CIOs must play an active role when it comes to decisions of business value, says Mark Schwartz.
During the first-ever CIO Community Conversation this week online, renowned speaker, celebrated author and enterprise strategist Mark Schwartz unpacked the concept of business value, how it is measured, and whether CIOs should be playing an active role in decisions of business value.
The art of business value
Mark currently works as an enterprise strategist at Amazon Web Services (AWS): “I essentially form part of a small team of former CIOs of large organisations, all which did the great migration to the cloud,” he said. “We spent a lot of time with leaders of enterprises typically trying to help with the non-technical aspects that get in the way of when you’re trying to do a big transformation, including cultural change, organisational structure and investment strategies.”
According to Mark, business value is actually quite subtle and in the context of IT, if you take the effort to try and understand what it means, it will change the way IT executives practise IT.
“Business value is often put in the same sentence as customer value: partly because in the digital age we put a lot of effort into the customer’s needs. But customer value is only a small part of business value: in terms of business value there needs to be a return on investment (ROI) or a business case behind it,” he said.
Mark has extensive experience in different industries from for-profit to non-profit organisations, and used his time with the US Department of Homeland Security as an example. There, the concept of business is applied, but for people, not profit. “Homeland Security’s mission is to save lives by preventing terrorist attacks: that’s their business value. What’s the business value of saving lives?” he asked. “The business value in this scenario can't be measured by money.”
Complexities of using ROI to justify IT projects
According to Mark, the main conclusion that many people reach in terms of business value, is that it has to do with return on investment (ROI).“This focus on ROI has become the root of many challenges in the IT industry,” he argued. “Most organisations measure ROI in their own unique way, and in many instances interpret return as incremental profits: incremental profits divided by the cost of the investment that’s going to generate those incremental returns,” he said.
In IT, you don’t make decisions based on the ROI, because you don’t know what that ROI is. You make decisions based on projected ROI instead, he noted. “Imagine that you’re building a business case for an IT initiative – a customer-facing product, for example, that’s meant to generate revenue. In this scenario, your ROI business case is created by projecting the future revenue and dividing it by your projected costs – that’s your ROI.”
He did, however, point out that as this is a projection. How confident you are in that projection can only be determined by how much uncertainty there is in the market. “If the market’s predictable, then your estimates should be fine, but if the market is unstable, then your estimate is worth less,” he said.
Mark also highlighted that ROI is easier to calculate if it has to do with cost reduction or cost streamlining, meaning that companies are more likely to invest in areas where the benefits are very clear. However, if companies are going out of business or are being disrupted in the market, this may not always be the case.
“Let’s use McDonald’s as an example. They were in danger of disruption because customers were starting to shift towards home delivery, interacting through applications more than dining at the restaurant itself. Therefore, they needed a home delivery option and invested in agility and cloud, and were able to create it in just four months, localise it for a lot of geographies, and fend off disruption.
“This is why investing in increasing agility adds business value and allows you to move faster: there’s business in agility and speed,” Mark added. “Furthermore, in the case of IT, investing in eliminating legacy systems would be the business value.”
The role of the CIO in determining business value
During the second part of the session and leading into the breakout discussions, Mark posed a question to the CIOs in attendance: Should IT be passive when it comes to decisions of business value or should the CIO be playing a more active role in leading the organisation to decide what's important for business?
According to Chris Shortt, group executive: information and technology at Pick n Pay, “IT is no longer a back-office support function, but rather a very important, strategic role in helping a business succeed and thrive. It is becoming increasingly important that IT forms part of executive decisions to drive technological enablement of a business,” he said.
“CIOs have to play a very active and strategic role to maximise success. Depending on the context of the business and their IT history, a CIO has to be pretty active to ensure that there aren’t ‘rogue’ purchases all over the business. If left unchecked, there can be a lot of technical debt racked up and potential wastage of investment monies with this behaviour,” he noted.
Doron Klotz, CIO at RMB, said he believes CIOs know the business better than is generally perceived. “In fact, IT actually understands the business better than most because we essentially built the business; we actually have to position ourselves as the change agents for the business as the IT department,” he said.
For Abdul Baba, CTIO at Infrastructure SA, past successes are the best way to get buy-in. “My strategy for introducing new technology was comparing it to what technology could do in the past, at previous companies I worked for,” he said. “We need to build trust as CIOs and convince the board that in order to be competitive and lean, these are the technologies that are needed to make a difference in achieving value for the business,” he said.
“My approach is slightly different: I present a five-year view to the board every year and the game I play is similar to Doron’s, but different in the sense that I look at what I am accelerating and what I am slowing down. Our capital control policy allows me to go through a control process as it has been approved, but you need to be open and transparent,” said Josh Souchon, group CIO at Sasfin.
Yunus Scheeper, CTO at Silverbridge, says that one of the techniques that has been successful at his organisation has involved looking at the assumptions that are being made during the decision-making process. “These assumptions are prioritised and at some point in the execution of the project, they are tested and validated. If any of the significant assumptions are found to be invalid then you change tactics and direction as necessary,” he said.
At the end of the discussion Mark, who engages with 150 corporations or more each year, said that patterns emerge in many parts of the world, and regardless of what part of the world you’re in, CIOs tend to deal with similar challenges. In fact, South African CIOs are right on the mark in terms of their insights on best practices, agility and consistent delivery in IT.
“The real solution, I think, is a combination of two things – objectives and measurement – and working entirely based on business objectives rather than sets of requirements. “Instead of saying, ‘Here’s a project and these are the sets of requirements, now build a business case for it,’ rather say: ‘What’s the business case behind the whole thing?’ and then identify the problem, and come up with the solution. Forget the requirements and just focus on the goal, and determine the costs of accomplishing that objective,” he concluded.
This session was made possible by EOH, principal partner of CIO South Africa and sponsor of the CIO Community Conversations.