CIO Dashboard » How Does IT Impact Business Productivity?

How Does IT Impact Business Productivity?

post by Chris Curran on February 14, 2011

Nick Carr’s controversial article on “IT doesn’t matter” published in 2003 noted that infrastructure technology is easily copied thus providing no competitive advantage. Yet, savvy businesses continue to pursue technology innovations to gain competitive advantages or improve business productivity in order to provide greater shareholder value, growth, and stability.

Businesses that drive consistent productivity improvements have recognized the linkage between the need to drive innovation and discretionary spend available to fuel innovation. According to an October 27, 2010 Corporate Executive Board report, two-thirds of total IT budgets will be continue to be consumed by “keep-the-lights-on” (KTLO) maintenance or costs associated with regulatory compliance activities.

There is a real need to minimize KTLO to free up cash for discretionary spending that can drive innovation. For example, new business capabilities will require investment in KTLO for subsequent years, until new technology and process improvements are further optimized.

However, we contend that discretionary and KTLO spend must be managed as cyclical waves by identifying patterns that drive discretionary and KTLO IT spend. This way companies can fine-tune IT spending by driving significant innovation during an uptick and optimizing it during a downturn.

Spending aside, what else differentiates firms that use IT to drive business productivity improvements? In our experience three key themes stand out:

Business-IT Commitment: Business commitment to fund strategic initiatives particularly during downturns and I’s ability to continually meet and anticipate business needs are key.
IT Experience: Like a marathon runner, not all companies have the same stamina or the experience in working with technology. In this respect current technology capabilities and the ability to successfully integrate old and new technologies matter most.
Proprietary Technology: While Infrastructure technology soon becomes commodity, proprietary technology does provide a competitive differentiator, although for a short time only due to espionage and reverse engineering by the competition. High-speed trading platforms are an interesting example of competition on the basis of proprietary technology.

Fundamentally improving business productivity is about increasing output while reducing input. IT projects have enabled productivity improvements on both fronts.

Initiatives that seek to increase output:

Salesforce Mobility
Business Intelligence
Customer Analytics
Channel Integration
CRM

Initiatives that seek to reduce input:

Expense Management
IT Sourcing
Straight-through Processing
Desktop Refresh
Single Sign-on

Productivity enhancements enabled by IT must be measured to demonstrate impact and garner continuous business commitment, yet in our experience its an area where many businesses fall short. Typical metrics are measured and depicted over a time continuum, examples include:

cost/transaction
sales $/employee
number of cases/CSR
number of separate sign-ons/user.

How have you demonstrated IT’s impact on business productivity?

photo credit: bdu

Neil Pearce

In my experience the best demonstrations are in hard cash. In a previous role with a retailer making IT changes that took even just a second of the total transaction processing time could result in $100,000+ savings in the operator payroll costs. We would look to reduce the amount of data entry a cashier was required to do whilst at the same time speeding up the card authorisation with the banks.
Chris P Peters

Really important discussion and one I spend a lot of time talking about with peer IT organizations. Using IT to enable business productivity, agility and growth is a core investment and must be balanced with (note not replace) the KTBR (keep the business running) and KLTO investments focused on maintaining IT continuity and improving efficiency.

At Intel, our IT organization looks at how we help our core business processes run better - like supply chain (reducing inventory, responding to customers faster, perfect order fill) and silicon design (faster product development cycles, more complex/powerful products) and manufacturing (time to market, throughput, quality & consistency) and sales & support (reach new customers and better support the ones we have).

The Intel IT Annual Performance Report (APR) shares the details and results from these IT investments and the impact they have on business productivity.

Check it out at http://www.intel.com/go/ITAnnualReport.

Chris P, Intel IT
Zafar Hassan

Some Very good points listed. The challenge always is how IT is perceived in the business and how deep you want to go inside the Business Process Improvement areas to be able to identify Innovation through available technologies that could reduce business process cycle time. This is something that i have seen IT organization struggle with. I guess this is the risk you want to take to demonstrate to the business that IT can lead the change for improvement & innovation in this era and you have to be prepared to find yourself in areas where you don’t belong as an IT organization. Its a huge effort and sometimes a continuous struggle.
Ravi Kalakota

Good article on the right IT KPIs… an very important topic. I will provide a Global CIO perspective. A important issue to consider in this discussion is the business context (where is your firm in the cycle - Growth, Maturity, Decline or Crisis) and what is the executive team focused on as a priority (cost optimization, revenue growth, employee productivity, M&A etc). If the firm is in a crisis mode (or even maturity), then KLTO and KTBR expense management rightly is the overwhelming focus. When the firm is in growth mode (organic or mergers), output-centric (new services) become the focus.

What was interesting in the last cycle was how quickly the focal point moved from crisis to growth. This makes a CIO’s role more challenging/tricky as most meaningful IT initiatives take a while to execute well. Also enabling growth with a flat budget, offshored teams and low capital spend takes creativity.

We are definitely in the growth mode now. The pendulum has swung 180 degrees in the past 12 months. Most firms are being asked to grow quicker than competition. Clever growth enabling initiatives that leverage new technological capabilities (iPads, mobility, purpose-built analytics, cloud, interactive/social etc) are going to differentiate the next crop of CIO leaders and make reputations.
- Mark Mueller-Eberstein
  
  Good points, Ravi. What’s different now, is the availability of IT capabilities “on tap”, aka via cloud. While in the past adding a specific capability was only possible as a long-term IT project, more and more capabilities can be provided to a business organization via SaaS or a cloud offering in much shorter time. That also allows more smaller organizations to deploy and adopt more IT capabilities faster; something previously only large companies with large budgets were able to do.
  I find it staggering, that complete collaboration infrastructures (like after the Haiti disaster) for dozens of different global oranizations could be provisioned and productive in hours… not months or years.
  http://blogs.technet.com/b/microsoft_blog/archive/2011/01/12/haiti-one-year-later-technology-lessons-for-disaster-response.aspx
Nalneesh Gaur

This is turning into a very thoughtful conversation. Thanks to everyone who has commented and retweeted so far. The comments validate some of our thinking and raise new questions. We think that that productivity improvements are a result of conscious business and technology design. In other words they start with the definition of productivity-specific objectives and corresponding productivity metrics. When the right business/IT partnerships exists or with the commitment from the business, there is agreement about the distinct business and technology capabilities that must be designed and implemented to achieve those objectives.

Many of the comments recognize the value of innovation, which is heartening to hear. In our experience innovation is most meaningful when it is aligned with the planned business outcomes (profit and productivity objectives and metrics.) For example, almost all of my clients have an innovation center, but some of them still struggle to identify the business impacts. We contend that when innovations (IT or otherwise) are tied to productivity objectives then they garner greater support. Write back if you know about instances where business recognizes the innovation impact.
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