Aligning IT and Finance to deliver Business Outcomes & Digital Transformation

Whether it’s advocating for tech due diligence in M&A or influencing business executives to take cyber risk seriously (i.e. backing it up with action and budget :), I always like to drive home the point about the importance of technology in a modern organization by asking the business stakeholder to consider how in their environment almost all workflow, business process and technology have blurred together. The state of affairs is such that you can’t have a meaningful conversation about one, without the other. In a recent EY study of data’s impact on the financial services industry, 83% of firms surveyed agreed that data is their most valuable strategic asset. You might point to the fact that these are financial institutions and of course their data is very important to them, but would a manufacturing, retail, life science or software company say something inherently different? If technology produces and protects your data, the lifeblood of your organization, the same data you rely on for making business decisions, then by inference technology is an integral and indispensable part of your organization, it’s in your best interest that it is a strategic enabler. But how many organizations treat it as such? What kind of behavior or lack thereof would indicate that they do? Read on below to find out.

Technology for technology’s sake is dead. Progressive organizations, be they commercial entities or not-for-profits understand that it’s all about leveraging technology and data for business outcomes. So let’s start with a definition: “Business outcomes are results that have a substantial impact on the products, services, and relationships of the enterprise, and which can be measured. They may be new opportunities reached or problems solved.

Examples of business outcomes are:

• Increased revenue
• Reduced costs/overhead
• Faster time to market
• Expansion into new market
• New product or service

Many organizations today are embarking on what they would call “Digital Transformation” in order to sell, service, engage, operate and execute more efficiently and effectively and reach their intended business outcomes. As far as Digital Transformation is concerned, there many working definitions; for example: “Digital transformation is the profound transformation of business and organizational activities, processes, competencies and models to fully leverage the changes and opportunities of a mix of digital technologies and their accelerating impact across the organization in a strategic and prioritized way, with present and future shifts in mind.” Given the complexity of the preceding run-on sentence, and the fact that many of our household name enterprise organizations are failing at Digital Transformation at a rate of nearly 66%, is a good reason to adopt a definition that is practical and grounded in reality. One way to do that is to have some context around what hinders digital transformation. For one, you can’t do digital transformation if you have 5-10 years of technical debt (this is not a financial construct, although often is a result thereof. More on technical debt in another article). PwC’s 2017 Global Digital IQ Survey polled 2,216 business and IT leaders from 53 countries and asked them what hinders digital transformation. Some 64% of respondents said lack of collaboration between IT and business is to blame.

Chris Curran, a PwC principal and chief technologist for the U.S. firm’s advisory practice notes that PWC’s 2016 Global Digital IQ Survey found that 68 percent of spending for technology falls outside of the IT budget (it’s actually CMOs and marketing departments) and it’s trending higher in 2017/18. Conversely, in organizations that are succeeding, a growing trend and relationship is developing: CFOs say they are getting closer to the CIO and IT agenda: 61% Report greater collaboration with the CIO, 71% say they have increased their involvement in the IT agenda, 35% report a SIGNIFICANT increase in their involvement with the IT agenda.

So if you’re a CFO or another business stakeholder: How would you connect outcomes to IT? Start with the business outcome in mind and work your way backwards to the tech solution. Is there a straight line? “Too often, businesses have a discussion around technology, when actually the conversation should be about the outcome they’re trying to achieve.” David Whiteing, CIO, Commonwealth Bank of Australia.

A company called Apptio has created an effective and straightforward methodology for keeping IT teams/leaders honest and on track to business outcomes, it’s called Technology Business Management. “TBM is a decision-making discipline for maximizing the business value of IT spending. TBM blends financial transparency with service and product constructs to give technology leaders and their business partners the facts needed to collaborate on business objectives”.

Below are some executing fundamentals for Technology Business Management. These should be part of your IT & Finance synergy toolkit: 

Financial Fundamentals:

1. IT Spend vs. Plan (OpEx & CapEx variance) – Are you spending what you expected to spend? Which areas of spend are over/under plan? Detect and correct anomalies before they become crises. Drive a culture of accountability within your IT organization.
2. Application & Service Total Cost – What does each IT offering really cost to deliver? How is spend distributed across the app & service portfolio? Uncover the “long tail” of application run costs. Align IT spending with business priorities.
3. Infrastructure Unit Costs vs Target / Benchmarks – How efficient are we? How does that compare to similar peer organizations? Compare alternatives to decide on insource/outsource/cloud. Demonstrate efficiency to defend budget to business peers.

Delivery Metrics:

1. % of Projects On-Time, On-Budget, On Spec – Are projects running efficiently and effectively? Improve business governance of projects. Detect & rein in or shut down runaway projects.
2. % of Business-Facing Services Meeting SLAs – Are we delivering the agreed-to service performance & quality? Meet service obligations to the business. Identify & correct quality slippage before it gets out of hand.

*Stephen Elliot, with IDC, estimates that 30—35% of IT projects could be counted as failures. He says, that the technology works fine but it doesn’t deliver the results currently desired by the business… “tech leaders and their business unit peers need to better articulate what projects should accomplish — and what they won’t”. That has shifted the definition of success away from the on-time, on-budget criteria to meeting business objectives.

Innovation & Agility Metrics:

1. % of IT Investment on Run, Grow, Transform the Business – How are we prioritizing our IT budget on KTLO vs growth? Are we investing enough in technology innovation? Shift spend from Run to Grow & Transform investments. Align IT spend with strategic business priorities.
2. % of Project Spend on Customer-Facing Initiatives – Are we investing enough on business-impacting projects? Are we prioritizing the customer experience high enough? Ensure that IT makes a relevant impact on external customers. Detect & curtail internal-facing “science projects”.

Business Value Metrics:

1. IT Spend by Business Unit – How does BU consumption impact IT costs? What is the relative IT cost of each BU’s consumption? Shape demand by showing BUs how consumption drives costs. Identify outliers to uncover over/under spend. (Hint: Remember the marketing departments 🙂
2. Customer Satisfaction Scores for Business-Facing Services – Is IT serving business units well enough? What is the perception of IT among internal customers? Identify & correct problems with perception of IT by the business. Drive a culture of continuous quality improvement in IT.
3. % of IT Investment by Business Initiative – Do IT projects line up with business priorities? Are we investing enough in our strategic initiatives? Align IT spend with business strategy. Identify projects that do not contribute to business objectives.

There many are interesting ways to use these metrics, more detailed ideas about what they’re meant to solve, ultimate value/end results they provide (for those interested in some real life case studies) are available on Apptio’s site, along with a ton of other Technology Business Management resources. Suffice it to say that most organizations aren’t using these types of metrics and many won’t attempt even after given this formula; under the guise that these are for enterprises and not a fit for their size entity or industry or any number of other excuses that are patently false. At least half of these metrics, if not most are good for the lower middle market and even most SMBs if the language applied is tuned to the type technology present in those entities. There are too many examples of organizations up and down the food chain and in every vertical using TBM successfully, just a simple Google search or a perusal through CIO magazine will yield plenty of evidentiary material in the form of case studies.

Now let’s look at some examples of IT for IT’s sake:

✓     Created a web based reporting tool to replace shared spreadsheets

✓     The integration of Windows, Linux, ActiveMQ, EC2, MS SQL, F5 BigIP, Openfire, Redis, Nginx, Tomcat, Splunk, and HipChat was optimized to bring over 200 systems online in less than 15 min.

Both of these sound nice on the surface, but what was the point? The first sounds like some line manager took the IT guy to lunch and asked for a favor. There is no metric assigned to either the implied inconvenience of shared spreadsheets or the supposed gain of productivity by eliminating them. The second one is an IT trophy to show off and brag about with other techies over beer. Again, why does it need to be 15 minutes or less, what’s the driver? With both, what was the opportunity cost incurred by the organization while these IT cowboys were off on their ego boosting projects vs focusing on something that mattered to a business outcome?

Conversely, let’s look at some IT home runs:

✓     Managed and implemented changes that improved service levels from greater than 40% unplanned to less than 2% planned outages.

✓     Implemented converged system architecture that provides improved application delivery to all company customers and reduced operating costs by 40%.

✓    Automation of AWS resources including S3, iELB and a fleet of over 500 EC2 instances in a production environment, cutting AWS costs by 60%.

Employing Technology Business Management or embarking on Digital Transformation means forgoing the relative safety and perceived control that status quo can mistakenly give a IT leaders and their counterparts to whom IT reports to either directly or through a dotted line.

Some practical real-life examples from the trenches for why the promise of TBM is worth pursuing:

1.    Next time the CIO of a prospective strategic acquirer suggests that your on-premise clinical trials data environment would be much more attractive if it were in HIPAA compliant cloud, you can rise to meet the challenge head-on using the TBM methodology as your guardrails

2.    You’re a strategic CFO who knows how to leverage technology. When looking at the financials for an organization to try to understand what a realistic budget might be for a future state of technology roadmap, you realize that the service line that brings in the most revenue isn’t nearly the most profitable. The line of business that is, has the least amount of technology $ appropriated to it and suggest a change of focus.

3.    A fellow executive comments “why are we spending so much on IT consultants?” and you confidently explain that the upcoming PCI re-certification is necessitating that customer data not traverse the corporate network. That this was discovered during an outside assessment by said consultants and the remediation work is well under way. And that otherwise the organization won’t pass the upcoming Trustwave audit and the biggest underwriter for its insurance product will walk. Hint: see the last sentences in Financial Fundamentals items 2 and 3 above.

TBM provides both the IT and Finance organizations power through accountability and a concrete system for attainment of business outcomes. What ensues is an alignment which is a force for strategic growth and digital transformation.

Key takeaway: get on the path to quantifying and eliminating technical debt, conterminously start embarking on digital transformation. Start using TBM to the greatest extent possible to keep IT and business wedded at the hip as you do this.