be aware of the IT value chain

Exploring the IT Value Chain

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Enterprise Service Management - Not Just About ITSM Processes

Technically-oriented people often find it difficult to ‘sell’ their initiatives to decision-makers, resulting in missed opportunities, frustration and a poor image for the IT department. The IT Value Chain is a way of articulating an IT initiative’s outcomes in terms that make sense to business people, e.g. more business, better business, cheaper business. Being aware of how an IT solution impacts the bottom line is beneficial to both the design of the solution and to how to ‘sell’ it to the business.

IT Value chain

Business goals

In the example above, based on a generic commercial enterprise, the bottom line performance is expressed in terms of profit, which is of course the difference between revenue and costs. Costs (the red lines) are either related to IT or the business. Revenue (the blue lines) comes from selling more products and/or services, and/or selling better products at a higher margin. Business goals are expressed simplistically as more, better and/or cheaper business. These goals apply to many commercial enterprises but can be adjusted to accommodate other relevant aspects, for instance capital investment. Public organizations are usually driven by different goals; for instance the criminal justice system in England and Wales aims to “reduce crime by bringing more offences to justice, and to raise public confidence that the system is fair and will deliver for the law-abiding citizen”. So the right hand side of the IT Value Chain should be constructed accordingly. Identifying the enterprise’s goals is an important part of the IT Value Chain process because it focuses the attention on the right aspects.

Business benefits

The left-hand side of the example shows how the outcomes of an IT initiative can be split up into two parts: business benefits and IT benefits. Business benefits have been broken down into better functionality, quicker time to market, and fewer and shorter outages. Better functionality can have service multiple business goals. Better functionality can simply mean that business processes can be executed more efficiently, by automating manual work and reducing labour costs. But better functionality can also contribute to better customer service by providing employees and/or customers with information that enhances the customer experience, for instance by giving insight into current waiting times at a hospital department. And better functionality can also contribute to achieving more business by giving access to new markets through different channels. A quicker time to market means that the IT solution is delivered promptly, enabling the other benefits to be achieved earlier, and for instance beating a competitor to a new market. Fewer and shorter outages contribute to business efficiency but also to a better customer experience, and in turn to better business. Just as the business goals can differ from enterprise to enterprise, these benefits can also differ.

IT benefits

In addition to the business benefits, there are benefits for the IT organization, that translate into lower costs and/or an improve capability to deliver the business benefits. The IT benefits in the example are a more flexible, more productive, and cheaper IT organization. Investment in Agile could make an IT organization more flexible. Investment in tooling lead to better productivity. And application rationalization could reduce IT costs. But just as the business goals and benefits can differ from enterprise to enterprise, these benefits can also differ.

References

The underlying structure of the IT Value Chain has been inspired by the DuPont Analysis and Capgemini’s Benefits LogicTM.

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Mark Smalley, also known as The IT Paradigmologist, thinks, writes and speaks extensively about IT 'paradigms' – in other words our changing perspectives on IT. His current interests are the digital enterprise, IT operating models, value of IT, business-IT relationships, co-creation of value, multidisciplinary collaboration, working with complexity, and as the overarching theme, management of information systems in general. Mark is an IT Management Consultant at Smalley.IT and Ambassador at the ASL BiSL Foundation. Mark has spoken at 100+ events in 20+ countries.