Blog

How Can IT Best Explain It’s Value To The Business?

How Can IT Best Explain It’s
Value To The Business?

  June 2, 2020      Steven Middeldorp

Too often there is a wide gap in appreciation and understanding of the value of IT Finance to the business, it’s usually more about “why does IT cost so much?”.

Leadership may not be familiar with ITFM terminology or why IT does what it does or how IT does what it does. IT is often unable to clearly explain the business financial reasons behind the implementation of initiatives including infrastructure or new technology upgrade deployments. And when IT cannot offer clarity, leadership may not understand the benefits of those IT investments.

When reporting, the default position for IT Finance, is to produce information in their own familiar format utilising familiar terms and language. This could include tools like spreadsheets and pivot tables, which while powerful tools, they rarely address the core concerns of leadership outside of IT who likely requested the information. This means IT is perpetually on the back foot, trying to explain “the cost of IT”. To be of continuing value to the business, IT needs to learn to translate the language of IT (compute, storage, automation, lifecycle management, frameworks, app development, interfaces) into the language of business finance so that leadership can comprehend and then formulate the report in a more customer-centric layout.

This is how the skill of IT storytelling is developing across today’s enterprises. Instead of hard data and IT-speak, the IT Leader must now combine narrative along with the technical information that offers clear explanation in the language of value in corporate finance. In this way the IT team can tell the story in a way that speaks to what IT is doing to solve business challenges while demonstrating the value of IT versus its cost.

This need to report with a customer focused mindset, instead of just the total cost of compute, storage, and development is at the core of demonstration IT value. By combining data, data visualisations, and narrative, IT Leaders can build a story that speaks to how they are solving business problems and addresses the value of IT.

The most widely accepted reference book on Value for Corporate Finance, VALUE: The Four Cornerstones of Corporate Finance, offers the modern IT Leader language and form that leaders consuming the report will understand.

In this book the authors identify four key principles of that are the foundations of value for an organisation:

1. The core-of-value principle establishes that value creation is a function of returns on capital and growth while highlighting some important subtleties associated with applying these

2. The conservation-of-value principle says that it doesn’t matter how you slice the financial pie with financial engineering, share repurchases, or acquisitions; only improving cash flows will create

3. The expectations treadmill principle explains how movements in a company’s share price reflect changes in the stock market’s expectations about performance, not just the company’s actual performance (in terms of growth and returns on invested capital). The higher those expectations, the better that company must perform just to keep

4. The best-owner principle states that no business has an inherent value in and of itself; it has a different value to different owners or potential owners—a value based on how they manage it and what strategy they

How can we use these four principles and reproduce them in terms of the use of the IT Leader?

1. Core-of-value Principle: This value shows a focus on the return of value for capital investment or growth – the map of IT Business Services to Business Capabilities is the key tool here. When evaluating any proposal with new capital expenditure, or an expansion initiative, the business will need to understand how the proposed investment provides sufficient ROI for the company. This requires that you understand what provides value to the business and how your requests are linked to the capabilities that enable those values.

2. Conservation of value principle: This principle essentially means that while the bottom line in king, only increasing your cash flow creates value. This means that you need to understand and state how the proposal will help create more sales, or how to decrease the cost of the sales process. Understanding the Business Value Stream is the tool that can assist you here.

3. Expectations Treadmill Principle: This principle means that as forecasts are set and targets hit, leadership always expects the next set of forecasts to be set at an ever-higher level. For a listed entity, this leads to ever-increasing stock performance pressures that can have other consequences for management and the longer-term health of the business. For a private organisation, this can lead to more insistence on higher cost savings or productivity. Inevitably, the point will come where the strain and expectations place too much stress on The solution is not cutting back on the forecast, but by helping the business innovate using new ITFM technology that may have an out-performance to the bottom line.

4. Best owner principle: This principle says that the value of the business can and will vary with the strategy and management plans of the leaders. The same assets you have today can have changing value, depending on how they are implemented or merged with other assets. Being able to align your budget request to the current strategic objectives is imperative. Having your ITFM model be abstracted and flexibility is critical. If you tie your GL items to corporate strategies, the work to keep up can be staggering should the strategies change. You must ensure the ITFM model in set up in a way that lets it flex with the business as plans and strategy evolve.

ClearCost’s IT Financial Management software provides clarity in communication and automated reporting that makes demonstrating IT value a breeze. To view ClearCost’s core capabilities, speak to our team.

CategoriesBlog

TagsIT Financial Management software, ITFM, ITFM software, IT Financial Management, IT Business Services, IT Leader, CIO, TBM, Technology Business Management, IT Expense Management

  May 12, 2020      Steven Middeldorp

Here’s How To Understand Intelligent ITFM Software

  May 5, 2020      Steven Middeldorp

Here are the Top 10 Best IT Questions to Ask Your CFO

  April 28, 2020    Steven Middeldorp

What is the Intricate Language of ITFM Software?

  May 12, 2020    Steven Middeldorp

Here’s How To Understand Intelligent ITFM Software

  May 5, 2020    Steven Middeldorp

Here are the Top 10 Best IT Questions to Ask Your CFO

  April 28, 2020    Steven Middeldorp

What is the Intricate Language of ITFM Software?

  May 12, 2020
  Steven Middeldorp

Here’s How To Understand Intelligent ITFM Software

  May 5, 2020
  Steven Middeldorp

Here are the Top 10 Best IT Questions to Ask Your CFO

  April 28, 2020
  Steven Middeldorp

What is the Intricate Language of ITFM Software?