Consultants' Corner

IT Effectiveness: Applying Business Analytics to IT Organizations

Mike Meyer
Insurance Experts' Forum, November 22, 2011

When you look at your IT organization, how do you know how well it is performing? What are the key metrics you use to measure performance? Are resources aligned with organizational goals? The metrics may only tell part of the story because typically they are internally, and technically, focused—as opposed to being business-result focused. The essential purpose of any IT organization is to enable the business areas to be more successful, so a deeper dive is required in order to link IT work activities with organizational strategy and business results.

Although no two IT organizations are identical, the typical IT organization consists of functions, such as network services and support, application/solutions development, data management, system availability, enterprise infrastructure, enterprise architecture, and a PMO or IT governance group. Each of these areas will have its own set of performance metrics that provide insights into how well these functions are being performed. What is often missing, however, is a clear picture of whether IT resources are being allocated in a manner that delivers positive impacts to the business. This kind of measurement is, of course, not so easy to do. A very structured, focused and objective effort is required.

One effective approach I have used is to combine business analytics and activity-based management techniques to identify baseline performance levels and to reveal opportunities for potential improvement. This analysis forms the basis of a comprehensive IT effectiveness assessment. I start at the highest level, normalize the data and calculate an IT efficiency ratio (Total IT Expense/Total Revenue = IT Efficiency Ratio) to establish a baseline. Then I focus on collecting, developing and drilling down into IT expense data across functions and work activities. Business result and impact data is also collected and developed, and a link between IT expense and business impacts and results is established. This data then feeds an ongoing report-and-response process that prompts management actions based on key measures and trends.

My description here only summarizes the assessment and reporting process, but the benefits are considerable. Improvements in IT cost, effectiveness and business impact are compelling. Among the most important impacts is the improved working relationship between business and IT—something many organizations strive for, but don’t expect to achieve via an analytical effort such as this.

This is one of several methods that IT organizations use to gauge and improve performance and business impact. Our readers would be interested in hearing what has worked for you – let the comments begin!

Mike Meyer is a senior consultant at The Robert E. Nolan Co., a management consulting firm specializing in the insurance industry.

Readers are encouraged to respond to Mike using the “Add Your Comments” box below.

This blog was exclusively written for Insurance Networking News. It may not be reposted or reused without permission from Insurance Networking News.

The opinions of bloggers on www.insurancenetworking.com do not necessarily reflect those of Insurance Networking News.

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