IT Business Fundamentals Part 2

Value Creation Drives Everything

I still vividly remember speaking with a CIO of a multi-billion dollar government research facility about value and services. I posed the question to him, what value does IT produce for the business or what does IT sell? He took a little while to answer but ultimately he replied that “IT delivers IT stuff.”

This lead naturally to the question, how do you think the business feels about spending their limited dollars on “IT stuff?”

This exchange is fundamental to many if not most of the issues facing IT departments today. They don’t have a value proposition that positions them as strategic assets for the business. They end up being a mystical organization that consumes huge amounts of cash for real but vague benefit.

The benefit if IT is undeniable given that if you eliminated the department the business would quickly cease to function. However, the business is often less than certain that it is getting sufficient value for the money it spends on IT. Few business leaders can articulate a strong value proposition for maintaining their IT department other than, we can’t live without them.

There is a whole list of dysfunctional behavior that stems from this including but not limited to micro-managing, underfunding critical infrastructure, unmanaged risk, and across the board budget cuts for the IT department. The fix for this issue is simple in concept but difficult in practice.

First and foremost the IT department must figure out how it delivers value. In economic terms there are only two ways to deliver value; through goods or through services. The resources and organizational capabilities required to deliver goods is very different from that required to deliver services, the details of which can be found in ITIL and many other sources. The most important issue, though, is customer involvement in value creation. Producers of goods can produce lasting value with no customer interaction at all. Many goods can be sold on exchanges without provider and customer ever interacting.

Services on the other hand are experience based and often require significant participation by customers in the value creation process. As consultants at Accenture we deal with this every day. Key deliverables often depend on customer input and the quality of those deliverables hinge on the customer’s level of skill or knowledge. For service providers to thrive they must be highly focused on customer engagement and customer satisfaction. Every business decision made must take customers into account.

These are the extremes, however, in the real world most producers deliver some combination of goods and services. Who would spend tens of thousands of dollars on a new car if it didn’t come with a warranty and set of services provided by the dealer network? Restaurants provide food as a good but so do grocery stores. What is the difference? Restaurants provide the services of preparation, serving, and cleaning up among many others. People eat in particular restaurants not because of the food but because of the outcome they seek; good food at the right price in the right environment without the need to purchase, prepare, and clean-up after.

There exists a continuum between goods and services with most producers existing somewhere in the middle. Producers at each point on the continuum must set their priorities and make business decisions appropriate to their place on the continuum if they want to thrive. Get the mix a little wrong and the business survives but doesn’t thrive. Get the mix too wrong and the business doesn’t long survive.

IT departments exist on this continuum. They deliver goods in terms of computer hardware and software but would not exist if it were not for the services they provide. The business can purchase hardware and software from countless sources without the overhead of having an IT department. The IT department exists because it can facilitate the use of technology by the business to create value.

Providing services then is the primary reason that any IT organization exists. IT Service Management (ITSM) recognizes this fact and draws a line in the sand declaring that IT is a services organization and all ITSM guidance should flow from this basic premise. ITIL has provided a precise definition of service that is tremendously useful if you already understand the underlying concepts: “a means of delivering value to customers by facilitating outcomes customers want to achieve without the ownership of specific costs and risks.”

IT organizations that want to maximize their value contribution must embrace the concept of IT as service provider, focus all of their efforts on providing value through services, and make every business decision based on their position on the continuum.

About The Author

Ron B Palmer

Ron B Palmer is an internationally recognized expert on IT Service Management who also writes on strategy as it applies universally irrespective of its application in business, war, or politics. Ron’s approach is grounded in concepts such as quality, systems theory, complexity, fractals, and Economics. Ron holds the ITIL Service Manager and ITIL Expert certifications as well as numerous ISO/IEC 20000 certifications.

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