IT Management

18 imperatives for improving the ROI of ICT

No organisation nowadays can function without some level of information technology and so all are faced at some time with having to procure ICT products and/or services. But doing so creates significant risks for an organisation.

A joint study by McKinsey and Oxford University found that half of all significant projects massively blow their budgets. On average, these projects run 45 percent over budget and 7 percent over time, while delivering 56 percent less value than predicted; as many as 17 percent of large software projects go so badly that they can threaten the very existence of the company.

To avoid such blowouts senior managers should approach ICT projects with caution, care and healthy scepticism.

1. Understand the motivation of your vendors

Salespeople in the ICT industry are commonly remunerated under base-plus-commission compensation plans. Commission is generally paid when your contract is signed or when you consume the service, not when your need is satisfied. This is not a criticism of ICT salespeople, but commissions make them choose between your needs and their manager’s needs (who are also remunerated on “sales”). If you happen to be dealing with a salesperson that does not earn commission, but is paid on the basis of your results, you can proceed with more confidence.

2. Be objective when choosing a vendor

Don’t rely solely on opinions, references, what other companies have done, postings on the internet, and other qualitative methods. Any investment in ICT is important and expensive (and risky). The selection process you use will be a key determinant of the success of that investment. It should be rational and appropriate to your need and the investment you intend to make, and the business risk involved. But don’t go to tender if you have already selected a vendor. Tenders and similar formal methods of reviewing what the market has to offer are very useful to the buyer. But they are very expensive for vendors.

3. If you don’t know what you’re buying and why, no one else will

Information and communications technology is a tool that you apply to a business need. You must be very clear what that business need is before you start shopping. As that old saying tells us, you don’t go into a hardware store to buy a drill, you’re there to buy holes! But is it holes that you really need? If so, what size, shape and depth do you need? What is the material in which the holes are needed? What will you do with those holes?

4. Don’t buy ICT if you don’t need it

People buy ICT (and other things) for many reasons – their customers/partners have a need that can only be met by using ICT (that is, for “value creation”); their competitors have gained advantage through its use (for example, an innovative new offering that can only be provided using ICT); they are required by law to have such technology (for example, for lodging tax statements); to support their “standard way of working” (for example, accountants need accounting systems), and; because, well, because everyone else has one (for example, CRM?). But consider this (to continue the holes/drill analogy) – do you have holes now? How were they created? What’s wrong with your current hole-making tool? Have you improved that tool to the limit of its capability and capacity? Before you laden yourself with the expense and risk of an ICT purchase, make sure you really need it.

5. Don’t please the CFO, only to p***-off everyone else!

Any new ICT product or service is going to disrupt your organisation to some extent. If someone’s work is disrupted they want to see that there is some benefit, some payoff. Unfortunately, often the people who suffer the most disruption are those who receive the least benefit; neither are they always the ones who made the ICT decision. For example, ERP systems (such as Oracle, SAP, MS Dynamics etc.) might be purchased on the direction of the CFO because such systems can make financial management much easier. However, ERP systems affect nearly all areas of company operations (that’s what they were designed to do). A good ERP choice for its end-of-year accounting capability might be a terrible choice for the purchasing team; a good CRM choice for its integration with the ERP system may be a shocker for the customer on the phone to the call centre.

6. Always insist on a demo and referrals

You wouldn’t make any other major purchase sight unseen, either business or personal, so why do it with ICT? The same goes for referrals. If you’re prospective vendor is unable or unwilling to provide a demo (hands-on for your key users) and reference customers you can visit or talk to, then look further for your solution.

7. Don’t replace a buggy with a Ferrari pulled by a horse

Many of the most wasteful software projects I have seen have been those where new technology is used to reproduce a legacy system (either in form, function or both). If your legacy system is about to turn up its toes, take advantage of the situation and thoroughly review your business processes, take a good hard look at the value of the existing application, and objectively consider the broad and long-term costs and benefits of moving to new technology and new ways of operating. Don't look only at the area(s) using the legacy system, look at your complete value chain to determine if like-for-like replacement really is the best approach.

8. Don't customise

As Larry Ellison (Oracle Corporation founder and executive chairman) is reported to have said, there’s no competitive advantage in accounts payable. In other words, for standard operational software (such as financial, human resources, customer service, sales force automation and so forth) stick with the “out of the box” capabilities of the solution you have purchased. The corollary of this is, purchase a solution that provides industry standard capability as delivered. If you choose to configure, make sure the changes add real value, and don't cause excessive costs when later upgrading. If you are seeking competitive advantage you should look to innovative and new solutions not the tried and tested, or develop your own unique solution from scratch.

9. Don’t just manage procurement or implementation; manage risk

All ICT projects are risky. In fact, any change is risky. What is important is to manage that risk (identify it, estimate it, evaluate it, avert/mitigate it, monitor it). In an IT project, many people rely on contracts and specifications as the primary methods of risk management. But these can only mitigate risk (to an extent) and provide a means of apportioning blame when risk is manifested. I suggest you start with Acceptance Criteria - that which needs to be delivered and proven for you to be willing to pay the vendor. That will focus all parties on the outcome (meeting your needs) and not the signing ceremony!

10. Plan for a second release from the start

With application software, you’re unlikely to get exactly what you need from the first release. So plan for a second six months or so after the first. Use the intervening period to work with users (and other stakeholders such as customers and suppliers, where relevant) to identify improvements. You can use an agile methodology for this type of project or simply adjust the “waterfall” model. But! Make sure you and your implementor follow sound software engineering practices (see “Look beyond project management” below) so that Release 1.0 is of the requisite quality.

11. Understand the motivation of your advisors

Consultants get paid for effort, not results (not yours, anyway). Many also are paid, effectively, for selling services. There are many excellent consultants and consulting firms around and, like ICT salespeople, they want to help you, but they all have masters. They also often make very large amounts of money from ICT projects. Consultants can be very useful to you in selecting ICT products and services and in implementing them, but do not use the same consulting firm for both selection and implementation.

12. Don’t overspend on software

Software is pretty much a zero cost item once it’s released. Yes the development cost must be recovered, but that’s over many sales, not just yours! So negotiate hard with the software vendor. They can, and do, offer enormous discounts, particularly near the end of their accounting periods (quarter and year). Don’t be persuaded to buy products you don’t need as a means of boosting the “value” of the deal; go for the dollar discount.

13. Don’t underspend on services

An old saying is “you can discount the price, but you can’t discount the work”. A developer or implementor has to live! If you squeeze the total price by hard negotiation, the quality of the work will be at risk (particularly in a “time and materials” arrangement where the quality risk resides with the buyer). If the price is too high, look for non-essential modules and features. But also look at the business case; if the IT solution is designed to deliver millions of dollars in benefits, don’t be a cheapskate with the implementation!

14. Don’t let a business initiative turn into an ICT project

Putting aside periodic technology refresh cycles, most ICT projects begin with a business need. Usually this spawns some kind of formal business case, a search for a provider of the required software and/or hardware and then the establishment of an ICT project. To provide governance, a steering committee is formed (with business, IT and vendor representation) and the IT project manager reports to it. This is where so many organisations go wrong! That way, a business need has morphed into an IT project, and the business just continues on its merry way. The better approach is to keep it as a business initiative, with a business project manager as well as the IT project manager reporting to the steering committee. This ensures that the project stays aligned to the business need.

15. Look beyond project management

Consulting firms will often extol the benefits of their PMM (project management methodology), but an ICT project (development or implementation) is more than supervision, coordination and communication. In fact, its primarily about deliverables and end-products. Look for a developer/implementor who uses not only a methodology for project management, but also uses methodologies for solution management, data management, document management, conversion management, change management, test management and quality management.

16. Invest in success (build quality in), don’t spend on failure (testing and rework)

When developing or implementing software, testing is used to find bugs, right? Well, yes it is, but that’s not the real purpose of testing. Testing is intended to confirm the absence of bugs. If it’s used to find bugs, then someone has spent a whole lot of your money creating those bugs and now they want to spend more of your money finding and fixing them! There are better and cheaper ways to ensure quality (and testing doesn’t really ensure quality; the more bugs you find, the more that are left unfound). If a developer or implementor says that testing will be more than 10-15% of the project budget, look for a new provider.

17. Don’t think “Everything-as-a-Service” is the Silver Bullet

Buying ICT “as a service” or from “The Cloud” has many benefits and does have the potential to reduce some of the hazards identified above. But "EaaS" won’t eliminate those hazards and caution is still required.

18. Be a good customer

Once you’ve acquired, implemented and proven your ICT solution, it’s time to be a good customer. Even straight product purchases will entail a continuing relationship with the vendor, if only to pay the annual maintenance fees. Make sure you get value from the relationship by holding formal and regular reviews with the vendor, with the mutual intention of creating further value for both parties.
Apart from paying on time, sharing appropriate information, keeping your people competent and your ICT assets safe and in good order, what else can you do? Be an active reference site for your vendor(s). That may mean keeping a customer profile up to date, or recommending the company on LinkedIn or maybe taking calls from prospective customers of your vendor(s). You may even enrol in a more active reference program run be the vendor. Such activity is good for you and your company, and can benefit the wider economy. Just make sure that any programs you sign up to provide mutual benefit at an appropriate investment of people, money and resources by both parties.

If you follow all these suggestions, you will improve the quality and capability of your ICT assets, and do so at a much lower cost than you would have otherwise.

See the BusinesSPM Projects "BWS Lawyers IT Transformation", "Jackel IT Transformation" and "Gunderson Briggs" for examples.