Justifying Your Job
That's because unless you can justify the IT department's value and "sell" its accomplishments in business terms, there is a very real danger IT will be restricted to business-support activities instead of driving the business forward; or worse: outsourced completely.
It is the CIO's job to ensure your company's business processes are as efficient as possible and to provide real, measurable value to the company. Therefore it is imperative to have the business and financial skills to make a business case.
"There is definitely a need for a new breed of CIO -- a business person with an IT hat who earns the right to be on the bridge rather than in the engine room," said Martin Wyke, IT director at telecommunications carrier Energis.
Financial skills matter because articulating the advantages of an IT project to upper management can only be done credibly if done in financial terms. The technology details of the project are usually irrelevant. Whats important is the effect on the bottom line.
"I don't know how (a CIO) can be successful without understanding that," said David Simon, CIO of the Sierra Club. "I actually think everybody in American business should take a basic accounting class, because that's the nuts and bolts of how decisions are made. It's a cost/benefit analysis. It's how (management) people think. They're all being held accountable to a bottom line and you've got understand that same kind of bottom line."
In practice, you need to be able to justify an IT project in the same way as any other line-of-business manager justifies a project: You must be able to give credible figures for the expected cost savings or return-on-investment (ROI) and payback period for any proposed projects.
But sometimes it simply isn't possible to justify IT projects in straight financial terms. How, for example, do you measure the financial benefit of upgrading a system for which support is to be discontinued?
In these cases there may also be some measures which are more specific to IT, such as IT spending as a percentage of total revenues, which can be used as benchmarks to compare with historic spending levels, or with other companies operating in the same markets.
"Every IT director needs to find his own twenty ratios, such as IT spending to revenue or IT spend to share price, which are appropriate for his company," said Sidney Finehirsh, president of CMX Group, a management consultancy.Applying the Numbers
How can these ratios be used? In the same way that a company measures investment in research and development as a proportion of total revenues and benchmarks this against others in the same industry. You should be able to show when your company is under-investing in IT and use your ratios to build a case for spending on projects which do not generate a direct return -- like upgrading software to ensure continued support or business process improvements.
Today, IT is about providing value, not technology. To show the value of your department, recommends Joyce Gioia, a principal at the Herman Group, a business management consultancy, approach executive committee meetings and board rooms in the same way a good sales person approaches and important prospect.
The fist thing to recognize is this is a selling situation so prepare by knowing what the company's strategic direction is and where IT fits into that picture. Use anecdotes from trade publications to help justify projects as well as future needs and expenditures.
Next, the easy part: "Quantify, quantify," said Gioia. Have numbers ready that show where IT has improved the bottom line, for example, or improved business processes.
Preparation is also key. Think about and have counter arguments ready for any objections to current and future spends and be able to justify IT's importance to the company in terms of value, not just metrics.
And, finally, relax.
"It's an important one," said Gioia. "Recognize that the worst that can happen is you stay with the status quo. Part of the stress and pressure ... that people put on themselves is a result of their fear of what would happen if my CEO says 'No'. What would happen 'If, because I'm asking for this, they decide I'm being unreasonable and I shouldn't be here anymore?
"But what these CIOs need to get is, given the growth of the industry, now they are going to be in very high demand."
Ultimately the CIO's job is to try to ensure that exactly the right mix of IT systems are put in place over time to maximize the profits of the company. You need technical knowledge to devise the right projects, but to ensure they are implemented the skills you need are financial ones.