Objectives, key performance indicators (KPIs), business metrics. We’re all managing or being managed by our results. The more focused we can be on the metrics that matter—more specifically the ones we can influence—the more successful we will be as individuals, the more productive our teams, and the higher performing our companies. This premise is as true for IT as it is for other facets of your business. In the absence of visibility to IT cost drivers, it’s impossible to identify actions you can take to effectively align IT investment with the strategic goals of the firm.
Management theory over the past century has championed the idea that data-driven organizations drive higher levels of performance. Dr. W. Edwards Deming’s Road to Continuous Improvement was predicated on the accurate measurement of inputs and their corresponding outputs. Peter Drucker promoted and popularized the idea that metrics can and should be applied to all aspects of running a corporation, not just on the shop floor. More recently, John Doerr has brought out his best thinking from his days at Sun and Google about the importance of using goals and measurable outcomes to harmonize team activities with the strategic imperatives of the organization using objectives and key results.
All said, management by objective and an obsessive focus on data have come under scrutiny in recent years. I believe we can attribute this, at least in part, to the fact that measuring the wrong stuff by managing the wrong metrics can lead to unintended adverse consequences. Which brings us to the next point: metrics and data by themselves don’t do anything. Action, change, and outcomes in organizations are driven by people. It’s how people behave in response to data that drives results.
In my own role, my performance against KPIs is measured constantly. My behavior (i.e., how I spend my time) is directly influenced by what is being measured and how that information is being shared with me and others. In a recent instance, I was able to review data comparing the accounts I manage relative to those managed by my peers. What became immediately apparent was that in an area of business I thought I had well under control, I was actually significantly underperforming the upper half of my cohort. The result? I took action. I spent significant time and effort changing my behavior, and the impact on my metrics was apparent.
When we speak with CIOs, we often hear that their business partners believe IT is a burdensome cost base. They consistently express a desire to change perceptions among their business partners, in order to be seen as a provider of value-added services to the business. IT leaders increasingly want to change attitudes across the entire enterprise and by extension, change organizational behaviors when it comes to subscribing to IT Services.
So, how do you encourage change in your organization? Start by examining your own business and asking these four key questions:
- How transparent are your costs of service delivery to your business unit customers? Typical spread allocations of indirect cost assignment based on proxies for demand (e.g., headcount, revenue, OPEX/CAPEX, etc.) lead to indiscriminate consumption of IT resources by consumers because spread allocation doesn’t directly link consumption (i.e., value) to cost.
- How well are you able to control CAPEX using data to inform investment decisions? Organizations who face top-down budget mandates and who toil with manual budgeting and planning processes invariably pad their budgets to account for knowable unknowns in their actuals, leading to CAPEX underspend and decreased capital efficiency (read: bad for share prices).
- How do you tie spend to value? When value attribution isn’t clear, IT is viewed as a cost. IT leaders are given budget targets, mandates, and cost-cutting directives. Eventually, the business begins to see IT as a burdensome cost center, and CIOs find they face competition from outsourcing providers who compete on price.
- How credible are you (i.e., how well are you able to do what you say you will do)? Budget overruns, wide forecast variance to plan, unfunded initiatives, project delays, missed expectations—these are the stakes that kill executive careers. It’s no longer sufficient to manage your budget with spreadsheets using stale and inaccurate data about actuals. Your bi-annual forecast update is killing your credibility.
»Download the Top 10 metrics to manage the business of IT
Data isn’t a panacea. It’s not a salve that will cure all that ails you. It’s a starting point. Without accurate data about your technology business—both the inputs (costs) and outputs (measures of productivity)—you can’t take the necessary actions to put in place the processes and discipline necessary to change perceptions, attitudes, and behaviors.
That said, don’t wait until you have perfect data. Doing so will lead you to never take action, and then be left in the dust by those who do. Start now using the data you have and build a foundation on which to build out the processes and disciplines that underpin a culture of transparency.
You’ll find that transparency changes behavior, and that behavior will change your data. As you begin to highlight and socialize the current state of your business and the obstacles you face to realizing improved outcomes, you’ll uncover the issues keeping you from better data and position yourself to address them.
Data is the starting point, but without metrics in place that measure the things you want to change, you risk the path of unintended adverse consequences. Measuring and reporting costs without visibility to the consumptive drivers of those costs (i.e., spread allocation) reinforces the unwanted perception that IT is a burdensome and expensive cost center. Conversely, timely access to data that aligns cost to value by linking spend to consumption provides you with the transparency you need to change behavior—both your own and that of those you support.
You don’t have to eat the whale all at once. Advance one step at a time. Begin by organizing your source data into buckets of spend (e.g., cost pools) that follow a commonly accepted industry pattern for IT, then iterate. But how you organize your data and define your metrics isn’t something you want to define on your own. Doing this in isolation wastes valuable time, creates uncertainty in your results, and shuts you out of the opportunity to benchmark your performance.
Combining actual spend at the cost pool level with a corresponding system for planning your forward projection of spend alone builds the foundation you need to define your first industry-standard performance metrics while capturing value quickly—through more accurate and timely measurement of forecasted spend against plan. Use your early successes to fund subsequent investment in the additional data and metrics you need to ultimately reveal your unit marginal cost of applications and services delivered to your business consumers.
One final note: it’s not sufficient to do any of the above manually using spreadsheets. You must achieve high veracity data by coupling your activities as close to your sources as possible while eliminating people from the aggregation and manipulation of data and the computation of metrics and allocations. Failure to do so will result in your inability to deliver accurate, timely information on the state of your business and ultimately undermine your efforts to implement needed change.
So, what it is going to be? Will you manage, or be managed by, your results?
»Read more on Emerge: Tech leaders choose to embrace disruption, an interview with Ashley Pettit, SVP of Enterprise Technology, State Farm