From cost center to spearhead

Transcription

1 NNIT EXPECTATION BAROMETER 2015 From cost center to spearhead the value of IT

2 NNIT EXPECTATION BAROMETER Contents From cost center to spearhead Digitization and business sense Think, measure, and communicate in the language of business Conclusion and recommendations Contact

3 4 NNIT EXPECTATION BAROMETER From cost center to spearhead the value of IT The role of IT is changing affected by developments that include the cloud, big data, and mobility. New requirements are being imposed on the IT department, and in addition to managing the traditional operational tasks, it must also act as a business partner. We have described the subsequent significant changes to the role of IT in the report The changing IT role in In this year s NNIT Expectation Barometer, we focus even more on this development, specifically on how the IT department measures and communicates the business value of the IT services that it delivers to the organization on a daily basis. We do this because we assess that it is the springboard for the IT department s further development. Business development and financial transparency are a new territory for an IT department, which historically has been considered a cost center and service provider. But in 2015, it is necessary to be able to demonstrate the business value of IT. I note that 85% of the respondents report that in 2015 they expect their enterprise will require increased involvement from the IT department in the strategic and digital business development. This requirement for increased involvement immediately presents a potential transformation of IT, from being a service provider and cost center to being a spearhead. But getting there won t be a joy ride. Among other things, it requires that you can demonstrate the business value of IT. But how can this be specifically documented? About NNIT Expectation Barometer Every year, NNIT takes the temperature of an IT-related subject. We have looked at mobility and information management in previous years. Most recently, we looked at how IT s opportunity to create value is changing as a result of the effect of the cloud, big data, mobility, and other factors. A total of 62 people participated in the analysis, all of them CIOs or individuals with another organizational relationship with the IT department.

4 NNIT EXPECTATION BAROMETER 5 Traditional IT metrics continue to be valuable for the IT department. But they have to be translated into business value. Enterprises are not preoccupied with server performance or the frequency of incidents. On the other hand, they are preoccupied with how digitization affects the way they conduct their business. The task consists in building a common framework of reference. If you do not measure and communicate in a way that makes sense to the business, it is difficult to argue that IT is something else and more than a cost center. Therefore, it is slightly unsettling that a large share of the respondents in this study do not prioritize this. There is a continued need for a solid foundation, in the form of, among other things, an infrastructure that delivers stable operation. And, if all of the basic fundamentals are under control, if the servers operate, if the data quality is faultless, and if you can demonstrate a transparent IT budget, that means there is a green light for maximum involvement in the business. But if the website is down and the customers cannot purchase anything, or if the production line has stopped because of a frequent application error, and if your IT budget is a tangled gray mass, you stand to waste the opportunity that is being presented in the strategic business forums. So what do you want to be? A cost center or a spearhead? Best regards Karsten Fogh Ho-Lanng Chief Technology Officer NNIT

5 6 NNIT EXPECTATION BAROMETER Digitization and business sense The IT department drives the central business foundation using servers, networks, and applications, but it is also to an increasing degree helping to develop the business. There can be several approaches to becoming more involved in the business, for example: Make an agile development platform available Optimize and digitize processes Ensure active involvement in strategy development and product development Some IT managers get involved proactively in the business, while others have a more reactive approach, and for many, just keeping the daily operations running with the resources they have available is more than enough work. In NNIT Expectation Barometer 2014, we saw that focus on daily operations represented a specific barrier in relation to developing the infrastructure. But the IT department is aware that there are new challenges on the way: 85% of the respondents expect that in 2015, the enterprise will require that the IT department becomes more involved in the digital business development. See Figure 1. FIGURE 1 To what extent would you say your company will require increased IT department involvement in strategic and digital business development in 2015? With 1 indicating a very low degree, 6 indicating a very high degree. %

6 NNIT EXPECTATION BAROMETER 7 Figure 1 clearly shows that IT managers are experiencing an increasing expectation for IT taking on an active role in the enterprise s business development. The underlying premise is that the enterprise sees IT as a significant resource for creating more value. If we look at the requirements that an IT department must meet, it is especially digitization that scores highly, followed by increased business understanding, and equally interesting, customer satisfaction and loyalty also score highly. See Figure 2. FIGURE 2 To what extent will the IT department face the following business requirements? With 1 indicating a very low degree, 6 indicating a very high degree. Contributing to increased digitization of the company Increased business savvy Contributing to greater customer satisfaction and loyalty Contributing to lower production costs Delivering multiple IT services for the same or lower cost Other Contributing to shorter time-to-market Contributing to increased sales Contributing to product development Contributing to lower sales costs

7 8 NNIT EXPECTATION BAROMETER Increased digitization is an area where the IT departments really can lead from the front. They know the relevant business processes in detail, and can both take the initiative for development, and responsibility for the validation and implementation of the digitizing technologies. There are opportunities and perhaps challenges with the existing cooperation model between the business and IT. At any rate, there is a high priority given to optimizing the cooperation, cf. figure 3. Many existing cooperation models are challenged in relation to managing the requirement for agility and speed in customer-orientated units and in relation to newer solution areas, such as mobility and the cloud. There is also the discussion of introducing a bimodal or a two-speed IT model, so that the IT department can both manage the business s requirements for agility, and manage the IT projects that require compliance in relation to more time-demanding governance procedures. FIGURE 3 To what extent will you prioritize the following areas in 2015 to push the IT department farther forward on the business side? Share of areas prioritized as first or second priority. Optimizing the collaboration model between business and IT Increasing focus on digital innovation Increasing business focus among IT staff Reducing infrastructure complexity Freeing resources from operations % The next priorities relate to a more general upgrade of employee competencies linked to digital innovation and business focus. It sounds simple and correct, but it will become necessary to have a stringent plan for how it will be carried out in practice when there is also the daily work with a focus on operations and, above all, a number of IT employees who will have to change their focus. If the goal is to move IT further forward in the business, some of the means to do this, is to release resources from operations by outsourcing, so that the daily operations take up less resources and the employees have the opportunity to focus more on the business.

8 NNIT EXPECTATION BAROMETER 9 Operations do continue to take up a lot of resources, which Figure 4 shows, where questions focused respectively on the current, expected (in 2015) and ideal distribution of resources on categories of IT tasks. The focus on operations is difficult to let go, but there is also a significant trend towards an ideal where there is focus on more resources for business development, which has increased from the current 21%, to the ideal 30%. FIGURE 4 Present, expected and ideal allocation of ressources Present Expected Ideal Infrastructure 21 % 22 % 14 % Applications 27 % 21 % 21 % Integrations 16 % 16 % 17 % Business development 21 % 23 % 30 % Other 16 % 17 % 18 % Total 100 % 100 % 100 % In the ideal scenario, the respondents would like to use fewer resources on infrastructure (from 21% to 14%), but do not expect to make reductions in In the application area, there is a reduction of six percentage points from the current to the expected. This can be done by using standard solutions, cloud (SaaS) options, etc. Business development is also an area that the respondents want to use more resources on. Here IT gets really close to the business and will have to know the business goals and identify how IT can support these goals as effectively as possible.

9 10 NNIT EXPECTATION BAROMETER Think, measure, and communicate in the language of business When the business clearly wants the IT department to become more involved in the digital and strategic business development, it is because it is convinced that IT adds value at different levels. Consequently, the IT department should, to an increasing degree, become better at quantifying and qualifying the business value, which the IT solutions provide. When IT is such an integrated part of the business, it is essential that IT is aligned with the business goals. Next, the business value that it creates must be known and documentable. There are three requirements: Measurements are made and thus data is procured. The correct things are measured. The value of IT is communicated to others. If we look at the traditional IT metrics that the respondents utilize, there is a tendency for the IT departments to remain trapped in the role of cost centers, cf. Figure 5. Almost 70% report that they measure IT costs in relation to the total costs. This implicitly means that the IT departments measure themselves by keeping costs down, as the predominant method is to have a maximum target for the total IT costs. Consequently, this may lead to the situation where sensible and value-creating IT investments required by the business are not being made. The business may decide unilaterally to carry out the IT investment, and thus there is a greater risk that the IT governance model is circumvented. This development was confirmed in the report, NNIT Expectation Barometer 2014 The changing IT role. FIGURE 5 Which of the following classic IT metrics are used in your company? The respondent can indicate multiple responses. We measure IT costs in relation to total costs Service desk KPI Measuring employee satisfaction with IT Department performance Uptime We benchmark with respect to the industry index We measure IT costs in relation to turnover We measure IT costs per employee We don't deploy IT metrics %

10 NNIT EXPECTATION BAROMETER 11 The use of metrics to assess IT s performance varies. All the way from not measuring and thus not distributing costs, to a very detailed level of the individual employee s drain on servers, storage, and applications. The more a company sees IT as a resource for developing the business, the more it has to move away from a cost-based accounting model to a value-based model. This has an influence on the goals that you want to keep and on how you communicate this further in the organization. Therefore, it is about finding an accounting IT model with the correct balance, so that it reflects the company s strategic intentions with IT. Parameters that cover how the IT portfolio can be optimized and how the IT expense can be reduced must also be measured. FIGURE 6 How do you communicate the value of your IT to the rest of the organization? The respondent can indicate multiple responses. Management reporting Intranet Newsletters Dashboards We do not communicate the IT value We make the IT value visible through cost allocation Other % Management reporting and the intranet are traditional channels, but perhaps not the most involving of methods to communicate IT s impact on the business. It is also interesting that 20% state that they do not communicate the value of IT to the rest of the organization. This may be because they do not know what to communicate or assess that what they measure is of no interest to the rest of the organization. Keeping the figures and the value close to one s chest certainly is not transparent and it works against the development of IT becoming a strategic business partner. Only 16% prioritize communication highly or very highly. Quite simply this does not correspond with the importance of IT in the organization, and it is an obvious focus area in 2015.

11 12 NNIT EXPECTATION BAROMETER FIGURE 7 To which extent do you convert and explain your IT metrics so they can be related to the following business goals? With 1 indicating a very low degree, 6 indicating a very high degree. Employee efficiency Increased digitization of the company Greater customer satisfaction and loyalty Product Development Shorter time-to-market Increased sales Lower sales costs When it comes to relating IT metrics to different business goals, the focus is on employee efficiency and the digitization of the company, cf. Figure 7. It appears that it is more difficult to relate traditional IT metrics in relation to for example, sales or product development, which often will be more central parts of the business goals. But if the IT department wants to move further forward and participate in the development of the business, it is essential to be able to relate the value that IT delivers to specific business goals. It is equally important to make the business s goals the goals of the IT department and not least, measure how IT contributes. Here, for example, one could map how increased agility can support time-to-market or product development, and it would be advantageous to determine if any processes can be automated. When the cost of IT becomes clearer to the business, as well as why and how IT investments contribute to growth and revenue, it provides a very strong decision basis for the strategic technological investments that will stimulate growth and support competitiveness. At the same time, as it becomes clear how an investment in IT will affect the business s potential for achieving its goals, IT will have a much stronger mandate in respect to budget negotiations. Creating transparency in the IT budget is a necessary and responsible approach to the IT department s role as a business partner and spearhead. As it applies to business, IT must also place its resources where they produce the biggest returns. Should this mean that the best returns are by purchasing more server capacity, or by implementing a Business Intelligence solution or by channeling more money into building more IT into the existing products?

12 NNIT EXPECTATION BAROMETER 13 FIGURE 8 What aspect of IT provides the most direct business value? The figure shows the share of top priority. Business development Application layer Integrations Infrastructure Other % It is not surprising to see the predominant perception that a dollar invested in the development of the business produces much higher returns as compared to a dollar invested in the infrastructure, cf. Figure 8. It is this value at which the IT department must aim. It is a complex calculation, but if you succeed in creating transparency in the IT budget and show what IT costs, the IT manager is a stronger participant at the budget negotiations and can subsequently channel resources there where they produce the most value.

13 14 NNIT EXPECTATION BAROMETER Conclusion The digital transformation that has characterized organizations in recent years is causing the IT department to be more than just a cost center and service provider. IT is also a central business partner, which ultimately has the same goals as the business. Therefore, the IT department naturally must measure its IT deliverables in relation to the joint goals, e.g. product development, time-to-market, or customer satisfaction. There is a clear-cut profit: When it becomes clear where and how IT contributes most to the business s value, a more qualified basis for future IT investments is achieved. You will also have established a transparent IT economy which makes it possible for the IT department to challenge the perception that it is a cost center. Perhaps it may even be stated that because of digitization, it is easier to identify how and to what degree IT influences the top line and the bottom line. However, it requires that IT metrics are translated into business terms and, not least, that you choose to actively communicate the value. It is not enough just to focus on daily operations. The business requires and needs the IT department to be involved. Therefore, the IT manager must be fully aware of where the business wants to go and IT can support the process. IT has the potential to become the spearhead in the business but work has to be done first. Recommendations Make the business s goals your goals, and communicate The IT department must move closer to the organization, with people who have commercial insight and who can build bridges between technology and business. The better you know the business s goals, the better prerequisites you have for creating an IT foundation that works. What does your organization make money on? How do you create the business value, and how do you communicate IT s value to the rest of the organization? Create financial transparency Make your IT economy transparent, and create a detailed overview. Does the IT budget s allocations reflect IT s value creation? What SLA is the individual server operating with, what value has it for the business, and who is paying for it? Do we have the correct calculation model that reflects IT s business value? Make it easy to understand and ensure that it can be documented this creates credibility. Be the spearhead The IT department must be an active business developer and lead from the front when it comes to digital investments and projects. Consider which new competencies your employees require. Also look at which processes you can automate, and let the outsourcing suppliers solve the more basic operational tasks. The IT department must set up development environments and deliver the necessary inspiration that can develop the business.

14 NNIT EXPECTATION BAROMETER 15 Contact If you want to learn more about how NNIT can help you optimize your IT department s business value or need something in this report clarified in more detail, please contact Business Development Director, Brian Troelsen, on or btrl@nnit.com.

15 NNIT NNIT is an international IT service provider offering IT consulting and the development, implementation and operation of IT solutions. We create value for our private and public sector customers by treating their IT as if it were our own. We use IT to support our customers daily operations and help them to achieve their business goals. Owned by Novo Nordisk, NNIT employs more than 2,300 people. In 2013, our turnover was DKK 2.2 billion. NNIT A/S Østmarken 3A DK-2860 Søborg Tel: NNIT Switzerland Bändliweg 20 CH-8048 Zurich Tel: NNIT Germany Eschenheimer Anlage 1 DE Frankfurt am Main Tel: NNIT Czech Republic Explora Jupiter Bucharova 2641/14 3.NP CZ Prague 5 NNIT China 358 Nanjing Rd. CN-Tianjin Tel: +86 (22) NNIT Philippines 24/F 88 Corporate Center 141 Valero St. PH-Makati City 1227 Tel: NNIT USA 650 College Road East, Princeton, New Jersey Tel: +1 (609)