The Challenge of Measuring Enterprise Performance In the Digital Era

One of the challenges in managing an enterprise in the digital era is that every one of them has become a technology enterprise.

But not every executive and every institution think of themselves that way, even as they have become increasingly dependent on technology.

One consideration to keep in mind is that the financial measures of the industrial order may no longer be relevant - or appropriate - to the digital era.  JL

Peter Moore comments:

Less than 30% of companies have a process in place to measure the return on investment of their emerging technology projects. 80% of most IT budgets is spent on running the business with 20% spent on changing the business.
Less than 30% of companies have a process in place to measure the return on investment of their emerging technology projects according to a recent survey of 150 CIOs and CTOs. Too many companies still measure the performance and business value they get from IT based on the old work of IT rather than the new work of IT as shown in the chart.

While still important, traditional metrics like uptime, service availability, and meeting project deadlines and budgets don’t accurately reflect the new business value IT must bring to the table. For example, instead of just measuring the reduction of technical debt, it’s time to measure the amount of trapped value recovered and redeployed toward higher value activities.

How you can use the 4 Zones Model to segment the new metrics that matter?
In my earlier work with several CIOs, we have found it very helpful to segment the new metrics into the four zones as shown on the chart below:
Productivity Zone metrics include:
On average 80% of most IT budgets is spent on running the business with 20% spent on changing the business. This presents a great opportunity to identify and redeploy resources (trapped value) from maintaining systems of record to creating and deploying systems of engagement and systems of intelligence.

• Set a target percentage shift for each year and report out results on a quarterly basis.
• Identify and quantify the savings from automating the maintenance of systems of record and other employee tasks.AIG recently deployed five “virtual engineers” inside its infrastructure to collect and analyze system performance data. A typical network device outage would go into a queue and take engineers 3.5 hours to address. Using virtual assistants most outages are fixed in 10 minutes. To date, this new automated process has resolved more than 145,000 incidents and returned 23,000 hours of productivity back to the employees.        
• Fannie Mae is using machine learning to analyze terms and conditions in mortgage contracts and experimenting with image recognition technology to help estimate the value of a home. Early results have shown major improvements in the speed and accuracy of these tasks.
• At SpaceX, CIO Ken Venner measures the signal-to-noise ratio for every new application they provide to ensure that it accelerates the manufacturing process and increases employee productivity. The goal is to achieve a 9 to 1 ratio.

Performance Zone metrics include:
Traditional IT investments in systems of record were funded out of the company’s capital budget and depreciated over a multi-year time period. New investments in systems of engagement and systems of intelligence must be funded out of operating budgets and be held accountable to near-term business outcome deliverables. The core question to ask is what can IT do to effectively help business units increase revenues, margins and profits? For example:

• At a large state government agency, a $650 million innovation project is returning $4.7 billion to the state in additional tax revenue – a 7:1 return on investment – by enabling self-service access on the web and becoming more adept at using taxpayer data.
• At Microsoft, the IT team now gets measured on whether they increased the volume and quality of leads along with the incremental revenue those leads produced.
• At Intel, former CIO, Kim Stevenson, issued an annual report that documented IT’s performance over the previous 12 months. The 2015 report documented these results among others:Increased revenue by $185 million through personalized campaigns
• Forecasted the right product mix and demand to drive $265 million in revenue uplift over previous two years
• Customized the reseller customer engagement process to deliver 2500 new customers and $200 million in incremental revenue

Incubation Zone metrics include:
As I said in an earlier blog, one of the major implications of the unprecedented level of digital disruption is that companies must find ways to get a 10x compression in their product/application development release cycles. Simply put, how can they go from 6 to 12 months to 6 to 12 weeks to 6 to 12 days. The rewards are high as today SaaS is growing at 30-40% per year while traditional perpetual software licenses are growing at 3-4% a year.

• At Intel, the mobile applications development team increased the number of new apps from 57 in 2013 to 164 in 2014 to 238 in 2015.They increased the speed of their product design cycle by 25-30% by optimizing their global server capacity
• Some companies are experimenting with crowdcoding which takes large-scale IT projects and breaks them down into microtasks that can be accomplished by many individuals in a short period of time.
• At ICANN, CIO Ash Rangan and his senior leadership team have embarked on an initiative to get a 10x improvement in their time to value on critical technology projects. To achieve that goal, they have:Redefined roles and responsibilities between product management and engineering
• Developed a series of demand management/capacity planning metrics
• Streamlined the project approval governance process
• Limited product development timelines to 90 days or less

Transformation Zone metrics include:
Transformation initiatives require the total alignment and commitment from the C-Suite, Board and key implementation stakeholders to have any chance for success. The core challenge is does the company have the resolve and persistence to redeploy critical resources away from current businesses that are delivering quarterly returns to a new venture that may not yield any measurable returns for 18 – 36 months.
The initial metrics to decide whether to make this commitment include:

• The new business will scale to generate a 10% or greater increase in the current revenue and profits of the company.
• There can only be one transformation initiative done at a time.
• 50% of the discretionary compensation of all critical stakeholders is solely based on the success of this effort.

Measuring the business value of IT
Early adopters of the 4 Zones model have found it very helpful to start the process by identifying and implementing a new set of metrics that better demonstrate the impact and value of the new work of IT. That work can have measurable impact on the company’s infrastructure model, operating model, and business model as shown on the slide below: