I consult, write, and speak on running better technology businesses (tech firms and IT captives) and the things that make it possible: good governance behaviors (activist investing in IT), what matters most (results, not effort), how we organize (restructure from the technologically abstract to the business concrete), how we execute and manage (replacing industrial with professional), how we plan (debunking the myth of control), and how we pay the bills (capital-intensive financing and budgeting in an agile world). I am increasingly interested in robustness over optimization.

Wednesday, November 22, 2006

The Leading Indicator of IT Relevance

An article in the 16-22 edition of BRW magazine by David James entitled “Listen and Earn” reports on research by Mark Ritson, an associate professor at the Melbourne Business School. His research shows a high degree of correlation (70%+) between customer loyalty and revenue growth. Specifically, the more positive customers are about a company or product to would-be customers, the greater the growth; similarly, the more negative they are, the lower the growth. It is, according to Dr. Ritson, twice as accurate as the next best measure.1

This is unambiguous guidance for business executives and managers, especially relevant at a time when growth is the business imperative.2 We can apply the same rule and draw similarly powerful conclusions for IT.

Whilst businesses are growing, IT budgets aren’t keeping pace. Gartner Research reports that on average, IT budgets lag revenue growth by about 61%; it’s as high as 63% in financial services.2 Just as the bottom line number lags, so do the satisfaction indicators: Gartner goes on to report that 60% of CEOs see IT as an inhibitor of business imperatives2, and Forrester Research reports the same number of business sponsors of IT projects are dissatisfied with fitness or timeliness of solutions delivered.3

If we interpret IT budgets as IT's revenue, it comes as no surprise that they’re lagging: business dissatisfaction with IT will reduce the enthusiasm to spend. Budget size is not the goal of IT; it is, however, an indicator of how relevant IT is to the business. If it is to move away from being perceived as a “tolerated nuisance” of doing business in this day and age, IT must be a driver of breakaway solutions, the things that create substantial market advantage or process efficiency for the business. IT won’t drive these unless solution satisfaction comes into alignment, bringing with it an increase in confidence in the capability of IT.

To have this information, we need the data. Fortunately, collecting custsat data need not be invasive or high ceremony: an 8 to 10 question survey consistently proctored (e.g., quarterly) will provide sufficient, frequent data. And, experience shows that what gets measured is what gets managed, meaning there is quick impact: although making the data visible early on causes some heartache, the numbers tend to trend upward because of their visibility.

This, then, makes the case for having customer satisfaction as a component of IT governance, not only because it is integral to answering the second governance question, “are solutions being delivered in accordance with expectations,” but specifically because it is a forward-looking indicator of IT’s relevance to the business.

1 I highly recommend reading the full article in the 16-22 November issue of BRW magazine, it’s worth the AU$3.30.
2 Gartner has produced a number of research reports in this area, including “IT Spending Lags Behind Revenue Growth in Most Industries” in August 2006 and “What’s on the Minds of CEOs and the Implications for IT” on 17 January 2005
3 From Forrester’s 2005 United States Technology User Benchmark Study.