Q&A: Improving IT’s ROI

IT is often seen as a cost center, not a benefits center. A new survey sheds light on how IT’s ROI is viewed and what IT can do to improve its return on investment.

Enterprises are being pushed to improve the return on investment in IT as never before. It’s not just a matter of doing more with less -- it’s a matter of getting the most from your IT dollar. In its new report, Software Success 2010, Neochange, Datango, Knoa Software, and iRise set out to discover what is driving -- and how IT can maximize -- software adoption and value.

The survey of 204 individuals in the last quarter of 2010 represents a cross-section of company sizes, industries, and staff roles. We spoke to Chris Dowse, CEO of Neochange, to get his perspective on the survey’s results.

Enterprise Strategies: Your survey found an 50 percent average effective usage rates for IT investments in terms of performance. Is that a high or low figure, and is it what you expected to find?

Chris Dowse: We know from past studies that effective usage is the best proxy we have for measuring value realized, so 50 percent is not a good number. Relative to prior years, effective usage rate is rising. Even though the 50 percent mark is important as it is a tipping point of sorts, I don’t think anyone would claim that getting half the value they could from their software investments is good enough.

Expected? Yes. When you get down to any one individual application (ERP/CRM/BI), it is rare to see adoption and value realized greater than 50 percent.

The survey results also indicate organizations taught themselves how to do more with less during the most recent recession. What are the leading ways IT is getting more value from its resources?

The recession has given companies some time to focus on what they have, to make their IT assets sweat. The research outlines specific tactics to do this, so I will not repeat those verbatim, but the thing that is most important overall is an understanding that a focus on the human element is the key to getting a better result. Whether that be improving communications across the IT-business divide, focusing on the adoption behaviors of the end user to improve an application/process, refreshing end-user education, and/or the IT organization taking a leadership role in measuring the value of usage. Basically a rebalancing of money and focus from technology to people.

I was surprised when I read that more than half of all respondents experienced a breakdown in requirements communication in a quarter or more of their IT projects. That’s a lot of miscommunication.

I think enterprises are looking for that special best-practice that will help them cut this to zero.

We outlined two best practices in the report, both to do with visualization of usage as a way to avoid communication breakdowns.

The first is actually analyzing end-user usage patterns of 100 percent of end users to determine what productivity needs should be addressed -- versus the usual practice of only speaking to a few “experts” and then coming up short on expectations. This 100 percent transparency practice ensures a common understanding of what changes are really needed and -- more important -- which application/process changes will be most valuable.

The second is creating applications mockups during the early stages of development, rather than relying solely on verbiage in requirement documents, specifically like the iRise solution, that allows training and change management to occur before development is finished.

The report asked respondents about their IT investment focus for the next 24 months and found that 11 percent answered “Aggressive: satisfying pent-up demand or business growth strategies.” These are the same organizations that “are currently experiencing significant success with their end-user strategies and experiencing a trend of improving IT ROI from their application portfolio.” What’s the connection? Why does an aggressive approach lead to improved ROI?

I think it is actually the other way around. Companies that have been working their portfolio and achieving and improving ROI are more likely to be given the opportunity to invest into “pent-up” demand. It may also be true that organizations that aggressively invest in growth-related IT achieve better ROI because their investments are focused on revenue expansion versus cost optimization.

Your survey reveals that 90 percent of organizations are currently unable to measure the levels of value delivered through their application portfolio. Why? Do they not have the right tools? Do they lack the time or staff resources to do this?

All of the above -- and more. Going into the recession IT investment levels had been flat as a percentage of GDP since just after Y2K. Even though IT-driven productivity fell over that same time period, there wasn’t much pressure to demonstrate the value of software investments after the initial business case. This meant that IT organizations had to be very progressive to build the tools, skills, and bandwidth to own the “value dialogue.” On average, they didn’t need to evidence real capital return like a new business venture. Business managers accepted that IT investment was necessary.

Things will be different. The pressure to produce results from the recession will likely remain. Also, over the past two years we have seen an explosion of application monitoring capabilities that are throwing off useful data around adoption behavior within the enterprise. These two trends will reinforce each other until most organizations have a “feedback loop” on the impact of their development and usage efforts.

According to your report, end-user performance strategies have struggled during the recession with most companies investing less than 5 percent of their application budgets on end users. How are they spending that money, and is it the best use of that 5 percent? Assuming 5 percent is too low, in your opinion, what SHOULD the percent be? What ROI does a higher percentage provide, and how can IT sell that division of funds to management?

Answer: Good question. Before we talk about an actual percentage we should acknowledge that whatever is being spent today is not being spent very wisely. “Drink from the gushing water-hose” training at the beginning of a project is problematic and end-user support on the back-end touches less than 1 percent of end-user-generated transactions. End-user services need to touch 100 percent of users for 100 percent of transactions to make a difference in productivity. There is no reason not to do this today with the advancements in end-user performance capabilities.

Back to an actual percentage. I think we should be pragmatic, if half of companies spend less than 5 percent we should be looking to move everyone closer to 10 percent, but this shouldn’t happen without a sound economic justification. Luckily, there is a really straightforward business case to sell this advancement around end-user productivity erosion. Once you get some transparency into usage, it is not unusual to find a significant productivity loss from laggard users, overly complex technology, and misaligned support/training efforts. The ROI for moving to 100 percent end-user performance support informed by actual adoption behaviors is very compelling.

Your survey categorized IT’s role with business as order taker, partner, or leader. What distinguishes IT in each of these roles? In other words, what makes IT a leader? Your survey concludes that “IT organizations that take a leadership role in this discipline [value assurance] experience effective usage rates approximately 150 percent higher than their “order taker” counterparts.” Why do you think that is?

When you consider all the factors that influence IT value (IT availability, application development, IT-business alignment, end-user capability, business management information practices), all can be heavily driven, influenced, and enabled by IT. If your IT organization is inherently reactive (aka order-taker), then it makes sense that it will not address a value shortfall unless “the business” makes a request to fix a specific area.

On the other hand, if your IT organization makes value assurance their responsibility (aka leader), they will proactively reach out to business managers and suggest areas where IT adoption is deficient and end-user productivity can be enhanced -- so the 150 percent effective usage delta comes from IT being proactive about driving end-user adoption. The IT organization is using their unique position at the intersection of all applications to make sure end-user productivity and performance is optimal.