Creating Business Value

 

Business Value

I was asked a question about how do we ‘create business value through IT’  and I thought I’d take this opportunity to answer that question.

I think that this is a very simple question to answer, and it often get over complicated.  However, whilst the question might be easy to answer, implementing the answers is what is difficult.

We can create business value in 3 ways:

1) build systems which help drive top line growth – increasing revenue

2) build systems reducing business operation costs to increase bottom line growth – increasing profits

3) reducing IT operational costs to also drive bottom line growth – increasing profit

Everything we do, we should check to see if it achieves one of three things and if it doesn’t then we should question whether we should do it or not.

Too often in IT we deliver systems or perform tasks which improve none of these things, we are focusing on technology for technology sake, or we do not understand the business needs well enough to build the right systems.

Looking at these three ways of generating business value, reducing IT costs should be our lowest priority as IT is often only between 1-4% of the business costs, so at best if we even reduce IT costs to zero then we can save a maximum of 1-4%.

Leaving 96% of the costs untouched, what a wasted opportunity!

In my experience, IT does such a poor job in generating benefit through 1 & 2 that business tend to focus on reducing IT costs, because IT is just seen as an overhead and therefore needs to be delivered as cheaply as possible, rather than seen as a value generator which should be invested in.

The more benefits IT can generate through increased revenue or increased profits, the higher it will be regarded and the higher the investment in IT will be.

If IT continually fails to deliver those benefits, then the IT costs will continue to be questioned, and investments will be kept to a minimum.

Now whilst this approach sounds clear and simple, the difficulty IT faces is in finding ways to generate value in those first two areas.

But at least if we understand the question, and focus on it, we will have a better chance of answering it.

Technology for technology sake isn’t the answer!

Gordon Tredgold

Leadership Principles

 

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