A Strategic Measure of IT Value

By Regina Kwon  |  Posted 2009-02-03

Determining the value of an IT investment is no longer a matter of equating three accountants with one DEC minicomputer—not surprising, given that technology today focuses on enhancing processes rather than replacing them. In the search for new ways to measure IT value, executives are increasingly looking to traditional management theory.

PDF DownloadThe need to assess intangibles like marketability, agility and morale is not peculiar to IT—after all, corporations have long used a variety of tools to gauge success. One of the most popular is the Balanced Scorecard, a concept developed in the early 1990s that associates high-level strategy with specific metrics. Setting up a scorecard at a large company can cost hundreds of thousands of dollars in consulting fees, but that hasn't hampered its adoption: More than 40% of the Fortune 500 have built one, according to the Balanced Scorecard Collaborative (www.bscol.org), which oversees the concept's development. Using this approach within IT is relatively new, says Robert Gold, a principal of the Collaborative, but necessary if IT organizations wish to focus on strategy as well as operational efficiency.

In the scorecard scenario, a company organizes its goals into what the Collaborative calls perspectives: Financial, Customer, Internal Process and Learning/Growth. The company then determines cause-effect relationships—e.g., satisfied customers buy more goods, which increases revenue. Next, the company lists measures for each goal, pinpoints targets and identifies projects to help reach those targets.

Departments create scorecards tied to the company's targets, and employees and projects have cards tied to their department's targets. This cascading nature "provides a line of sight between each individual, what they're working on, the unit they support, and how that impacts the strategy of the whole enterprise," says Michael Radcliff, CTO of Ingersoll-Rand, which recently worked with Gold to set up an IT scorecard. "It's a terrific way to link initiatives to strategic objectives and get your people lined up with those initiatives."