© Bay Area Consulting Group LLC IT Performance: ottenere risultati con i dati e non con...

© Bay Area Consulting Group LLC

IT Performance: ottenere risultati con i dati e non con l'intuizione

Harry ChapmanCMC, Principal

Bay Area Consulting Group [email protected]

(415) 971-5746

Intel’s Business Value Index

12


A Common Problem Facing IT

70% of companies consider IT a cost center (source - the Gartner Group)

IT Departments are continually asked to “cut costs” - especially in uncertain economic times

IT Departments are still expected to deliver long-term competitive advantage


What the CFO Tells the CIO

“You always want more money”

“It is technology for technology’s sake”

“I need flawless execution and operation”

“You need to be a key source of business innovation”

“Why do you use your own language?”

“IT is too slow!”


Can You Relate to This?

Help Improve Margins

Flat Growth

Help Reduce Costs

Negative Growth

The “IT Paradox”

Help Enable Growth

Positive Growth

Firm Revenue

IT Budget

Demand for IT Services


Some History

Intel’s IT Staff was challenged in 2001 to measure the bottom-line impact – the business value – of their IT solutions

As a result, the IT department developed the “IT Business Value Program” (ITBV) to include:

“Business Dials” – a standard set of financial measurements

A Standard Measurement Methodology

A Common Valuation Process – Finance acts as an independent auditor

A Business-Value portfolio – Value determined by customer-generated critical success factors

A Set of Ground Rules – Defines the programs operation and accountability

Source: “Measuring the Business Value of Information Technology” by David Sword from the Intel Press


What is “Business Value”?

“Business Value” is the benefit for business units represented in dollar terms that result from IT solutions;

Direct contribution to the corporation’s market position or revenue

Deliverables and results that support solving customer business needs and challenges

Customer cost savings or financial benefits

Examples of technology investment that advance the industry


Results from ITBV Program

Year Program Goal Program Results

2002 $100M $423M

2003 $250M $923M

2004 $400M $1.2B

2005 $1.7B

2006 $1.3B

2007 $1.2B

2008 $1.5B


So How Does ITBV Work?

It is based on:

And can be expressed in “IT Capability Maturity Frameworks”

Managing theIT Budget

Managing theIT Capability

Managing IT for Business Value

Managing IT “Like a Business”

The Budget Drives IT Capability

IT Capability Enables IT Business Value

Feedback Mechanism for Maximizing Value


IT Capability Maturity Framework

Sustainable Economic

Model

Corporate Core Competency

Expanded Funding

Strategic Business Partner

Systematic Cost Reduction

Technology Expert

Predictable Performance

Technology Supplier

Ad Hoc Ad Hoc

Managing theIT Budget

Managing theIT Capability

Mat

uri

tyM

atu

rity

Optimized Value Value Center

Options and Portfolio

Management

Customer Service Focus

ROI and Business Case

Customer Service

Orientation

TCO Technology/ Product Focus

Ad Hoc Ad Hoc

Managing IT for Business Value

Managing IT“Like a Business”

Level 1

Level 2

Level 3

Level 4

Level 5


Defining Value

What is of Value to the End Users? Bottom Line Impact? Top Line Growth? Using IT to Open New Markets?

The Starting Point is a Common Definition

Intel’s are: “Business Dials” – a standard set of financial measurements

A Standard Measurement Methodology

A Common Valuation Process – Finance acts as an independent auditor

A Business-Value portfolio – Value determined by customer-generated critical success factors

A Set of Ground Rules – Defines the programs operation and accountability


Consider the Approach

Based on User Needs (not Technology)

Uses Common Terms

Is an Overall, Repeatable Process

Have Finance act as an auditor to give credence to the financial results


What is “Business Value”?

Business Value is “the contribution IT makes to helping a firm or other organization achieve it’s objectives”

Revenue (Growth)

Costs/Efficiency

Assets (Productivity)

Risks (Continuity)

Increased Shareholder Value = F(Growth, Efficiency, Productivity, Continuity)

Increased Shareholder Value = F(Growth, Efficiency, Productivity, Continuity)


Business Value “Dials”

….are Intel’s Standardized Indicators of Business Value

The Goal is to have the Change Positively Influence the Business Value Dials

Dial

Non-Financial Value Dials• Customer satisfaction• Intellectual property risk reduction• Product development agility• Regulatory compliance

Financial Value Dials• Days of inventory• Headcount productivity• Hardware and software cost avoidance• Capital equipment cost avoidance• Time to market• Direct revenue• Other cost avoidance


Need to Also Consider the Intangibles

Enhanced customer loyalty

New business opportunities

Intellectual property protection

Product development agility

Regulatory compliance


To Summarize

The Value of BVI…. Process based on what is important to IT’s

customers

Common language between IT and its customers

Assess projects on consistent bases

Reports $$$ value delivered by IT

Changes the dynamic & perception that IT is a cost center


Business Value – Corporate-wide

Business Value (corporate-wide impact to Company's business)

Criteria ExplanationWeig

htScore (0 - 3)

Impact to Company Revenue Directly related to protecting or enhancing the revenue generation environment, not the magnitude of the impact (including: direct revenue, time to market, opening new markets, optimizing existing markets, cross-selling)

5

IT Customer Pull/Need (i.e. Company Biz group, or external company)

Extent to which customers are asking for this deliverable and strength/influence of request/demand

4

Impact to Company's Business Risk Impact to Company's business continuity/security/stability/disaster recovery. (Total Risk = Severity of occurrence X Frequency of occurrence).

4

Requirement to comply with Legal or Regulatory obligation

Mandatory investments that are required to comply with an external regulatory obligation. These regulations are government, legal, tax and regulatory practices.

5

Describe how the project's objectives align with Company's SOs (Stated Objectives) and the customer's organizations SOs

Describe how the project's objectives align with Company's SOs (Stated Objectives) and the customer's organizations SOs

3

IT Customers' Performance Improvement Customer user productivity, process efficiency, such as HC productivity (including HC reduction and reduction in turnover), factory optimization and yield improvement

3

Innovation or Enhanced Capability that solves a biz problem or creates competitive advantage

Completely new, innovative solution to solve a business problem that creates competitive advantage or an enhancement/ incremental improvement (including: reduction in days of inventory, reduction in days of receivables, factory uptime)

3


Business Value – Corporate-wide

Business Value (corporate-wide impact to Company's business)

Criteria ExplanationWeig

htScore (0 - 3)

IT Customer Product Unit Cost Reduction

Impact to the cost of products that IT Customers are achieving due to the use of IT solutions, not IT products/services costs (higher profit margin for Company products; including system EOL, materials discounts, hardware/software cost avoidance, scrap reduction, yield improvement, waste reduction, other cost avoidance)

3

How this solution will influence the IT PE (Partnership Excellence) program scores addressing top customer issues

How this solution will influence the IT PE scores from end-users and senior managers, including addressing top customer issues

2

Confidence of Successful Execution Confidence that the solution will be executed with high quality, flawlessly from a planning and implementation standpoint

2

Confidence in timeliness of solution delivery

Confidence in ability to deliver solution in a timeframe that's most beneficial to the customer

2

Confidence that the solution will address the business need

Confidence from a biz standpoint that the benefit would be delivered and the solution will meet the customer's business objective

2

Use of Company Products Extent of which project showcases use of Company products, vs just using them to deliver a solution internally

1

Intangible Benefits (benefits not captured above and not included in Business Value Dials)

Please list the benefits 1

Business Value Index: 40 0


IT Efficiency

IT efficiency (optimal utilization of IT's infrastructure and resource capabilities)

Criteria Explanation WeightScore (0 - 3)

Pull/need from within IT Extent to which internal to IT customers are asking for this deliverable (volume and strength/influence of request/demand)

4

Describe how the project's objectives align with IT SOs and EB Goals

Describe how the project's objectives align with IT SOs and EB Goals

4

Time to Market Increse the speed of IT products and services get deployed to customers (Company-wide) without impacting quality

3

Impact to IT Employee Performance Improvement

Measure of impact to IT employee productivity, I.e. efficiency, faster throughput, higher quality

2

Level of Innovation and Learning for IT

New technology approach/tool for IT internal usage 2

Unit Cost Reduction of IT products/services

Impact to the Unit Cost of Products - please list the products and the type of costs affected

2

Impact on future investments Investments that provide a foundation or are necessary for future technologies, capabilities or have a direct impact on strategic roadmaps

3


IT Efficiency

IT efficiency (optimal utilization of IT's infrastructure and resource capabilities)


Maintain Quality and Reliability of IT products and services delivery

Investments in maintaining required levels of quality of IT infrastructure, service delivery, operational efficiency, capacity, response rates, problem resolution

3

Opportunity of reusing existing components or creating of reusable components

Opportunities to reuse existing standard applicable capabilities and assets or/and opportunities to create new ones for future reuse.

2

Fit with existing architecture and roadmaps

Level of fit with existing architecture and integration required in order to introduce into the environment. Thus, solutions requiring new architecture, will not score high on this criteria, while they may be innovative in nature and the right thing to do. The level of innovation is evaluated in a separate critieron above.

2

IT Employee Satisfaction Impact Level of improvement on IT employee well-being, development, growth.

1

IT Efficiency Value Index 28


Finance

Finance Index


NPV (Net Present Value) Calculate under most likely assumptions. Typically, NPV is calculated over a 3 year period. More optimistic scenarios can be captured under "Option Value."

2

Payback Period Period between initial investment and recovery of the total investment

2

Option Value Potential future value not reflected in NPV. Option value should include any cost associated with bringing the product to market.

1

Internal Rate of Return Internal Rate of Return is the discount rate that makes the PV of costs over time equal to PV of benefits over time, i.e. NPV = 0.

3

Level of Initial Investment Initial spending (in most cases, quarterly) required as a percentage of department's quarterly budget

2

Finance Index: 10 0


Project Cost Business Value

IT Efficiency

Finance

A-Finance $500 1 2 3

B- Mid All $750 2 2 2

C- BV $1,000 3 2 1

D – Hi All $1,250 3 3 3

E – Lo All $1,500 1 1 1

F- Mixed All $1,750 0-3 0-3 0-3

Let’s Try Four Projects


Results

Business Value Chart

Business Value

IT E

ffic

ien

cy

Project A - FinanceProject B - Middle for AllProject C - Business ValueProject D - Hi for AllProject E - Low AllProject F - Mixed All00000000000000

Financial Index is represented by bubble width in chart

? +0

?

0

+

This chart shows how the BVI values of the scored projects map to the Business Value Matrix

Business Value Matrix

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