Business of Technology

IT Financial Management, a hot new area in addressing a key problem in companies with large IT organizations. IT organizations within non-IT companies view technology services as an afterthought and run those organizations without a strategy that is aligned in delivering business value and improving the bottom line that technology can deliver. Currently, decision making in IT organizations is made from disparate data sources that have misaligned allocation and recovery strategies.

A simple approach to help solving this key problem is to run the IT organization as a business through a collaborative and centralized approach to the “Business of Technology”. Past efforts in IT organizations to combat this problem has been through benchmarking, standardized metrics program, isolated business case development, business analysis after investment initiation, and a consumption view of costs. The result has been mixed with insignificant results. Benchmarking initiatives tend to lead to comparison of inconsistent models that are misaligned to business objectives. Standardized metrics program yield no actionable results due to data quality problems, such as, completeness, coverage and accuracy (CCA). Isolated business case development leads to subjective analysis geared towards a pre-determined agenda usually resulting in significant investment before detailed analysis. Lastly, consumption view of costs that is not consistent with the provider view of costs yields inconclusive data for highlighting the organizations inefficiency.

So the question is “how do we grow as an organization” and provide the key differentiator that IT can bring to the business’ bottom line?

Using the Greiner growth curve, large organizations are usually in Phase 4 – “Growth through Coordination and Monitoring”. This means that growth continues with the previously isolated business units re-organized into product groups or service practices. Investment finance is distributed and managed according to promise of future cost savings. Incentives are not recognized and there is a lack of alignment to corporate goals. Eventually, though, work becomes submerged under increasing amounts of bureaucracy, and growth may become stifled. This phase tends to end on a crisis situation where executive management wants to cut investment in IT.

A new culture and structure must be introduced by moving up the Greiner curve to Phase 5 – “Growth through Collaboration”. Companies that frequently challenge their organizations through change are best at recognizing the value of Phase 5. The formal controls of phases 2-4 are replaced by professional good sense as staff group and re-group flexibly in teams to deliver projects in a matrix structure supported by sophisticated information and financial systems and team-based financial rewards. Phase 5 ends with a crisis of “Internal Growth”. Further growth can only come by developing partnerships with complementary organizations.

Investment in IT

IT is reducing the amount of risk and uncertainty by aligning the real-time understanding of processes and organizational demands.Thus, IT  raises output per hour in the total economy principally by reducing hours worked on activities. Overall GDP increases....

But not all technologies, however, increase productivity by reducing the inputs necessary to produce existing products. Some new technologies bring about new goods and services with above average value added
per work hour. However, the newer technologies obviously can increase outputs or reduce inputs and, hence, increase productivity, if they are part of the capital investment plan.

The current factors of our economic landscape: 

• Revenue pressure on most sectors
• Current high fixed cost of IT in most companies is preventing economic agility to business revenue volatility
• Reduction of revenue in most sectors and the lack of IT economic agility, IT costs appear high relative to revenue which lends to targeted reductions --- leading a reduction in the IT budget
• Very few companies understand that currently is the best time to invest in IT (due to low borrowing costs) to lower overall operating expenses through increased automation and virtualization to increase margins
• IT still accounts for less than 10% of a company's operating expense which lends to the argument that there is 90% of expense that can be lowered

These factors combined have the potential to drive a new operational and economic model for IT that is agile enabling new levels of business value --- very few companies realize the power within their own organization.

SteelGlass through its 70 years of experience can help companies unlock the power within their organization by aligning people, process and technology through a programmatic approach...