Understanding IT Costs and Benefits

In the early nineties, a reverred Japanese Management Guru commented that most IT benefits were dubious and it was difficult to find an Information System which when removed would not benefit the organization financially as the cost associated with it would go away.

The Japanese company that he represented was not averse to all computing technology, in fact they were a manufacturing shop and had state of the art automation including robotics in their plant and continue to be a successful enterprise to this day. Their aversion was only to the hype surrounding the puported benefits of the Management Information Systems and the complex analysis that was possible with these expensive applications where the real requirements the Japanese believed was only for back of the enevelope estimations for taking any real life decisions.

Times have changed since then and Services industries have overtaken manufacturing in the global economy value add sweepstakes...and unlike manufacturing, service industry is information intensive where the difference between success and failure is often directly related to the quality and timeliness of information availability.

Even within Manufacturing setups, the bloated middle management layers are a testimony to the fact that support functions play an increasingly important role in the operational success of the company and the support functions' effectiveness is surely dependent the raw material called information.

To be able to accurately calculate the benefits of any application, it is important to first lay down the service levels expectations from the support functions taht would be the primary users of that system. This is easier said than done.

As an illustration let us take an Human Resourse Management System. The process owner is the HR Department. The service they provide is to all the employees including the Management. If we look at only the Management side of the service, it can logically be argued as perhaps the learned Japanese Guru would have done, that all HR departments more or less meet the needs of the Management albiet with a little stress at times with or without an HR application. All that an HRMS would do is to give the HR Department some relief and that too only if they streamline their working and follow a systematic approach to keep the system updated as required. It is difficult to justify the cost of an HRMS just on the basis of the services provided by the HR Department to the Management, though most vendors are able to still sell their HR Systems by stressing this exact logic.

If on the other hand we examine the service the the HR Department ought to provide to the employee but is not able to without a proper system, it immediately becomes clear that if the company were to atke the employee as a stakeholder seriously, it would have to employ a small army of HR personnel to provide reasonable service levels to all employees. It is here that the real value of the HR system starts getting understood.

The only difficulty with this approach is that the CIO cannot drive this alone and more often than not, does not get the support of the HR or other functional heads who are happy in their current comfort zones and are not too anxious to step out and explore uncharted territory.

Of course since no other organization is experimenting, the employee expectations being in line with the market practices are also not high enough to stimulate the thought process and so staus quo reigns till someone from overseas comes and sets up new benchmarks.

Till then everyone is content to quibble about IT costs, and most discussions are over current costs compared to last year's costs and if any savings can be effected.