Question

What are the key factors that prohibit an organization from obtaining return on their IT investment? Try to use specific examples of organizational, individual and technological factors that IT systems have not been utilized to their full potentials in terms of organizational outcome impacts.

Answer 1

Getting the balance right between investing in IT to drive innovation and minimize IT cost, all the while keeping an eye on the identification and mitigation of risk requires constant vigilance. At the end of the day, it's how the R in ROI the return -- is defined and linked to the I -- the investment -- that is key. A clear understanding of value -- for both IT as a whole as well as specific IT projects -- is at the heart of this relationship. Enterprise IT in most organizations sits somewhere on the three axes of cost, risk and value. The dimension of cost is the easiest to quantify, and often attracts the greatest focus. But cost shouldn't be the only consideration in the effort to define ROI for IT projects. A discussion of the following five factors might help organizations obtain a better perspective and arrive at the optimal balance between cost, risk and value.

Factor 1: Define ROI value in terms that are relevant to your organization There is no precise definition of "value." A prerequisite for defining the business case for individual IT projects (as well as for IT itself) is the definition of value in the context of your organization. Ultimately, value translates into financial information; however, ensure that the meaning of value is clearly defined across all other dimensions, including risk, opportunity cost , correct assumptions, innovation, agility and appropriate decision making.

Factor 2: Each enterprise IT project is unique Even though the same IT system may have been implemented before in organizations similar to yours and in the same country and industry, these organizations might have taken vastly differing approaches and experienced variable outcomes. The assumption that "because it's worked well there, it'll be guaranteed to work here" should be tested rigorously for important IT projects.

Factor 3: Cutting costs is easy, but realizing value is hard Expecting an underfunded, poorly structured IT team with the wrong mix of skills to be able to drive real value for your organization is an assumption that needs to be tested. Equip your IT team adequately or select IT vendors that can work as a true peer with the organization.

Factor 4: Recognize that it's not the responsibility of IT alone to define ROI for IT projects IT may control the I in ROI, but the R is the joint responsibility of both IT and the organization at large. When it comes to implementing important, technology-dependent business initiatives, staff incentive schemes can be counterproductive if they're poorly designed. Incentive schemes for line of business managers should be adjusted to reflect their accountability in ensuring that important enterprise IT projects are implemented effectively.

Factor 5: Upgrade your IT vendor management strategies The conventional approach to managing IT vendors might not be adequate in the delivery of new, emerging and/or disruptive business technologies. Revisit your IT vendor management strategies accordingly. However, avoid falling into the trap of thinking that because IT is too hard to manage or understand, outsourcing IT is the

easier alternative. It could cost you dearly in the longer term.

Some organizations still adhere to the traditional managerial model that IT is a service function to the business, and therefore, subservient to its demands. These organizations potentially miss the golden opportunity of having IT precipitate, drive and support technology-based enterprise innovation and transformation initiatives. Shifting this attitude is critical if technology is to deliver the optimal ROI for your organization.

The challenge before researchers and practitioners is to develop internally consistent and comprehensive productivity measurement systems that account for the productivity of individual workers, work groups, business units, and organizations. The degree to which this goal can be achieved will determine the ability of organizations to manage resources effectively and direct human effort toward organizational goals. It may help them regain the industrial leadership they have lost and understand the apparent paradoxes that ensue when expected productivity gains are not realized. Consistent productivity measurement systems will enable researchers and practitioners to speak a common language as they each play their role in solving the problems associated with poor productivity growth.

The difficulty in developing a comprehensive productivity measurement system stems from a number of factors, in particular the following:

The concept of productivity is still often misunderstood; discussions of the relationship of productivity to effectiveness, efficiency, quality, innovation, and financial or behavioral measures of performance take the form of debates. A common definition of productivity, at all levels of organizational analysis, is a prerequisite for the development of a comprehensive measurement system.

Attempts to aggregate individual productivity measures or to disaggregate organizational measures are thwarted by the dissimilarity in measures of output. At the individual level, output is often counted in physical units of product produced or service provided. At higher levels of analysis, different outputs from different sources are combined in some form of weighting scheme, sometimes using cost or price data that are incompatible with financial measures at the individual level, given current cost accounting methods.

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On the input side of the productivity ratio, individual productivity is often measured only against labor input, and labor may be counted in a number of different, but acceptable, ways. At the organizational level, a total factor approach is often used, that is, inputs consist of labor, materials, capital, and energy.

In most organizations today, the amount of indirect or managerial work far exceeds the direct labor associated with producing products and services. The productivity of indirect labor and, to a lesser extent, managerial efforts can be measured in terms of results achieved and resources consumed. Often, however, the contribution of these activities to the productivity of the organization is

unclear. If the organization was evaluated strictly by the value of products produced relative to inputs, it would have, for example, no training function; but such myopic views would never be accepted by the enlightened manager. Current productivity measurement systems suffer from an inability to capture and integrate the contribution of indirect functions, such as training, into the productivity equation for the organization.

When individuals are formed into work groups or teams, linkages are formed between the effort of the individual and the output of the group. The nature of the linkage is dependent on the structure of the group, characteristics of the individuals, psychological factors, sociological factors, technological variables, and system variables. The complex interactions that take place in cooperative productive behavior, however, are seldom captured in common productivity measurement systems. In their efforts to understand and control work group behavior, managers and researchers alike are hampered by inadequate measurement systems.

Progress toward the goal of developing internally consistent and comprehensive productivity measurement systems will require a joint effort between practitioners and researchers. Greater understanding of the concept of productivity, common definitions of terms, and the building of conceptual models of productivity provide the requisite framework to develop and refine productivity measures. Better productivity measurement will help to organize and unify the building of a common body of knowledge on productive behavior.