Mark McDonald

A member of the Gartner Blog Network

Mark P. McDonald
GVP EXP
8 years at Gartner
24 years IT industry

Mark McDonald, Ph.D., is a former group vice president and head of research in Gartner Executive Programs. He is the co-author of The Social Organization with Anthony Bradley. Read Full Bio

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How CIOs present choice makes all the difference in the world.

by Mark P. McDonald  |  August 31, 2010  |  3 Comments

CIOs and their IT teams can unnecessarily limit their influence and options in ways that seem small, but have major consequences.  Take for example  how you present options.  IT is as much about decision making as it is about cost effective operations or innovative solutions which makes shaping and presenting options a critical management activity because options shape expectations.

IT is all about making decisions about where to invest, who to work with, what technologies to choose, etc.  Decision making is so prevalent in IT that the industry is rife with scoring models, classification schemes, hype cycles and quadrant models.  Each decision involves choosing among various options, and it is in the presentation of those options that can make all the difference.

Here is an illustration with sample numbers:

You are considering a new project and of course there are multiple options in how to proceed.  Here are two options that CIOs often face:

Option 1:  Customized Solution — delivering 95% of the requested functionality at a cost of 100 units.  The business value from that investment is expected to be 200 units.

Option 2: Package Solution — delivering 75% of the requested functionality at a cost of 50 units and a business value of 150 units.

This is a common set of choices facing CIOs, a custom solution that delivers more value or one that does a good enough job that saves money with the funds going back into the corporate treasury.

Some like Option 2 because it saves money, represents lower risk and implements proven practices embodied in the package. After all, with benefits realization a risky opposition, the best thing to do is to take an option that costs less.

However the business sees things differently.  With option 2 they are getting only 3 out of 4 requirements and they are losing funding that has been part of their business plans.

IT winds up sitting in the middle between investing in future value and saving current dollars.  That tension is created by IT as it presents an either or option.

In fact there is a third choice that is rarely presented or considered.

Option 3:  Multiple project solution — based on option 2 that implements a package solution delivering 75% of the functionality at half the cost.  In addition, IT highlights the other two projects that each cost 25 units and deliver 50 units of value.

The figure below highlights these options.

Slide1

Too often IT options are based on a spend/save basis without considering the potential value of investing savings now.  The assumption is that any savings will of course flow back through capital allocation and governance processes — however those processes are slow and the business unit risks losing its already approved capital.

Presenting the business with an either Option 1 or Option 2 decision pits their desire to achieve their strategy against a business decision to preserve capital.  Facing that choice of spending more to get more, or spending less to get less — its little wonder that executives can see IT as limiting  business value.

That limitation is unnecessary because there is always an Option 3.  An Option that  shows what can be achieved by investing the savings of option 2 into other changes the business needs.

It is the type of win-win option that technology was supposed to deliver.

The business wins as they get three projects completed, rather than a single project.  The three projects expands business capability across multiple areas.  It also creates the greatest value at 250 units.

IT wins as they have the opportunity to create more value and apply technology in multiple areas of the business.  Each project represents a value moment and getting three moments is always better than one.

The company wins as it creates greater capability for the same cost. There is no financial loss as the original 100 units of capital are invested in the business rather than stranding 50 units in one time savings.

All of these happen because of the choice set CIOs and IT presents to the business.  Adding a third choice, one that shows the potential value of investing potential savings immediately in other capabilities changes the game from either/or – win/lose – zero sum to one of greater opportunity and impact.

The business may still choose option 1.

Corporate may require the business to save money and force option 2.

But at least all sides have a well informed choice set and you are not in the middle.

It is all in how you present the options.

3 Comments »

Category: CFO CIO IT Governance Strategy     Tags: , , , ,

3 responses so far ↓

  • 1 Jack Vinson   August 31, 2010 at 7:53 am

    Interesting perspective.

    Even better: option 2 presents a better “return” if you look at business value and cost. Option 1 is 200 units / 100 units = 2 to 1. Where option 2 is 150 units for 50 units = 3 to 1 return. Then the little projects in Option three are each a 2 to 1 return AND come after the business has incorporated the off-the-shelf software into their world. Maybe the 2nd project won’t be needed at all?

    (Of course the math is a little funny: Was the first option short by 50 units of business value?)

  • 2 Roger Bottum   August 31, 2010 at 9:20 am

    A nice spin on the cut cost and innovate message.

    Given that on-premise software in our segment often requires you to 1) buy/operate more “function” than the business problem/opportunity requires (all the world’s a Venti?) , and 2) the cost to implement makes it economically infeasible, we use the equation

    R + M = -35% to -75%

    Translated its

    Replace Currently Used Functionality + Implement Additional Applications = Still Save 35% to 75% of the TCO.

  • 3 Toby Brown   August 31, 2010 at 1:06 pm

    Perhaps this is already part of your equation, but I have found the going-forward development costs an issue as well. In option 2 you have presumably delivered a solution with built-in, planned upgrades. Although a single customer does not have say over upgrade decisions, these are being made and the product advances over time. In Option 1 – unless IT has committed current AND future resources for development (in your equation?), the product is static. BTW – I think maintenance costs exist equally for both 1 and 2

    I don’t recall any IT projects where the system was a one-shot, deliver and done proposition. This has generally lead me to favor Option 2 solutions.

    That being said, your Option 3 is creative thinking and adds a new and likely better option to the mix.