Debating the value of IT in business

IT Week

: What is your general responsibility within the organisation?

IT: It involves managing change programmes in Europe as well as IT projects. I am more from the business side than skills side, so I have a European IT manager reporting to me as well.

FD: My responsibility is for money, basically. The original idea was for me to find out the optimum strategy for financing in Europe, but the reality is much more daily business than strategy.

What do you think the main value of IT is to the business?

IT: To support change. The company has grown in Europe by acquiring others, and of course these firms have their own infrastructure. So we are using IT to create an integrated pan-European business model, getting rid of duplications and establishing shared services, to bring down our costs.

FD: I would say the value is immense. The company headquarters used to be close to the airport and the IT department was located on the top floor. We discussed what we would do without our IT systems if there was a plane crash. On the first day we would do some filing and then the next day we’d have to send people home because we wouldn’t be able to operate.

How does the company go about measuring the value of IT?

IT: We measure the cost of running our operations – not the IT operations but the business – and how much value we are adding. The change project we are involved with at the moment will reduce overheads from 25 percent of sales to 15 percent, so it is quite measurable.

FD: When measuring value, one of my biggest challenges is to get reliable figures. We don’t currently have all of the details that we would like to have. The reporting system we use is organised by product line, but in Europe I need figures for sales channels and functions. We are working on it but for the time being I cannot even see IT costs across Europe. We have to go country by country and ask for the data.

Do you conduct specific return on investment measurements?

IT: Yes we do. We generally do it on a project basis, so for example our current project addresses sales and administration costs, but below that we have a lot of separate objectives within the supply chain. So we had some concrete goals around stock – stock level and stock turnaround. I think this is one of my central points: you have to recognise that you have a business-change project, and that part of the investment is in IT.

FD: Our difficulty with measurements is in obtaining accurate information. Our reporting system is one problem, another is getting an accurate idea about how much something will cost. It’s easy to find out how many licences we will need and we know how many users we have, but there are a lot of hidden costs – like the costs of the transformation of the organisation. We are not in the comfortable situation where money is just available. I remember times when growth was around 60 percent and there was enough money to make mistakes, but that is not the case now. The consequences of mistakes are much more severe than in the past. Of course we take some risks, but we cannot risk not being able to deliver a major project. Basically what we are looking for is to ensure that costs after the implementation are not higher than before. It is not only an IT issue, it is a political and a management issue.

Do you believe the business receives good value from IT?

IT: I think so. Of course, systems can be expensive but I think we get more or less optimum value out of our IT investment.

FD: It depends. On a total basis, the value is probably not enough.

Do you think IT has an appropriate level of business influence?

IT: Yes. I think companies that put IT too far down the organisation are making a mistake. I think that a lot of people confuse the technical part of IT with using it as an enabler of business transformation.

FD: IT has enough influence – sometimes too much. There is a risk of IT managing the project and not the business.

What is your view of outsourcing?

IT: If something is not key to the business we are open to it. Running systems – the operational part – is not a vital internal skill. But we would not outsource project management, process development or business analysis. You need those skills internally.

FD: I am not a great fan of outsourcing. Sometimes it is used to reduce headcount, not cost. You can have fewer direct costs by cutting jobs but you need more co-ordination, and co-ordination costs are hidden. We would use it for functions like the telephone but not for IT.

What do you think finance thinks of the IT department?

IT: They would say that without IT we cannot achieve our goals, because we cannot obtain good information. We will not be able to see the key performance indicators and will not be able to benchmark.

What does IT think of finance?

FD: I think they wish finance was better able to give them the information they need for their own planning.

  • This article first appeared in sister publication IT Week.

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