Back in November IT Business Edge contributor Mike Vizard wrote a post in which he discussed IT's tenuous link to productivity. Even as the recession led many companies to cut their IT investments, productivity was still growing, noted Vizard. (Nearly a year later, however, productivity has stalled, as we found out with the release of numbers from the Labor Department showing a drop in productivity in 2010's second quarter.) That's not so surprising, as there is logically a lag time between lack of investment and reduced productivity.
Business people have long questioned IT's effect on productivity, wrote Vizard:
To a degree, IT enables changes to workflow and business processes. But that's not quite the same as saying IT was the prime mover behind the general improvement in productivity, so therefore continuing to invest in IT is automatically justified. It's usually the business people, not the IT people, who came up with the new process. When it comes right down to it, more than a few vendor CEOs need to be a little more circumspect about directly linking investments in IT with improvements in productivity, at least until somebody comes up with some real numbers that unequivocally make that case.
I agree with Vizard that there's a definite risk in overselling IT. But a recent blog post by Mark McDonald, a group vice president and head of research in Gartner's Executive Programs, makes a compelling case for IT's connection to productivity and comes complete with a formula that should help illustrate IT's value to even the most skeptical of business executives.
IT transaction volumes (a broad category that for McDonald encompasses data, inquiry, Web pages and more) are rising steeply. Investments in the infrastructure that makes all of these transactions possible is rising too, but at a slower pace. With that in mind, McDonald suggests picking a transaction to track and mapping its growth over the past five years. Next, calculate the average cost of the transactions by dividing the infrastructure and operations budget by the transaction volume. CIOs that have been taking advantage of efficiency-boosting technologies like virtualization should be able to clearly illustrate a drop in average costs over time, McDonald says.
You can show productivity gains by going back several years and creating a new curve that shows the cost of processing current transaction voluimes before infrastructure improvements. It's important to measure over time, McDonald emphasizes, as that's how IT creates value.
This sounds so simple, yet I bet few if any organizations are doing it. Maybe more of them should be.