The Business Value of Information Technology

The purpose of Information Technology (IT) is to provide business value to a company. Right? Of course, but for many enterprises the value is uncertain. Many companies spend thousands of dollars a year per employee on IT and IT-related projects-often 3 to 5 percent of revenue (according to a Gartner Research report). These expenditures can total into the many millions of dollars for larger firms, but how do these investments effect the bottom line? Many companies simply consider IT expenditures a necessary cost of doing business - without considering what business value those expenses provide.

IT should provide business value by allowing a company to conduct its business faster, cheaper and/or more reliably. According to Gartner, organizations that have successfully gained business value from IT investments have: 1) Documented metrics for success 2) Clear objectives and 3) an IT partner (whether in-house or outsourced) who can translate business needs into a technical reality.

Determine What Your IT Investment Should Accomplish

In order to determine the business value of an IT project, metrics must be determined to gauge the performance the company desires to improve. The metrics must be specific, quantifiable and determined prior to the implementation of a new IT solution. Without specific metrics and without recording performance prior to a solution implementation, the value of an IT solution becomes difficult (if not impossible) to assess. However, once any new initiative is implemented, the value becomes embedded in the process, and unless pre- and post-implementation metrics are clearly defined, it becomes impossible to measure and report the value of a new application. What remains apparent are only the ongoing support costs.

Define the Business Objective of your IT Investment

Also, your business objectives must be clear. Simply investing in IT solutions, whether a T1 or a piece of software, does not necessarily lead to a competitive advantage. IT expenditures must provide a definite business value. For example, your company could purchase a sophisticated CRM (customer Relationship Manager) package and buy all the necessary hardware to implement it. But where is the business case? What if the current system was already sufficient, or what if the new system caused a disruption that resulted in decreased efficiencies? You need to be clear on your goals and be ready to provide the measurements to support your case - and your success!- before you begin.

Make Sure Your IT Provider Works With You

The last key area is to have an IT resource in place that can provide an approach that complements your business goals. Working in the small to mid-sized enterprise market, Leapfrog strives to provide an IT infrastructure that is managed cost-effectively, with high performance and reliability, which in turn delivers enhanced productivity to our clients' employees. It is critical that our clients' systems and staff operate at peak performance.

According to the 2003 Worldwide IT Benchmark Report by META Group, a leading IT research and consulting firm, technology spending (as a percent of gross revenue) remained flat in 2002 and the number one priority in the U.S. was reducing costs. In this economic climate, businesses must be careful not to handcuff IT, but rather actively pursue the bottom-line value of their IT investments. Justifying IT investments is moving from art to science as executives look for business cases they can understand and embrace.

This article originally appeared in the January, 2003 issue of FrogTalk.