Are You Doing a Good Job?

How does the IT organisation manage to tell the rest of the business if it’s doing a good job?

Other functions apparently have an easier time of it. For sales, it’s dead simple: you made plan, or you didn’t. Finance gets a little more complicated, but in the end it boils down to achieving the bottom line of earnings per share and profit.

What about IT? How do you establish that you’ve done well?

There are two core measures that you should turn to in this regard. Much like Finance, it’ll be about the target — the “how you did that” is less relevant.

One is the change in your total cost to own and operate (TCOO). This is your equivalent of “earnings per share”.

No matter what you’ve deployed this year, what new systems now exist, or how old your portfolio is, every year you should be able to improve TCOO. You’re interested in showing an improvement (rather than the absolute number) because TCOO effects multiply: if you can reduce TCOO, that reduction carries forward into future years. It also keeps you away from questions about “how much are our competitors spending” or “what’s our industry doing”, since you ought to be doing what’s right for your enterprise at this point in time, not doing more or less to match others.

Still, showing an annual reduction in TCOO year after year shows you’ve got your eye on the financial ball, constantly looking to take cost out. Your budget may well be growing, but you’re improving your profile. That improves SG&A (sales, general and administrative expense) for the enterprise as a whole.

This, by the way, is why your budget is irrelevant as a measure. The absolute number spent makes no real difference to the enterprise’s future. Sweating out future SG&A does. (If your budget goes up, some other budget in SG&A probably went down to find the money. Too bad for them that they don’t have a TCOO equivalent.)

The other key measure is “actual return on investment obtained” (AROIO). This means you must invest in analysing project performance, deployment effects and results — but it indicates you’ve got an eye on filling the coffers. It’s the equivalent of “profit”.

Again, how you got there is irrelevant. Perhaps you got an actual AROIO this year of 10% — four big systems projects for the business that essentially netted out to 0% with a lot of work (the projects were a little late, deployment wasn’t smooth, assumptions didn’t prove out), and 10% from TCOO reductions. What the enterprise needs is the 10% — where it comes from is again unimportant to IT’s success.

You may look at 10% and say “but our clip level for a project is 20%”. Take a good, hard look at the 10-Ks filed by public companies. How many of them showed a 20% improvement year over year, year after year? They’ve all got the same type of clip levels for project release and approval that you do … so where are their results?

What TCOO and AROIO do is change the game, since both are eminently governable. That means that getting your Governance Board up, running and focused, and getting the business areas to understand that they, too, are going to change to achieve AROIO and TCOO for the enterprise, gets top level support.

If you can start to lay architectural plans on the table showing how getting to the proposed future state is making changes to these measures over time, you’ll be that much further ahead to moving out of year-by-year mode and into multi-year commitment mode as well.

“Am I doing a good job?” is not a question you should leave to others. If the mantle of leading IT has fallen to you, take charge of your future, by sending the right messages about how to evaluate you.

Advertisements

About passionateobserver

I am a passionate observer of our society, the economy, and politics. Mostly I don't like much of what I see, so I write as a concerned citizen. To the fray, I bring a background in the philosophy of history, a lifetime's reading, a work history in information technology management, consulting and education.
This entry was posted in Enterprise Architecture, Governance, IT Finance and tagged , , , , . Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s