Measuring Financial ValueBy Faisal Hoque | Posted 2008-05-28 Email Print
It takes a new way of thinking about IT and a separation of business from buzzwords to determine the real value of utility computing in your enterprise.
Measuring Financial Value
These capabilities—and 15 others—are taken from the Business Technology Management Framework, a management standard promulgated by the Business Technology Management Institute. The institute also has a maturity model designed to assess the progress of organizations in adopting these capabilities. The model specifies five levels of maturity, which can be determined using an assessment tool.
To determine the first measurement of your enterprise’s readiness to move to the cloud, you must assess your management’s readiness in areas such as strategy and planning, technology investments and managing partnerships. Cloud computing is not an incremental variant of classic outsourcing. It is more fundamental, and your organization must be ready for it. If it’s not—if it blindly pursues the cloud without the clarity of an SEA and with the organization arrayed as it has always been—then you can expect less than pleasing results.
Your company could move all or some of its computing to a cloud and simply compare the costs of cloud versus in-house computing, but that would be missing the larger potential. You might just be trading one source of computing for another in support of redundant or inefficient business processes. If your enterprise takes the time to create an SEA that includes both current and desired state scenarios, it can optimize the entire business, not just the technology.
Strategic enterprise architecture, along with maturity in these other capabilities, can help you answer questions such as the following:
- What information do we need that we aren’t getting? How can we get it?
- What information could we have with the resources of a cloud or grid? Would this give us the basis for a new strategic thrust?
- How would we benefit from more sharing of information internally and externally? Would a cloud enable this?
- Is anyone managing each process end to end? How does a process interact or interfere with others? What effect does each process have on customers?
- Do currently available clouds have the technical sophistication we need?
- Above all, what can—and should—we do differently by using a cloud?
At some point, your enterprise will need to answer the pivotal question: Is the company as a whole better off?
To answer that, you first need to ask some basic questions: Are we finding and retaining good customers? Is cloud computing delivering new, innovative products to them? Is it adjusting on the fly to changes in customer demand, marketplace realities, new technologies and competitor moves? Beyond that, what are changes in management and technology doing for our bottom line?
BTM Institute research has shown a direct correlation between maturity in business technology management capabilities and the financial performance of an enterprise as a whole. Enterprises with a more closely converged business and technology management exhibit superior revenue growth and net margins relative to their industry groups. Their returns on equity, assets and investments are higher.
Taking the holistic measure of an enterprise’s performance is a straightforward process. This measurement can be combined with interim assessments on the current efficiency of individual business processes and in a projected best state, and the costs of internal versus external computing. In no case should these measures be made in isolation from their impact on customers and the firm’s overall purpose and strategy.
Now is the time to wrestle with these issues. Purveyors of cloud computing—from traditional big-picture providers like IBM to relative newcomers like Salesforce.com—are ramping up their capabilities, looking for benefits in joint ventures and trying to understand the value proposition for future customers. Traditional suppliers of pay-per-seat, one-niche software applications are also trying to figure out where they fit in.
Some “big thinkers” are prophesying the end of information technology departments as we know them. It is more likely, however, that IT organizations will continue in a new, more strategic role. The CIO will become truly the chief information officer, as opposed to the chief information technology officer, signifying a shift in focus from the technology to its ultimate purpose of serving and supporting the business.
So poke your head into the cloud and have a look around. Enjoy the promise of the technology. But keep your mind firmly focused on the business.
FAISAL HOQUE is chairman and CEO of BTM Corp. BTM innovates new business models and enhances financial performance by converging business and technology with its unique products and intellectual property. © Faisal Hoque