Excellence in IT Business Value Management Drives Real Financial Returns
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IT excellence can drive real improvements to a company’s bottom line, according to new research from The Hackett Group (NASDAQ: HCKT), a global strategic advisory firm. Hackett’s latest "Book of Numbers" research finds that companies that are top performers in IT Business Value Management (IT BVM) also outperform their peers across a wide range of financial and profitability metrics, including net profitability, return on assets, and return on equity. IT BVM represents an integrated set of management processes designed to maximize the economic value you can drive from IT capital investments and operating expenditures.
Business value creation is a key yardstick for measuring IT’s contribution to overall organizational performance. According to Hackett’s research, when compared (by industry) to typical $22.3 billion Global 1000 companies, top IT BVM performers generate $1.07 billion more operating profit on an annual basis and $645 million higher net profit. In addition, not a single company in the Hackett study was able to deliver superior financial performance without also being a top performer in IT BVM.
Hackett’s latest "Book of Numbers" volume, entitled “Delivering IT Performance Through IT Business Value Management,” found that top performers excel at all four key IT BVM process areas: Business value governance; performance management; portfolio management; and IT financial management. Top performers have very different IT investment profiles than their peers. At typical companies, the largest IT investment is for “infrastructure refresh.” By contrast, top performers spend most of their capital on “innovation and improvement,” usually in the form of discretionary projects.
Top-performers in IT BVM also manage their IT project pipeline much more effectively than their peers. They weed out the least promising initiatives early on, approving and funding only half as many project proposals (40% versus 88% for typical companies). Then, they initiate and complete a much larger percentage of the projects they approve. Finally, top IT BVM performers are nearly two times more likely to meet cost targets on IT projects as typical companies and nearly three times more likely to meet benefit targets.
“IT represents the largest capital investment category in many companies, and the largest G&A line item. Yet most companies focus on maximizing the efficiency of IT, viewing it simply as a cost to be contained,” said Hackett Senior Business Advisor Erik Dorr. “The ability to maximize IT effectiveness—the value IT delivers to the business—is still relatively immature. Our IT BVM research clearly quantifies the value of focusing on IT effectiveness, and offers solid validation of the relationship between IT investment, business value creation and competency in IT business value management.”
