Three Popular Misconceptions about IT Investment

I was interviewed recently about IT trends in the air transport indutry.

The inevitable question came up as to levels of spending – are they going up or down in the Recession? are they enough? – the idea being, presumably,  that a headline will result from this like “Airlines cut IT investment” or “Airline CIO says not enough investment in IT”.   

This line of questioning made me think again about these issues and the constant fixation on what I believe are the essentially misconceived questions “How much is Company X spending?” or “How much is the Government going to cut?”, presumably for the edification of suppliers and IT salespeople.

In my view, these questions miss the point by miles, for three reasons:

First, people lump together in “IT spend” or IT investment” both real investment and spending on keeping the IT you have going or up-to-date.  The terms used, especially in political or journalistic statements, are terribly imprecise. 

There are several interesting question in here, but they are all very different. These are:

  • How much do you spend keeping your IT operations running to service level, and in a safe and secure manner?
  • How much does it cost for you to replace your hardware and infrastructure and renew software going out of support? and
  • What are you investing in IT that supports changing your business?

The question which any business should be strategically interested in is “How much are you investing in changing your business?” These days, most transformations are enabled by IT, whether they are revenue-generating, cost-saving or customer-delighting.

Second, when you look at a business transformation, the IT is only part of the equation. 

We all know that new IT systems – whether ERPs, CRMs, web sites or social networking – succeed or fail, not on whether the IT works, but on whether the processes are thought through and aligned with the IT, and – most importantly – on whether customers or colleagues can actually use it.  

So simply adding up the cost of the IT is quite meaningless.  “There are no IT projects, only business projects” – so the costs of any project should include involvement by the business, staff training, business process re-engineering: whatever it takes to deliver the whole change. 

Third and finally, the amount of spend and resources deployed has no correlation either with the success of a project or, indeed, with the business benefits delivered.  Some of the worst disasters have been the biggest projects – just look at some (by no means all) of the recent Government IT investments. In many ways, the larger and more complex a project is, the more likely it is to fail.  The use of Agile development methods has shown that small and frequent deliveries can give great business benefits for relatively small amounts of resources.

So, in summary, just adding up the amount of “IT Investment” is not going to tell you anything about whether it is worthwhile – or indeed a complete waste of money.

About paulcoby
I am CIO at the John Lewis Partnership in the UK. I was Chair of SITA - the airline solutions company owned by the Air Transport Community - for 11 years. I am also on the Boards of Clydesdale and Yorkshire Bank and Pets at Home. Previously I was Head of BA Services and for 10 years CIO at British Airways. I am interested in Roman and Military History. The views expressed are entirely my own not my employers.

4 Responses to Three Popular Misconceptions about IT Investment

  1. Glenn Morgan says:

    Paul
    I agree with what you are saying but are approaching it from the negative instead of the positive ie defending the IT investment? A better logical debate would be to articulate the value to the customer, company & colleagues. Then let the debate be around prioritisation, for a start identifying opportunities for competitive differentiation, innovation or developing new sales & distribution channels. Separate out the IT investment into three buckets Run, Change & innovate (or change the rules of the game) and agree the macro level investment at a revenue position i.e. 2% -4% of the company’s revenue and the split with the CFO. Constantly review, measure and challenge whether you have them in the right bucket and the percentage split between the buckets. Then you should continuously move from ‘innovate’ down to ‘change’ down to ‘run’ bucket ie. The debate was how to fund Global IP Networks, now its how to fund companywide SOA when should this just move to ‘run’ bucket? Questions you could ask or should have the answers two about IT investment;

    1. Does this IT investment create value for the end customer?
    2. Does this IT investment create value for our company?
    3. Does this IT investment add value to your colleagues?
    4. Does this IT investment improve profitability?
    5. Does this IT investment increase productivity?
    -Glenn

  2. Paul,

    I agree with your thoughts. I think Glenn in his comment has also raised some great questions. You’re right about differentiating between IT investment as a component of transformative change and as a running cost. There are some great resources from ISACA on this question in their ValIT framework.

    I’ll continue to read your blog and I look forward to more thoughts on this area.

  3. Paul,

    I love the topic of your post and I agree with what Glenn has said above. I think as you’ve said it’s important to make a distinction between BAU spending and IT investment for transformative change. The ValIT framework from the IT Governance Institute has some great material on evaluating IT investment.

    Looking forward to hearing more from you,
    Anthony

  4. Russ Aebig says:

    Great post. I would add that there is also the IT Spend / IT Investment that can be broken down by type of labor being used (internal, external), how it is being used, and what it is being used for. ( http://bit.ly/c7pri2 ).

    Thanks for writing. Your blog has been bookmarked.

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