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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What are the feedback systems that drive a Technology Game?

by Mark P. McDonald  |  February 20, 2013  |  1 Comment

The IT Game is a stalemate and the past few posts have sought to start up a conversation regarding the nature of a new Technology Game that should replace the IT Game we play today.   Using the defining characteristics of context, goal, rules, feedback and participation.  These are the prior posts related to the Technology Game:

This post concentrates on looking at the feedback aspects required for a new Technology Game.  If you get what you measure than feedback is a critical part of any game.  A good feedback system keeps people informed, engaged and encouraged to continue to participate and contribute to the game.  Compensation, title, resources and profit are the most common feedback mechanisms within the business game.  Those playing the game get more of all of those things.

Please note this is a long blog post.  It seemed meaningless to describe the need for new feedback systems without providing some suggestions on what that feedback system might look like.

IT’s old rules of cost, quality and risk defined a zero sum game that predetermines a stalemate.

Feedback has been a challenge in the old IT game.  Cost, quality of service, risk have dominated past IT feedback systems – with cost being the prominent guide for measuring IT’s impact, CIO success and IT performance.  This feedback system is embodied in the most common of all metrics IT budget as a percent of revenue, a dubious metric at best.

The old rules for IT revolved around these measures, they also have defined the management practices and approaches related to IT.  These practices predetermined the IT game would be one of stalemate.  As soon as the cost of IT became the focus and the comparison of cost crossed enterprise boundaries, the IT game became a zero sum game.

While IT has gone public, these measures have not changed in kind, but they should.  The question is, what should that feedback system be, what should it measure?

Finance has been the primary feedback mechanism in the IT.  Getting the budget, cutting the cost, and approving business cases dominant the game at the IT level.  Being on scope, schedule and budget define the measurement at the project level.

IT has devolved over the past decade into a game of budget and finance like many other organizations within an enterprise.  The nice part of defining a new game is that you get to suggest new feedback and measurement mechanisms. Technology exists in an enterprise to raise business performance – so finance remains part of the feedback mechanism.  But technology can do so much more. It can be more comprehensive.

Technology is comprehensive so technology’s value should be comprehensive

I would suggest that if Technology is Bigger than IT, then the measures and feedback systems in the Technology Game should be bigger than cost, quality, risk, etc.  Organizations and CIOs have tried to expand the feedback system using techniques like a balanced scorecard but too often these measures and their related strategy maps devolve the role of IT into an enabling role by reducing IT to a financial cost rather than reflecting technology’s ability to amplify value and performance.

The measurements and feedback need to be more comprehensive.  This is particularly the case for digital technology whose business value comes from revenue rather than measuring atoms and bits.   Here is a brief description of the different sources of comprehensive value and suggested feedback metrics.

Business and economic value remains an important aspect of the technology game.  The business and economic impact of IT largely concentrated on improving cost efficiencies, increasing transaction capacity and extending channel reach.  Avoid using simple cost measures like IT budget as percent of revenue as this type of metrics is basically meaningless.

Digital technologies embody capabilities that are more readily associated with revenue growth, pricing power and innovation all should be part of the measuring the success of the technology game.  The following are some potential measures of economic value:

    • Percentage of revenue generated/supported by digital resources.  In a 2011 study published in The Digital Edge , the cross industry average for this metric was 27%.
    • IT as a percent of margin represents an alternative view that seeks to highlight the importance of technology and technology decisions in relationship to profitability and pricing power.
    • EBITA/IT FTE – this is a measure of technology leverage and over time provides a good measure of the economic impact of technology that goes beyond just cost takeout.
    • Change in business performance over time for key operational and leading metrics, as the business value of IT exists over time not at any one point in time.

Shared value looks beyond the business and the P&L.  Shared value exists wherever the business operates and can be measured across societal, cultural, environmental and political dimensions.  Shared value embodies much of what CEOs call a ‘the right to operate’ but drives the idea into tangible measures that drive decisions.

Digital technology, particularly mobile and cloud technologies make the World the subject of shared value as products, services and operations can happen at any time, place or location.  Shard value is not a hand out – like measuring charitable donations – rather it seeks to capture the symbiosis between a company and the community.  Both should move together reflecting a mutually beneficial relationship. Some potential measures of shared value include:

    • Median income in communities with major company operations.  Expressed over time, this figure should rise if the company is sharing its success with the local community, purchasing from local suppliers and building up local economics.
    • Percentage of enterprise resources sourced via local content, suppliers and partners as compared to trading with peer companies.  Being global and acting local involves a broad participation in local markets.
    • Escalation in the number of non-menial jobs filled by local people.  A successful shared relationship reflects mutual investment by all parties.  The company in higher paying less commodity jobs and the community in the social and educational system required to fill those jobs.
    • Information transparency between all parties as sharing information, confronting rumors and building trust are essential to realizing shared value.
    • Outstanding regulatory and legal proceedings in each location.  This seeks to be a bi-directional metric, I am sure there is a better one, reflecting the relationship between the local community or country and the company.  If it were a mutually beneficial relationship, then one would expect this number to trend down over time.

Sustainable value refers to the environmental, financial and operational longevity of the business.  This is the triple bottom line of people, planet, and profit.  Sustainable value captures the impact of operations, products and services on the environment.  This is an area where there has been extensive development, but to provide a few ideas:

    • Environmental impact measured by a range of things from carbon footprints to landfill and water contamination, etc.
    • Transformation of operational inputs and activities toward renewable sources and renewable processes.
    • Workplace accidents, lost workdays and injuries measured over time and across jobs.
    • Literacy, poverty and crime statistics trending over time and with investment/participation in the local society.  This could also be a shared value metric, but these figures often point to the sustainability of doing business in a location.

 

Personal value represents an emerging and increasingly important source of future value.  People have not really mattered in business or IT for that matter.  The word USER proves the point.  Effective digital technology implementations support people and their abilities – human ability – rather than exploiting users.

Personal value is becoming more important as experience and behavior become critical success factors enabled through digital technology.  This was expressed in a great book – the Power of Pull – which points out that in the future, the best people will have the broadest pick of where to lend their time, attention, knowledge and effort.  Some personal value metrics could include:

    • Repeat purchases, engagement and interaction with customers.  This was a critical metric with eCommerce and assumed to be influenced by digital marketing.  However, creating a meaningful customer experience requires more than making usable interfaces.
    • Improvements in customer self esteem, self-image and engagement that can begin to be measured via social media technologies and techniques.  This helps assess how your engagement with customers builds societal and personal strength.
    • Percentage of qualified resumes reviewed to offers extended provides an indication of the attractiveness of your company to the labor market.  The higher the number the more attractive your place to work.
    • Percentage of offers accepted to offers reviewed is another measure of your ability to attract the right people to contribute their talents in the company.

The ‘Technology Game’ is a bigger, broader, brighter and better game than the ‘IT Game.”

The IT game was insular and exclusive to the enterprise and defined by the relationship between the business and IT.  Digital technology is expansive.  Digital technology’s solutions are engaging.  Digital technology is emerging.  All of these realities expand the Technology game beyond its old boarders and silences the stalemate associated with IT.

A richer game requires a more comprehensive feedback system and measures that guide player’s worldview, decisions, behavior and motivations.  This post suggests an outline for this type of system along the lines of comprehensive value.  These are the thoughts of one person, a solitary reflection on a broader set of metrics for technology.  They need your though, input and ideas, please comment and contribute.

1 Comment »

Category: 2013 Digital Edge Digitalization IT Epic Journey Re-imagine IT     Tags: , , ,

1 response so far ↓

  • 1 Miguel Martinez Espinar   February 20, 2013 at 10:31 am

    Dear Mark,
    I think that extending what we may call “traditional IT” into digital grownds just for the sake of bringing in new revenue related metrics for the CIO absolutley defeats the purpose of the innovation efforts behind digital technologies and new business models.
    In fact, new business models that leverage digital technologies are not yet strictly profitable in many many cases.
    Therefore, it is not only unfair to innovators and unmotivating for innovative business leaders, but extending the traditional IT value and metrics via digital technologies value and metrics is not even effective as an excuse for many CIO’s to continue sitting back on their payroll.
    The danger for the CIO is himself. His capability to sell budget requirements on the one hand and to inhibit innovation on behalf of business and functional units across the enterprise, is what is actually causing the problem.The CIO’s confort zone is hence the problem.
    I don’t know what it is, but the solution for CIO and IT percieved value should not become “revenue stealers”.
    With all respect and admiration to CIO’s that innovate, create business value and drive business opportunities, making up “shortcuts” for those that just pretend to create value, is not good practice.