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Measuring the ROI on tech projects is tough enough. Now some companies are looking to evaluate the performance of their IT employees.
Esther Shein, CFO.com | US
March 5, 2002
Time was, chief financial officers regarded IT departments as a financial black-hole. A whole lot of capital went in, but precious little light came out. What's more, the gadgets normally used to measure return on investments simply did not work in that heavy gravitational field.
But oh, how times have changed. With e-commerce now a business imperative, technology is moving into the spotlight as a revenue generator. And as such, CFOs are bound and determined to take some readings from the field. So determined, in fact, that many management teams have begun deploying metrics to gauge the cost-effectiveness of IT projects (see "Mad to Measure)."
"The CFO wants to be more involved in the CIO's mission and take direct responsibility because of the CIO's increasing importance to the bottom line of the company," says Jack Schiff, program manager at Getronics, a global technology services company. According to a recent Getronics survey of 288 CFOs, 84 percent said they believe IT is very important or crucial to revenue/profit growth. The survey also found that finance chiefs want to have more of a say in how tech spends money.
Of course, getting the most out of IT investments generally means getting the most out of IT workers. Affixing hard numbers to the mercurial contributions of tech employees can be tricky stuff, however. And without such numbers, it's nearly impossible to judge if the pet projects of IT managers actually jibe with a company's business strategies.
To get everybody pulling in the same direction, executives at some corporations have begun considering applying the balanced scorecard method to tech workers. While a balanced scorecard approach will undoubtedly help CFOs get a better handle on how tech employees are performing — and would help managers align IT agendas with corporate strategy — creating such a beast is no easy task. In fact, it appears that many finance chiefs are taking fairly small steps when setting up IT scorecards.
No More Ticking Packages
Take the case of United Concordia Companies Inc., a $900 million-in-revenues dental insurance company based in Harrisburg, Pennsylvania. "Historically, what we've done is look at IT projects from a return on investment," says CFO Daniel Wright. "There's a certain amount we understand we have to spend to keep our systems going. But for projects, we look at what's going to be the payback in terms of new revenue, expense reduction, that sort of thing."
After a few tech projects came in late and over budget, however, Wright says company management decided something had to change. "A better appreciation for cost was needed," Wright says bluntly.
So last December, United Concordia instituted a service excellence initiative for its IT staff. The goal? "To look at the productivity [of IT workers] so we get more bang for our buck," explains the company CFO. Although the insurer has outsourced the initiative to a consultant, Wright insists that the program will be "built into the fabric of how [the IT staff] manage their activities on a daily basis."
According to Wright, the consulting firm is using basic metrics to gauge things like the productivity of programmers. But beyond that, both the consultant and the client are trying to come up with some different yardsticks for judging tech. And United Concordia's management has set high standards for those new standards. "We hope to see as much as 25 to 30 percent improvement in productivity in IT as result of this methodology," insists Wright.
Surprisingly, Wright says the relationship between IT and finance has gotten healthier since the coming began rolling out the service excellence initiative. "It used to be a little contentious, because every time we wanted something done we felt it was expensive," concedes Wright. "But I think we have a better appreciation now for what's involved and what IT is trying to do. And they understand our business better as time goes on."
The tech scorecard at United Concordia should take a about a year to roll out, maybe a bit longer. For his part, Wright believes it will be well worth the effort. "We need to be able to spend more dollars on automating certain … revenue-generating processes such as selling over the Internet or working with our customers electronically." Coming up with a formal method for assessing how well tech employees implement those kinds of projects should go a long way in helping the company determine the likely success of future E-commerce initiatives.
Align in the Sand?
Managers at Sharp Electronics Corp. also want more formal procedures for measuring IT performance. According to Tom Riley, CFO at the Sharp Services Organization, in Mahwah, New Jersey, executives at the manufacturer are considering using a balanced scorecard for tech employees, as well as workers in other departments. Given that the company CIO reports to the finance department, Riley says that sort of formalized process will "ensure the group is aligned and contributing to the success of the enterprise."
Presently, Sharp management conducts an audit following major technology projects to see if all the desired benefits and goals have been achieved. "We have various metrics for our help desk and maintenance and support organization," says Riley. "Our current performance evaluation system is more project or task based."
Creating a balanced scorecard for IT is not project based — it's people-based. Not surprisingly, the ongoing initiative at Sharp is being championed by the company's human resources department. When the scorecard is fully in place, CFO Riley believes Sharp will be able to better measure the benefits of IT projects. Moreover, he thinks the scorecard will help make sure the tech department is moving in lock-step with the rest of the company. "[It will help workers] appreciate their role," notes Riley, "and how they can contribute to the overall success of the company."
While some CFOs are turning to IT scorecards to help them better evaluate their tech employees, it remains to be seen if CIOs appreciate the added scrutiny. Observers note that this newfound corporate interest in measuring tech has led to a big shift in the reporting lines of many companies. Increasingly, IT departments are coming under the aegis of the finance function. Not surprisingly that shift is creating some friction — particularly at companies where CIOs have carved out their own fiefdoms. "There's an internal political battle going on between the CIO and CFO as far as the responsibilities of who reports to who," says Jack Schiff, program manager at Getronics, a global technology services company.
Neal Ganguly understands that battle. The CIO at CentraState Healthcare System, Ganguly concedes that it's often difficult to affix a number to what tech does. "Many of the benefits of IS are often soft, [like] improved workflow and organizational efficiencies, which are difficult to measure," insists Ganguly. At New Jersey-based CentraState, which operates a 241-bed acute care hospital, a nursing home, an assisted living facility, and a continuous care retirement community, finance and tech do work together pretty closely, however. And for the most part, Ganguly says the business side "appreciates that ROI is generally elusive and that we're looking for general benefits to the organization."
Nevertheless, management at CentraState has been looking at different options for measuring how IT delivers services. So far, says Ganguly, "we haven't found a magic solution."
Maybe not. But Ganguly does note that finance now works with his group to help justify projects and initiatives and to build an ROI case. He characterizes the pairing as a "challenging but cooperative relationship." He has no reporting responsibility to the CFO, and believes tech should not be part of the finance hierarchy. "IS is a strategic business unit and should be part of operations," Ganguly argues. Hence, he thinks that tech departments should answer to a company's CEO or COO.
That's not the case at Solvay America, a chemicals and plastics and pharmaceuticals manufacturer in Houston. Ben Gilbert, vice president and CIO of Solvay Information Technologies, an IT services company that provides support for four units at Solvay America, reports to the CFO of the parent company.
To get a handle on tech's performance, Gilbert says Solvay uses "critical success factors" for different projects. For example, one metric/goal the company is discussing: doing 15 percent of sales orders over the Internet. "IT is an enabler in that process, and this is in the discussion stage presently," says Gilbert. Any new projects for the business would also have critical success factors, which Solvay management determines.
For example: In 2001, as part of a joint venture deal with BP Worldwide, Solvay acquired a specialty plastics business. Gilbert set a number of goals for IT that included integrating the new company into the Solvay environment and completing the transition in nine months. By April 30, all employees must be moved to the Solvay worldwide network, and the computer processing environment must be transitioned over by October 1, 2002.
Setting these sorts of specific IT targets appears to be helping Solvay management gauge the contributions of its tech workers. Says Gilbert, "We have a much more objective measurement of the performance of internal staff and external providers than we've had in the past."
The CFOs at the four units take a look at budget performance. "We establish each year what they expect of IT in terms of goals and objectives, and we have quarterly status committee meetings and make any adjustments as necessary," says Gilbert. "I report on the measurements that are important to them at the global level," meaning the status of projects and budget performance.
While Gilbert has had past experience with balanced scorecards, Solvay management has only started looking at the measurement tool recently. Applying a balanced scorecard approach to tech performance would be a substantial change for the company. He points out that at Solvay, IT is mostly a back-office operation, "so the strategic advantage of IT hasn't lent itself in the past to rigors of a balanced scorecard." But he does like the approach for measuring all human performance — not just IT's. He believes it gives employees a better idea of a company's overall goals — and how they can help meet those goals.
Still, Gilbert doesn't expect a balanced scorecard approach at Solvay America anytime soon. "You have to get consensus from people that this is how they want to manage." But he does believe such an approach would be "much more objective than critical success factors, which are based on a business unit telling me to do a certain project."
And The problem with Solvay's critical success factors? "It doesn't tell me if we're doing the right projects," Gilbert asserts. "We execute very well, but the question is: Are we executing the right things?"