CIOs & The Business Value

Well again a new and must read Article from McKinseyQuarterly about CIOs & The Business Value .The article bases to French best practices and analysis.But the coverage also includes and summarizes the global and international situation as well.As an addition you have to sign in to mckinseyquarterly.com as a member to read the full article ,as a member you can read this article for free,please click here to become a member and read the full article and for the conclusion. So , here are the 6 key headlines ;

1- Generating value-in-use

IT generates value at two complementary levels (Exhibit 1). The core asset value includes tangible items such as hardware and software, as well as softer benefits such as the IT organization’s processes and skills. IT’s vitally important value-in-use varies with a company’s core business priorities, such as whether it aims for an organizational transformation or operational excellence. A different set of metrics is needed to measure value-in-use, to account for both its economic and strategic dimension.

2- Optimizing investment value

Take the example of a group focused on optimizing investments among its various businesses—say, a banking group with multiple business units such as retail banking, consumer finance, capital markets, asset management, and the like. The economic value expected from the IT department can be measured through the improvement in the overall cost-to-revenue ratio, while the strategic value can translate into a competitive edge in terms of investment or acquisition capacity. (Since 80 to 90 percent of all synergies from banking mergers involve reducing the cost of operations, IT is indeed a key enabling factor during an acquisition.) The indicators that are tracked will be mainly financial, such as the ratio of IT spending to revenue, and will then be compared with the operating ratio—for example, operating costs over revenue

3-Measuring operations value

Similarly, in companies for which the priority is operational excellence (understood as quality and productivity of processes), the business value from IT will be measured in terms of key performance indicators (KPIs) at the process level. For example, IT will be seen as valuable if the systems helped to reduce the delay for processing an insurance claim or to ensure a no-error delivery of supplies to the production line .

At one global logistics company in our study, IT greatly improved supply chain operations—a key factor in a radical transformation—by helping the company to optimize its parcel-loading and truck-routing activities and to develop new value-added services, such as same-day delivery and made-to-order solutions for customers. IT also provided important data for more efficient risk management and better pricing.

4-Finding levers where IT and business units intersect

Traditionally, a CIO’s main responsibility has been using standard practices and performance measures to maintain IT’s asset value. Developing value-in-use is a different ball game, however, and CIOs need to examine new levers found at points where the IT department and the business units intersect . To succeed, CIOs must take on new roles—bridging functional silos—that may take them beyond their comfort zones. For one thing, they will need to collaborate with executives in the business units to work on major transformation projects, to coordinate strategic planning, or to manage investments collaboratively (see sidebar following this article, “Next steps: Identifying the challenges”).

5-Seeking alliances

Cementing new alliances within the organization is critical . A CIO in charge of optimizing IT investments at the group level will need to assume responsibility for managing a portfolio of investments. To do so effectively, the CIO will have to join forces with the CFO, who has expertise in maximizing returns on investment. If the corporate goal is operational excellence, HR is more likely to be the CIO’s preferred ally. This is due to the critical role of change management. Take the example of deploying a new enterprise-resource-planning (ERP) system: the critical challenge is ensuring that the target processes are codified correctly in the system, and that when it is implemented, the end users are sufficiently trained to effectively leverage the potential of the new tool. This requires a joint effort from HR and IT to synchronize and coordinate their tasks from the initial design to the rollout and subsequent life of the system.

6-Building better governance

The businesses that are the best at creating value-in-use, we found, embed their IT governance within the broader governance practices. In practical terms, this requires IT representatives to participate in company forums that traditionally have been the exclusive domain of business unit leaders. At successful companies, certain core business processes, such as managing the business project portfolio or determining the allocation of resources, dovetail with IT processes. This notion of an integrated business–IT governance model can also apply the other way around: we have witnessed examples of companies where strategic planning for IT actually serves as a platform for broader strategic planning by establishing mixed business–IT forums.