The CIO's Value Quandary

Report: Tech execs believe in business value of IT, but struggle to demonstrate that value to other functions

Chicago — April 25, 2003 — Information technology executives believe in the business value that their IT organizations deliver to the enterprise as a whole, but they struggle to demonstrate that value to other executives outside their function, according to the results of a survey released this week.

The survey of 200 chief information officers (CIOs) and other IT leaders, conducted by the management solutions and services practice at consultancy Deloitte & Touche and IDG Research Services Group, revealed that IT executives at leading companies face complex challenges in creating and delivering value related to technology investments, as well as defining that value across the enterprise.

A report on the survey, "Achieving, Measuring and Communicating IT Value," revealed a dichotomy between the expectations of IT organizations and the real and perceived value of IT in reaching business goals.

The primary objective of the study, conducted in late 2002, was to determine how companies are utilizing and evaluating their IT investments — from cost reduction to resource allocation to performance improvement and business value. Two hundred IT leaders from financial services, retail/wholesale/distribution and government organizations, with annual revenues ranging from $250 million to $5 billion, responded to a set of questions probing the expectations and value of IT departments, the technology they procure and implement, and the relative contribution and alignment of IT with the larger enterprise.

The survey responses illustrated contrasting expectations of IT executives with those of their organizations, coupled with a murky view of how technology relates to business objectives. The results pointed to a strategic quandary for CIOs, with nine out of 10 IT executives saying that IT value is either critical or very important to their company, but two-thirds of the respondents acknowledging that information systems groups have not been successful in measuring and communicating IT value. As a result, nearly half the respondents said that executive management consistently understates the value of information technology.

"Our survey results show that CIOs and IT leaders clearly want to demonstrate the value of their IT investment, but mistakenly focus on cost reduction, system upgrades and implementation," said Bob Emmel, senior manager and leader of Deloitte & Touche's Chicago CIO advisory services group. "Instead, they need to pay closer attention to metrics and the communication of quantifiable results. Cost reduction, system upgrades and [customer relationship management (CRM)] implementations, alone or collectively, are not measures of value. Today's executives must demonstrate value above and beyond the underlying platform."

Indeed, while respondents expressed increasing focus on delivering IT value, clear priorities for 2003 were scarce. When asked to identify the top IT engagements undertaken or planned this year, responses were evenly distributed among hardware and software upgrades, security and cost reduction, exhibiting a fragmentation of IT efforts with no prevailing focus.

That said, 84 percent of those surveyed reported they were not among the decision makers who assess IT value, suggesting a service and maintenance-oriented paradigm as opposed to model in which IT is a strategic business partner to other functions in the enterprise.

The report also analyzed and compared vertical industry trends in manufacturing, financial services and consumer business. In data from the manufacturing sector, for example, 60 percent of the survey respondents cited decreased costs as the primary measurement of IT value. This follows recent trends in the manufacturing industry to scale down large projects and implement more moderate spending.

"We're seeing issues raised in the survey that closely resemble challenges facing our clients," said Doug Engel, national manufacturing industry leader at Deloitte & Touche, based in Chicago. "Companies are looking to simplify IT environments, adopt strategies for outsourcing and shared services, and employ a tactical [enterprise resource planning (ERP) system] in the context of an increasingly stringent spending environment."

In the financial services sector, despite a tough environment caused by market turbulence and shaken investor confidence, roughly 47 percent of CIOs plan to increase technology budgets in 2003, versus only 14 percent whose IT expenditures will decrease.

"Smart financial services companies are using technology as a tool to provide returns in other areas of the business," said Randi Brosterman, national financial services industry leader for the management solutions practice at Deloitte & Touche. "A focus on cost reduction has been joined by selective outsourcing and data center consolidation — establishing a more important role for CIOs in aligning business goals to IT."

Finally, IT spending proved to be most significant among consumer business respondents, of whom 53 percent are expecting an increased budget this year (only 5 percent expected a reduction in spending). Consumer business respondents were unanimous in stating that their companies consider IT value either critical or very important.

"While consumer business represent a diverse business segment whose behavior is difficult to predict, intelligent systems integration has emerged as a strategic priority," said Vicky Eng, the consumer business leader for the management solutions practice at Deloitte & Touche. "Consumer businesses are seeking efficiencies with a back-to-basics approach; squeezing value from legacy systems while shoring up their overarching data infrastructure."