CIO Asia - A New Metrics System for IT

From: Subject: CIO Asia - A New Metrics System for IT Date: Mon, 31 Dec 2007 12:09:33 -0500 MIME-Version: 1.0 Content-Type: multipart/related; type="text/html"; boundary="----=_NextPart_000_0000_01C84BA6.00E5E5A0" X-MimeOLE: Produced By Microsoft MimeOLE V6.00.2900.3198 This is a multi-part message in MIME format. ------=_NextPart_000_0000_01C84BA6.00E5E5A0 Content-Type: text/html; charset="utf-8" Content-Transfer-Encoding: quoted-printable Content-Location: http://www.cio-asia.com/PrinterFriendly.aspx?articleid=362&pubid=5&issueid=35 =EF=BB=BF CIO Asia - A New Metrics System for IT January/February=20 2005

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A=20 New Metrics System for IT

How=20 Cisco is approaching the Holy Grail of truly measuring IT=20 value

By=20 Ted Smalley Bowen
CIO=20 U.S.

THE OLD EFFORT = to figure out=20 IT's impact on organisational productivity has new life. Leaving = macroeconomic=20 theories to others, some CIOs are applying IT productivity measures to=20 operations at their own companies. At Cisco Systems, for instance, a=20 cross-departmental council has been working to hash out metrics for = improving=20 business process operations, according to CIO Brad = Boston.

In 2003,=20 the council developed metrics to evaluate the efficiency of its online = order=20 processing. Less than 30 percent of orders were getting automatically = routed to=20 manufacturing, since high error rates necessitated manual input, = according to=20 Boston. "We mapped the process of orders coming in and developed = metrics. We=20 optimised the process, put new tools in and doubled the percentage of = orders=20 that went directly to manufacturing within six to nine months," he=20 says.

Cisco also=20 relies heavily on IT productivity metrics for budgeting, particularly in = negotiating contract labour. "We use [productivity measures] for = budgeting for=20 development projects to decide how much to do with internal staff and = how much=20 with contract labour," he says. "And we do follow-up evaluations of the = actual=20 delivery at total cost."

At a time=20 when CIOs are under greater pressure than ever to prove the value of IT, = productivity metrics that measure the "true" value of IT are the Holy = Grail.=20 When it comes to IT, productivity is everywhere and nowhere. The axiom = still=20 holds that the effects of IT show up everywhere except in productivity=20 statistics, to paraphrase economist Robert Solow.

CIOs are=20 inching towards better high-level measures that relate to overall = business=20 productivity, but they are finding it easier to collect empirical data = about=20 throughput, uptime, service levels and the like. A new twist in = productivity=20 metrics is the brave new world of business process design and analysis. = CIOs are=20 using (and in some cases creating) performance metrics to help their=20 organisations get a better handle on partnerships and service = agreements, and to=20 claim (or keep) a place at the strategic planning = table.

CIOs say=20 that these emerging "value" metrics=E2=80=94so termed because they gauge = the value that=20 IT contributes to the enterprise=E2=80=94are helping them to better = manage their=20 operations, and to communicate and coordinate with line-of-business and = senior=20 management.

Value=20 metrics occupy the intersection of hard and soft performance measures, = combining=20 observation and intuition. "Most clients I work with are shifting their = focus=20 away from internal [IT productivity] measures and more onto value = measures,"=20 says Craig Symons, a principal analyst with Forrester Research. "They're = asking,=20 What value are we contributing to revenue growth, to being able to roll = out new=20 products and services, to cut the time to do those things, add to = customer=20 satisfaction and retention and cut costs?"

Productivity's Common Currency
While=20 acknowledging the limitations of productivity metrics, CIOs use them to=20 strategise, budget, weigh outsourcing decisions, run (and terminate) = projects=20 and communicate with other senior executives.

Unsurprisingly, technology-sector CIOs tend to be = more=20 advanced in their thinking about productivity metrics than their peers = in other=20 industries.

"Directly=20 or indirectly, probably 10 to 15 percent of my time is tied up in this," = says=20 Intel Vice President and CIO Doug Busch. "A huge fraction of what we do = in IT is=20 aimed at improving productivity, either task productivity or knowledge = worker=20 productivity. [But] I think as an industry we're kind of thrashing about = on this=20 problem."

For Cisco's=20 Boston, the figure is closer to 20 percent. "Some of that is focused on = the cost=20 of contract labour, but it's mostly making business more productive," he = says.

CIOs are=20 awash in performance data: internal IT measures of hardware, software,=20 network=E2=80=94not to mention personnel, departmental and = organisational ratings of IT=20 services, vendor and service provider claims (and actual=20 results).

Traditional=20 high-level measures of productivity include IT budget as a percent of = total=20 revenue, typically compared with peer organisations in the same industry = and the=20 ratio of IT staff to total employees. Other staffing ratios count = servers or PCs=20 per support person.

How Many Programmers Can Dance on the Head of a=20 Pin?

It's always=20 been easy to lose the forest for the trees when considering = productivity. But=20 especially now that IT statistics are so easy to come by, CIOs have to = think=20 carefully about what they want to get out of the = metrics.

"Personally, I couldn't care less how many lines of = code, how=20 many tasks it runs," says Sinclair Stockman, CIO of British Telecom. "If = the=20 system is coming out earlier than they told me it would, and I'm able to = deliver=20 more benefit than I thought I could, and it's going to cost me less, I'm = very=20 happy."

According=20 to Stockman, getting the most out of IT systems depends on "the = efficiency and=20 effectiveness of the process change, the training process, and the = ruthlessness=20 with which you actually go after the business benefits that were = delivered as a=20 result of the systems being deployed."

This casts=20 productivity in terms of business change. The trick is relating = individual=20 project-level performance to bottom-line results.

"Between=20 small teams and the very top level where you're looking at the business = benefits=20 of massive programs, there's this massive chasm," says=20 Stockman.

The=20 one-to-one communication that's required at the top level of an = organisation=20 often injects less quantifiable elements into the productivity mix, = according to=20 Andy Rowsell-Jones, a Gartner vice president and research=20 director.

IT=20 productivity depends on the CIO's personal standing and political = skills, he=20 says. "You've got to have that relationship piece and credibility piece. = Do you=20 get asked about non-IT things, invited to product team meetings as a = possible=20 source of ideas? These are soft, squishy metrics. But at that level, the = personal relationship is politically important."

If a CIO's=20 executive relationships are weak, "there's a greater chance that IT gets = reduced=20 to an equation of cost of service," he says. "Then you've got to look = out=20 because, for accountants, service is never good enough and cost is = always too=20 high."

Pitfalls of Productivity
Ironically, the=20 preoccupation with productivity can be a drain on productivity. "We = don't have a=20 good way to [calculate IT productivity], either to forecast or to = measure,"=20 Intel's Busch says. "As a result, we end up justifying and rejustifying, = and=20 analysing and reanalysing stuff, and coming at it from different angles = and=20 trying to persuade people with different measures."

When it=20 comes to rating knowledge workers, simple formulae tend to miss the=20 point.

"I don't=20 think personnel appraisals are as dependent on productivity metrics," = Busch=20 says. "We measure people on results rather than on unit output per = period of=20 time. At one level you can say, Yes, productivity has a huge impact on = that. But=20 it's kind of an indirect impact.

"Making a=20 smart decision that produces the best result in the shortest period of = time is=20 really what we're looking for rather than how fast you turn a crank," he = says.

One of the=20 problems in quantifying the role of IT in business is the one-off nature = of so=20 many projects and processes.

"It may=20 sound a little philosophical, but I'm not sure whether you can talk = about=20 productivity in a world where you're not actually talking about = repeatable=20 tasks," BT's Stockman says.

While it=20 may be relatively straightforward to gauge the productivity of offshore = software=20 houses that bang out low-level code, it's tougher to quantify the = business=20 benefit delivered by an in-house IT team.

If metrics=20 are unable to capture that value, it can prejudice managers toward=20 outsourcing.

Measuring=20 productivity of in-house IT boils down to tying it to business change. = "You need=20 to ensure that there are programmes of activity in place which actually = effect=20 business benefit improvements for the company, and there are some = measures you=20 can apply to that," Stockman says. "How much business benefit have you=20 delivered? How many people did it take you to do that? What was the = level of=20 investment that you put in? What caused it to be good? What caused it to = be=20 bad?"

Nonetheless, the more closely the IT organisation = participates=20 in business process design, the harder it becomes to distinguish its=20 contributions.

"One of the=20 most fundamental complications in this whole productivity question is: = What's=20 the impact of business process and what is the impact of the tools that = enable=20 the business process?" Busch says. "It's very difficult to disentangle = the two,=20 and I frankly have come to the conclusion that you shouldn't even try = to. You=20 ought to look at them as a whole."

Looking=20 ahead, CIOs say they anticipate=E2=80=94sometime in the next five years = or so=E2=80=94to see=20 some standardised performance metrics that more closely tie IT to = business=20 value. Productivity metrics are morphing to fit the environment. The key = is=20 finding a way to establish a productivity baseline, according to=20 Busch.

"I don't=20 think we're very close to it," he says. "It's hard to tie [economic = measurement=20 of companies' results] back to individual project activity in a lot of = cases. We=20 need something that's much more trackable."

Ted Smalley Bowen is a Boston-based freelancer covering technology.=20

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