You must learn how to quantify the benefits of having any business unit around, including marketing, sales, operations, and so on. It’s just good business to attribute value to those components of a business; IT is no different.
Indeed, in my new role as CEO, I’m finding that investors desire proof of value, and they won’t just take my word for it. This is not a trend, but these demands on owners, investors, and leaders are here to stay. You might as well accept it and learn how to determine the ROI for everything that requires resources.
To your point, in some cases it’s easier than others to determine the value of IT -- or any other component to your business, for that matter. However, clearly, you can do it; it’s been proven time and time again. The question is not if you can do it, but should you do it. I’m pretty sure those who invest in companies, many of whom are providing IT with 25 percent of the company’s resources, will want to know how their money is being spent. I’m no different.
GR: As for whether we “get” ROI, I think a century of growth and profitability is a track record that few critics could match.
Even a board of directors has an ultimate boss -- the investor and shareholder. As long as the investment community continues to migrate their attention from one trendy ROI metric to another, the corporate world will follow suit. The CTO or IT exec is generally given a set of performance targets that mandate which metrics will be valued this year. Rarely does this set remain constant from year to year.
So, as an IT executive, you have to manage the ROI hot-button metric as simply one of the many deliverable end products by which IT adds value to the company. However, don’t confuse satisfying the board and the investors with measuring the effectiveness of your IT organization.
In the most simplistic business scenario, IT costs and benefits may be clearly calculable, but nearly all real-world situations beyond the level of a lemonade stand are hazy because of the soft -- difficult to quantify -- cost/benefit variables that are unique to that business.
Every IT project has unique goals and targets that require unique KPIs (key performance indicators). Project-specific, time-phased IT KPI metrics flowed down from individual project goals and targets can effectively measure the success of a single project. The aggregation of these disparate KPIs reflects the success of the entire IT organization, but it is a complex data set, and as a decision aid it is subject to broad interpretation.
Metrics are a good thing as long as they are interpreted as indicators, not precise measures, of performance. Allowing those metrics to drive executive decisions amounts to management by algorithm. Fuzzy numbers massaged by fuzzy logic lead to consistently bad decisions.