital to overall success. With this element, success is not guaranteed, but without it, success is rare.
The bottom line
Although there is no one silver bullet practice that can drive IT success, several key attributes are more abundant in the leaders versus the laggards. Assessing your organizations and mapping against these success factors can help determine whether your group has the right stuff to succeed.
Tom Pisello is the CEO of Orlando, Fla.-based Alinean, a ROI consultancy that helps CIOs, consultants and vendors assess and articulate the business value of IT investments. He can be reached at tpisello@alinean.com.
This was first published in December 2005
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