The Hackett Group published its latest Book of Numbers Research, dubbed "Delivering IT Performance Through IT Business Value Management." The research reveals that top IT BVM performers generate $1.07 billion more operating profit on an annual basis and $645 million higher net profit. But what, exactly, is BVM, and what role does IT leadership have to play in it?

According to the report, top performers who manage the business value created through IT investment share four characteristics:

1. IT business value governance
2. Financial management
3. Portfolio management
4. Performance management.

"These processes are all in the realm of management and planning," said Erik Dorr, senior IT research director at the Hackett Group. "And you don't echo any of these core business value management processes in isolation. That doesn't mean you have to ramp up a large comprehensive program and throw lots of resources at this and boil the ocean. It does mean that the competencies companies have on those core processes tend to progress in parallel."

For example, Dorr said, you need to have a granular understanding of TCO and activity-based costing to do good financial management. That then informs the decisions you make around portfolio management — which is equally informed by a good performance management structure that provides the framework you need to run your portfolio.

How Do You Do It?
Practically speaking, how do you go about enhancing these capabilities? First, it must be recognized that IT leadership isn't calling the shots here. Senior business leadership at the CEO or CFO level has to sponsor IT BVM. Then, working as a group that includes IT, "you need to do something upfront that is a process we call value-mapping," Dorr said, Value-mapping has a big role to play to help IT and business leadership get out of their internal jargon, be that IT, finance, or operations-related speak.

"That comes down to establishing the cause-and-effect relationships between shareholder value drivers, business strategies and initiatives in place to deliver on those drivers," Dorr said. Then you need to establish the IT capabilities you need to develop and deliver to contribute to those strategic objectives. "That map will be unique for each company and industry, but also it will become the common language that will be used for business, IT and finance to communicate," he said.

The IT leaders who will make these efforts successfully "need to have a pretty good understanding of how things hang together in IT. They should not have a narrow vision of how to improve the quality of software deliverables, for example, but a more holistic view of the IT value chain and how IT capability relates directly to business value delivery," he said..

Continued on Page 2: More Efficient Than the Next IT Department

Those who excel at IT BVM are also nearly two times more likely to meet cost targets on IT projects as typical companies and nearly three times more likely to meet benefit targets, according to The Hackett Group. And, while most companies spend the largest chunk of their IT budgets on infrastructure refreshes, these companies put their money towards innovation and improvement, usually in the form of discretionary projects.

"In our model we advocate driving down your spending on infrastructure and utility through efficiency improvements, which frees up resources for investment and innovation," Dorr said.

However, he acknowledged that, in recessionary times, those freed-up resources may not be used to those ends. "Efficiency improvement in utility and infrastructure may be achieved, but under current conditions they may not be reallocated. The company may take the money and add it to the bottom line to absorb the impact of overall economic conditions."

That's OK, though, because when the good times start to roll again, Dorr said, "now you have an efficient IT foundation to add on additional investment to support that growth strategy."