Proving the Business Value of IT

Value is in the eye of the consumer — that is, of the business stakeholder — not of the provider, or IT department. CIOs who successfully communicate the business value of information technology will maintain 60% higher funding levels than their peers who don’t.

Communicating well is easier said than done. CIOs tend to communicate value in terms of technological performance or operations, not in terms of business returns . To more effectively communicate the business value of IT, CIOs must translate technology factors into the language of business outcomes that stakeholders understand and care about.

To do that, CIOs must first understand how business stakeholders define value. Usually it is based on their highest priority business objectives. The three most common objectives are:

• Revenue (in profit-driven organizations) or value creation (for nonprofit organizations and government agencies)

• Cost optimization, or the programmatic reduction of costs to improve profitability and value

• Risk identification, quantification and remediation

Business leaders often emphasize certain subgoals that fall under one of these common umbrellas, requiring CIOs to translate a more granular goal. Examples related to revenue include competitive differentiation, customer satisfaction (as reflected through sales or renewals), market share and so on.

Some business areas may emphasize a fourth objective, such as environmental, social and governance (ESG); diversity, equity and inclusion (DEI); customer services; or, in healthcare, patient care, etc. CIOs should evaluate whether a potential fourth priority is truly separate and if IT activities can directly affect outcomes.

The second step in communicating the business value of information technology is to craft  a compelling story about how IT has helped achieve business goals. At the highest level, there are two types of information technology value stories: run value stories and change value stories.

• A run value story highlights the ways in which IT allows the business to operate faster, smoother or more efficiently. Since stakeholders expect their business processes or critical applications to be available 24/7, the run value story highlights how IT has maintained high performance levels and sustained operations to facilitate business performance.

• A change value story highlights the ways in which IT has helped the business expand existing capabilities and deliver new ones. CIOs must be able to articulate how they go beyond “keeping the lights on” to demonstrate how they have made investments that contributed to business growth or even transformed the business.

While it may seem more exciting to focus on change value stories over run value stories, Gartner data shows that for most organizations, over 70% of the IT budget is spent on maintaining current operations. Therefore, run stories are very important for representing the total business value of technology.

To ensure those run stories are still interesting to business leaders, CIOs should show how technology is reducing the costs and/or improving efficiency of critical business activities. Focus on large programs with scale impacts and consider grouping smaller cost and efficiency efforts with larger, multiphased initiatives.

Consider the following examples of run and change value stories aligned with the different types of business priorities (revenue, cost optimization or risk mitigation):

Revenue-related value stories

Examples of how IT sustains current revenue streams (run) include:

• Supporting revenue-generating business processesImproving availability or performance of revenue-affecting applications

Examples of how IT helps generate new revenue streams (change) include:

• Maximizing platform capacity to support new revenue streams

• Creating or launching new digital services

The next step in communicating the business value of technology is to understand how IT affects critical business priorities and measure both the cost of related IT activities and the resulting business impact.

Many organizations forget this step or get it wrong. In fact, 67% of all organizations say they work with key stakeholders to determine, define and validate value for the organization at least annually. But only 22% turn that into a standardized process for mapping IT spend to business outcomes and KPIs that measure business value.

Even CIOs that map IT spend to business value make the mistake of selecting and tracking metrics that put the technology first, rather than the business outcomes. This happens when CIOs highlight the quantity of technology delivered (for example, number of tickets resolved) or how technology is delivered (for example, number of bugs found in testing). This is an understandable mistake, given that these technology-first metrics are often easily accessible and trackable within IT’s domain. Furthermore, resolved tickets or debugged applications do matter — but only for IT teams looking to continuously improve their processes.

Executive stakeholders, in contrast, care less about the fact of ticket resolution than they do about how ticket resolution helped their teams achieve business goals. As a result, CIOs need to measure business value in a way that shows how IT spending contributed to a concrete business result. Clear and mutually agreed-upon business impact metrics are key to quantifying and then communicating information technology value.