How Do You Measure ‘Value’ in IT Innovation?

How do you measure the value of innovation?

I recently met with a number of CIOs from large enterprises and discussed, among many other things, what the notion of ‘value’ really means to the modern CIO.

As a marketer, I was very interested to talk about this topic,  but as a full-time technologist and erstwhile analyst, my interest was multiplied. I was fascinated by the direction our conversation took, looking at questions like:

• what types of value really matter in a modern business and IT setting?
• how is value defined in context of a transformative CIO’s priorities, and why?
• how is the meaning of value changing, especially as we (hopefully) exit from a recession?
• what notions of value really don’t matter, or are now slipping away?

Without revealing any of the confidences from that discussion specifically, I certainly would like to open some ongoing discussion (in my comments section below, through pingbacks on other blogs, on Twitter, or in person) about some of the ideas about the ‘value’ of IT innovation that I see in the marketplace. This website is called ‘Please Discuss’ for a reason! 🙂

For example, some of the more common notions of value I see include the following:

• Time to market – in dynamic industries this can allow you to beat competitors to a new market and drive faster revenue from new products and services, driving major financial benefits for ‘first movers’ and ‘fast followers’, and positioning organizations favorably as innovators. Yet for organizations and/or industries that are more static, this may not matter, and for other the ability or a more stable alternative are actually a greater value?
• Staff reductions – this is in some ways the dirty little secret in parts of IT (especially automation technologies), but it is a fact that better IT often pays back through reduction of staff. Yet with a sunk cost in training and skills, and the seemingly endless list of projects on most CIOs’ desks, is cutting staff numbers really a good outcome? How does reassignment and redeployment fit into this value too – better or worse?
What leader really wants to oversee a shrinking part of the business?
• Reduced IT spending –reducing the overall cost of IT is clearly a positive business value – or is it? The cost reduction sounds good (especially to the street and the CFO), but what about when cutting IT budgets results in cutting service levels (intentionally or inadvertently); or when new projects cannot be delivered (or even started) because there is no budget for them? And what leader really wants to oversee a shrinking part of the business?
• Staff productivity – for some organizations this is an easy one to buy into, especially when there are clear metrics and variable staff costs, such as in customer support centers, telesales, commission-based sales, etc. Yet for many organizations, marginal improvements in staff productivity are difficult to measure and with relatively fixed staff costs may be impossible to actually capitalize or leverage into real financial outcomes.
• Competitive advantage – we love to think that IT is a competitive differentiator, and I honestly believe that for the best-run IT organizations it definitely is. Yet how can a CIO measure and promote this as a value indicator? How often is it possible to point to a new server, a switch, an application, a portal, or even an end-to-end service and say, ‘that solution delivers a competitive advantage to my business that delivers true value’?
• Faster M&A – the ability to integrate a newly acquired product line, a new business unit, or an entire new company can help to deliver the ‘1+1=3’ value from M&A faster, accelerating revenue and other benefits of M&A. However, not all organizations go through frequent M&A activity. Many (most?) do not do it at all. Even so, is a month or a quarter going to make enough difference to change the value of the M&A?
• Improved visibility – we often say ‘you cannot manage what you cannot see’, reflecting how important it is to have visibility (into IT and the business) in order to more rapidly respond to changes (in technology and markets). Greater responsiveness surely drives better service, and may even enable greater revenue opportunities. Yet, is this a realistic value expectation from new IT initiatives, or is this just a mandatory part of delivering a quality service?
• Reduce cycle times – whether talking about responsiveness to line-of-business (LOB) needs, faster audit response, reduced re-cycling due to errors, faster server provisioning, more rapid development of new products and services, or other ‘speed of business’ areas, this is increasingly an area where companies compete and win in the market place. Yet many organizations are already at a limit in their cycle times, or perhaps find that faster is not always better.

Of course, even once you have sorted out what is and is not the ‘value’ of innovation, you need to work out how to measure that value. CapEx and OpEx reduction are reasonably straightforward metrics, but even those are not always easy to measure in real terms. Then there are a plethora of less obvious or more difficult measures like agility, service level achievement, customer response time, audit achievement, security, or standards compliance. What do these really mean? How do you really measure them? What do they mean beyond IT, to business owners?

This is a very difficult area, not just for people like me trying to promote and market IT solutions,  but also for CIOs and IT VPs who are trying to evaluate new solutions and opportunities (not to mention value claims from people like me), and moreover trying to justify new initiatives to their business colleagues. It is critical for the modern transformative CIO to be able to clearly articulate what is and is not the ‘value’ of their IT, and of their new initiatives. It is also critical for them to be able to do so in ways that resonate with their peers, with customers, with LOB owners, with the CFO, and with the CEO.

After all, innovations (like virtualization or cloud) that reduce the time to provision a server certainly deliver important outcomes, but provisioning time is not a value metric many LOB owners will care about. Perhaps some of these other value statements are more appropriate, and will resonate better with our front-of-house business colleagues. Perhaps – especially as we move inexorably toward new hybrid models of computing – we need to look for entirely different descriptors and measures of ‘value’.

Either way, I am very interested in maintaining this discussion. For all the interesting discussions about innovation, and the ideas of agility, business alignment, and more that they raise, without a real understanding of the value that innovation brings to the business, especially during turbulent times for both technologies and economies, we may miss the ultimate point of why we have and continue enhance our IT systems – to deliver business value.