VideoOne of the main principles of the ROI program is centralization. Before Kutschenreuter arrived at ICN, the buying and managing of IT were decentralized and fragmented functions. "The business units used to make all the decisions, and the IT department's job was to fulfil their requests," he recalls.
The trouble, says Kutschenreuter, was that no one was held accountable for driving a companywide IT strategy, and it was hard for head office to get an accurate overview of spending trends. "It was really difficult to make the right investment at the right time in a way that would bring value to the entire company, not just individual business units."
No longer. When business units have a project proposal today, they must complete a lengthy questionnaire about the tangible and intangible benefits they expect the project to achieve if approved. From there, all valuation and analysis is handled by the IT department, not the business units.
When designing the company's ROI program for IT projects, managers at Siemans agreed that all projects should be assessed according to the same metrics. One of those metrics is Economic Value Added (EVA), which the entire Siemens group has been using since 1998 to measure all major investments. "We didn't want to reinvent the wheel, and we wanted to make sure we used something that everyone was familiar with," says Beate Stadler, director of ICN IT.
Yet as Kutschenreuter explains, EVA alone can't tell the whole story. "With IT, we can't just do a mathematical calculation (based solely on EVA) because there are 'soft' factors — such as higher quality of data or faster reporting cycles — that a pure ROI calculation doesn't consider."
Taking information from the questionnaires, the IT team converts the intangible, soft benefits into a numerical weighting and aggregates them to produce a ranking of between zero (for projects bringing the least value to the company) and 500 (for projects bringing the most value). The results are then plotted on a four-quadrant chart, with ROI on the X axis and the value ranking on the Y axis.
The software tool also handles "what if" scenario planning and risk modeling. The outcomes of those calculations help the IT team determine how much controlling and administration a project will require, and are stored in a database along with all other project information.
Pushing the Reset Button
The final part of the ROI program is stricter post-implementation project management. Kutschenreuter and Langkamp now lead a small IT council, which meets at least every six weeks to run through figures produced by the ROI software. With a few clicks of a mouse, they can see which projects are meeting pre-agreed targets and which aren't. Those that aren't are closed down or restructured quickly.
Along the way, there have been some surprises. For example, a few months ago the IT council began studying a big customer relationship management (CRM) project that was developed in-house after several business units requested it. "We calculated that the project would cost us $3 million to $4 million a year just to keep it up and running," says Kutschenreuter. Meanwhile, a survey of the tool's users also showed that they were only using parts of the tool and that cheaper off-the-shelf products could do the job just as well. On top of that, ROI figures showed that the CRM project would never be profitable.
"That's when we decided to hit the reset button," he says. "And the good thing is that there wasn't the usual tension you find between IT and business units. No one could argue with the ROI calculations." In the end, he says, the business units and IT reached a consensus to close down the project and migrate to a cheaper solution.
Today, IT costs as a percentage of revenue have dropped significantly. One of the reasons for the decrease, says Kutschenreuter, is that the ROI tool produces cold, hard numbers that show the business units why many of their beloved legacy systems cost much more to keep up and running than standardized platforms do. "They suddenly see that it's possible to get rid of their legacy systems and implement new ones," he says. "This is the charming thing. You can invest in new technology and at the same time you're saving money by closing down old systems."
The next stage, says Kutschenreuter, is to tie the ROI program to planning and performance measurements. In the current round of budget preparations, for example, the benefits claimed by the business units for approved IT projects are included in targets set for the next fiscal year, which begins in October. Eventually, Kutschenreuter would like to see annual bonuses linked to how well those targets are met by business unit heads.
When Kutschenreuter accepted the offer to become finance chief at ICN, he promised himself one thing: Within three years, it would return to its star position at Siemens. His work may not be finished yet, but if his IT investment management is any indicator, he appears to be on the right track.
Evangelize and Analyze
Same thing can be said for François Coste. Coste, regional CFO of Axa Asia Life, the Hong Kong-based insurer with $5.94 billion in assets under management, has long been evangelical when it comes to CFOs and their ability to drive the value of IT investments. "IT is not something mysterious where CFOs shouldn't enter," he asserts.
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