Value: IT has it backwards
July 29, 2013 Leave a comment
The calculation of IT Value has traditionally been a bottom up process trying to build a business case based upon return on investment in an application. This typically either overstates the value to the enterprise or provides an artificial justification that is not relevant to the business.
Most of this is due to two factors
1) An overreliance on scientific culture which focuses on breaking objects into smaller components
2) an over emphasis on cost centers, corporations have placed on most Information Technology organizations
While the “scientific method” of partitioning objects into atomic elements has brought about some very important breakthroughs and benefits to our culture. The over overreliance on this tool has also yielded some of the most horrible and apparently intractable problems. Example, had one looked at a larger view behind atomic energy production, the decision to go forward or the nature of the solution might be different. Similar issues arise in agriculture and pesticides, poverty, etc. This is not a condemnation of the scientific method of partitioning, but rather a recognition that like mathematical equations both sides have to balance. We often focus our efforts towards one side of the equation dividing into smaller components, but often forget that many things are greater than the sum of the parts. Balancing reductionism with general systems yields better results and as in the case of understanding value of IT to the enterprise this is especially true.
Cost Center Management or Activity Base Costing is a good compromise to measure one side of the benefits equation. However, Cost Center management was never designed to provide management with an accurate measure of benefit or value. Yet many corporations use cost center data and a first order consequence or effect to create an ROI measure to justify the acquisition of IT Assets, those typically being identified as Hardware and Software. The benefits and ultimately value are typically not a cost plus calculation. Consider, an Automobile. I content the value of an automobile is higher in Orange County California than it New York City. Implicitly, those that have lived in both places know that travel in a car in NY is easier without a car and the added operational costs (maintenance, parking, etc.) which has a comprehensive public transportation system. While in Orange County without a car, except in certain locations, your lifestyle options are significantly limited. Thus while a car purchased in NY and Orange County may cost the same, the values vary significantly.
This suggests examining IT value from another perspective; that is as how much IT contributes to the value an enterprise creates and eventually captures**. This is a top down approach rather than a bottom up.
** Think EVA