IT Effectiveness: Applying Business Analytics to IT Organizations

By Mike Meyer
Senior Consultant

When you look at your IT organization, how do you know how well it is performing? What are the key metrics you use to measure performance? Are resources aligned with organizational goals? The metrics may only tell part of the story because typically they are internally and technically focused, as opposed to being business-result focused. The essential purpose of any IT organization is to enable the business areas to be more successful, so a deeper dive is required in order to link IT work activities with organizational strategy and business results.

Although no two IT organizations are identical, the typical insurance, banking, or health care IT organization consists of functions such as Network Services and Support, Application/Solutions Development, Data Management, System Availability, Enterprise Infrastructure, Enterprise Architecture, and a PMO or IT Governance group. Each of these areas will have its own set of performance metrics that provide insights into how well these functions are being performed. What is often missing, however, is a clear picture of whether IT resources are being allocated in a manner that delivers positive impacts to the business. This kind of measurement is, of course, not so easy to do. A very structured, focused, and objective effort is required.

The Nolan Company approaches this challenge by combining business analytics and activity-based management techniques to identify baseline performance levels and to reveal potential improvement opportunities. This forms the basis of a comprehensive IT effectiveness assessment. We start at the highest level, normalize the data, and calculate an IT efficiency ratio (Total IT Expense/Total Revenue = IT Efficiency Ratio) to establish a baseline. Our process then focuses on collecting, developing, and drilling down into IT expense data across functions and work activities. Business result and impact data is also collected and developed, and a link between IT expense and business impacts and results is established. This data then feeds an ongoing report-and-response process that prompts management actions based on key measures and trends.