CIO KPIs not clear to the C-Suite

A striking lack of alignment in way CIOs measure and communicate the value of IT operations to CEOs and CFOs – who knew?

That may not come as too much of a surprise to many of us, but it’s one of the headline conclusions of a new study carried out by Forrester Research on behalf of the Technology Business Management (TBM) Council.

Some context: the TBM Council was initially founded by Apptio as a CIO user community, but spun off as a separate Delaware-based, nonprofit organization in mid 2012.

Its mission statement is to identify and promote best practices for running technology organizations like a business and boasts 800 CIOs and ITDMs among its members.

Some top line findings from its Business Technology Value Scorecard: Moving From Transaction Orientation To Outcome Orientation report:

• CIOs struggle with communicating the value of IT to their business leaders.
• Two-thirds of CIOs believe that IT accelerates business success.
• Half of business leaders feel that IT is holding back the business.
• Business leaders also estimate that IT spending is roughly 8% of their revenue, whereas, in reality the number is 5%.
• CFOs feel they are only receiving one-half of the information from CIOs — the amount of spend, not what the company gets for that spend, and whether that spend amount is appropriate.

There’s a big challenge to be faced in that IT metrics today are predominantly transaction-focused rather than measuring IT’s contribution to business outcomes and ability to respond to market changes.

Two-thirds of IT budget is spent on maintenance and operations, forcing CIOs to focus on operational KPIs.

CIOs struggle to link KPIs to specific strategic objectives and business value. The report argues:

Clearly, there is a need for a common language that allows IT and business executives to better understand the activities — and the outcomes of these activities — toward efficient stewardship of business resources.

A clear and concise dashboard composed of a suite of relevant metrics that span the activities within the IT portfolio that positions both this efficiency and effectiveness should contribute to better interdepartmental communications, better business and IT strategic planning, and an environment that is self-optimizing based upon desired results.

While there is no perfect scorecard or KPI, the CIO’s challenge is to think, communicate, and measure in business terms against four distinct categories of KPI: health, delivery, outcome, and agility.

Within these, there are various domains:

• Health incorporates governance, performance and efficiency
• Delivery incorporates the helpdesk, the performance management office and customer satisfaction, both internal and external.
• Outcome incorporates financial measures, market dynamics and industry or sector KPIs.
• Agility incorporates people agility, technology agility and financial agility.

The TBM Council and Forrester make some key recommendations around KPIs:

• Make them actionable.
• Establish thresholds as not having them is akin to playing a game without keeping score.
• Ensure auditability.
• Be pragmatic and repeatable.
• Focus on quality not quantity.

It’s also necessary to tackle the cultural issues as well:

• Emphasise the desired role for IT within the organisation.
• Map metrics to the IT portfolio.
• Catalyze strategic discussions on the right role and activity plan for IT.
• Build trust and mutual respect before measuring.
• Use KPIs to start a dialogue.

The TBM Council concludes with a reminder of the need for a fusion of business and technology warning that a purely technology-centric view creates silos.

Alignment between business and IT isn’t enough; there needs to be joint accountability for business outcomes:

To be fair, IT leaders haven’t done a good job of “training” their business leaders to ask the right questions. Instead of focusing on an industry benchmark like the IT cost per employee, CIOs need to focus on measuring their contribution to business outcomes.

Use metrics like percentage of projects with joint IT/business ownership to underscore the lack of support from business leaders or compare business areas to encourage friendly competition.

It advises that organizations must consider KPIs as managing a portfolio and drive a portfolio mindset for BT decisions:

Align your focus to your maturity and culture — your context. If you don’t have a stable environment, measuring uptime and other health KPIs is important, but if you feel you have a stable environment and consistently deliver on your SLAs, focusing on outcome and agility metrics may be a great idea.