The Strategy to Bottom Line Value Chain

Performance Measurement

The following is an excerpt from "From Business Strategy to IT Action"

"For Right Decisions, Right Results, Performance Measurement is critical in validating and verifying the cause-and-effect relationships that were assumed during the strategy and planning processes.  Historically IT performance measurement has focused on the operational aspects of IT, with measures that report performance in IT terms.  For New Information Economics, performance measurement focuses on IT's performance relative to business operational and strategic effectiveness. The role of performance measurement is to track IT's contributions in financial terms and in strategic and operational effectiveness terms.  Both are important, and the latter are important in establishing the strategic connection to financial performance.

The Performance Measurement practice is based on three fundamental ideas: (1) IT Managers need to manage their resources and investments to improve their contribution to company strategies and goals, and thereby to the bottom line; (2) To accomplish this, IT managers need a measurement capability that brings attention and focus to the activities and behaviors that best support IT’s contribution; and (3) This measurement capability must include business-related measures that can be connected to business activities and are relevant to business managers.

Measurement and management are two sides of the same coin.  Presumably, all organizations manage IT, albeit with varying levels of quality and effectiveness.  By extension, presumably, all organizations also measure IT via some combination of explicit and implicit measures.  The question for IT, then, is rarely, whether to measure but what and how to measure.

Measurements are a manager’s as well as an organization’s navigational system providing them with information regarding location (where are we?), destination (where are we going?), direction (are we going the right way?), and speed (how fast are we getting there?).  To be useful the attributes or measures used to describe location must necessarily also be used to define destination.  That is, our navigational system is of little use if we describe our location as “the corner of State and Main” but we define our destination as 40N60W.

This is the situation in which many IT organizations currently find themselves.  The measures or attributes that an IT organization uses to describe its current performance (i.e., IT’s location) might be cost efficiency, infrastructure availability, and on-schedule delivery of projects.  However, the enterprise uses attributes like business impact, agility, and innovation to describe expected performance (i.e., IT’s destination).  Without reconciling the terms used to define location and destination, appropriate action cannot be taken.  In the terms of the previous example, we cannot effectively navigate from State and Main to 40N60W without adding latitude/longitude measures to our description of location. The key point here is that IT’s measurement framework needs to be consistent with IT’s role.

As IT’s role develops and evolves, its management processes and measurements also need to evolve and develop.  The management culture needs to change at the same pace as the organizational role for IT.  For many organizations, this is an unrealistic expectation.  IT’s role is subject to abrupt changes due to rapid changes in technology and the business environment.  Management processes and culture change at a more glacial pace. Consequently, management processes and measurements become out of phase with IT’s role.

The challenge for these IT organizations is to accelerate the evolution of their IT management processes, which includes developing appropriate measures for guiding and evaluating IT performance within the context of its changing role.  Many CIOs have abundant operational metrics in the areas of systems development and infrastructure operations. These metrics typically focus on internal IT processes, such as up time, development milestones, and function points per programmer. Our interest within the NIE Performance Measurement practice, however, is in performance measurements that can help bridge the IT/business gap.  That is, a performance measurement practice that focuses on managing the impact IT has on the business."

Excerpt from "From Business Strategy to IT Action"