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Return on Value (ROV): the lens to see the real value of IT

Blog posted by: Sumit K. Jha and Rakesh Kumar, 19 June 2017.

Return on Value (ROV): the lens to see the real value of IT

Sumit K. JhaEvery day, CIOs face the same daunting question; how can they effectively communicate the value of IT to the business?

For any IT initiative, the confusion lies in identifying and quantifying its outcomes for the business. They need to challenge the business’ perception of IT as a cost centre. During one of our consulting engagements, a CIO suggested that the business was unable to establish a cohesive relationship between business services and IT services. Thus, they struggled to see IT as a key enabler for their business. The CEO of the same organization cautiously stated to us that their IT is a capital consumer and not a value creator.

Any IT initiative has a positive or negative impact on business. This impact is the ‘value’ that is created or taken away. Value can be tangible (direct financial benefit) or intangible and is mostly realized beyond the closure of the project that drives an initiative.

Measuring value using ROI and ROV

Currently, value is measured as Return on Investment (ROI). Typically, ROI provides the measurement of profitability of an initiative. ROI reflects the tangible financial benefits and in certain cases the intangible ones that are converted to the tangible ones. It does not consider the intangible benefits that remain intangible, but which are nevertheless real. Since in most of the cases the value that IT initiative generates are intangible, IT teams find it extremely difficult to quantify and articulate them. This leads us to the question ‘Is ROI the right means to measure the value of IT initiatives?’

Rakesh KumarTo provide the complete picture of value that IT generates for business, we need a measurement that aptly showcases both tangible as well as intangible outcomes. This is where Return on Value (ROV) becomes an important way of articulating the value that IT initiatives can generate for the business. ROV reflects both tangible and intangible benefits. In other words, ROV highlights the ROI along with other intangible benefits that an initiative results in. ROV drives revenue over time (typically as a result of a hitherto intangible benefit). It can be used to value the investments from multiple perspectives namely Business, Strategic, Service, Process, Operational and People.

The ROV dashboard

Any initiative triggers the source of value, (known as ‘value source’), to generate the value from one of these perspectives and are showcased as ‘value factors’. In other words, any initiatives triggers a value source which generates value that are reported as value factors. This is reported to the business in a ROV dashboard or business value dashboard.

Thus, the ROV dashboard is a vital tool that can be used to transform the business’s perception of their IT, allowing the business to appreciate the value that IT creates for them. Hence, a clear understanding is needed regarding ROV and its relevance to frameworks like ITIL®. ROV can be used for any organizational initiative, irrespective of its business domain.

Any ITIL initiative will create value for at least one of the ROV perspectives. Consider the example of a proactive problem management initiative that leads to an increase in the availability of business services. It can be reported as:

VALUE FACTORS VALUE SOURCE VALUE
Competitive edge
  • Better market position
  • Increased revenue
(USD gained in terms of opportunity cost saved due to uptime improvement of y %)
Optimization
  • Service optimization
  • Asset optimization
  • Lower TCO/TCC (Total Cost Of Consumption)
(can be calculated considering cost of incident resolution for related incidents and its annualized count)
  • Improved service availability (additional uptime of y%)
Customer Experience Management
  • Satisfied customers
  • Improved customer satisfaction levels
(can be calculated based on customer surveys)
  • Reduced customer complaints
(can be calculated based on ticket reduction of related incidents and service calls)
  • Improved customer retention (can be calculated based on repeat transactions from a customer)
Stakeholder value
  • Return to stakeholders
  • Better contribution of IT, leading to improved returns for stakeholders (The contribution to increase in transactions and/or reduced opportunity loss will result in better returns for shareholder)


Similarly, ROV is integral to all IT processes, helping to realize the value of ITIL-based activities, and can be used to complement any business case or performance measurement method.

Importance of responsibility for ROV analysis

Another important aspect is positioning the accountability and responsibility for ROV analysis as well as creating and maintaining the ROV dashboard. Ideally, theIT Service Management (ITSM) team is cross-functional, and is the only team that is in a position to visualize the services in a complete sense. Unfortunately, in most of organizations, the role of ITSM team is limited to service operations and related aspects.

ITSM roles are capable of understanding and communicating the criticality of business processes and services internally, as well as communicating the criticality and importance of IT services (and thus also their value) externally beyond the business. As such, there is a need to elevate the role of ITSM team into a cross-functional team and to ensure that they own the aspects of the service lifecycle that are currently outside their responsibility. In other words, the ITSM team needs to act as the bridge between business and IT. The success of ITIL initiatives is directly dependent on and proportional to the contribution of every IT team to the initiative. The value of these initiatives, if effectively communicated to business, would mean that the value of IT has been successfully articulated.

Hence, by ensuring the right focus on ROV, CIOs can realize and showcase the value of IT. ROV is complementary to ITIL as it supports the processes by providing clear views of the value that IT delivers and helps the business with. It also helps in building the business cases for continual service improvement initiatives and technical upgrades, therefore leading to better IT funding and expenditure.

Authors:

Sumit K. Jha and Rakesh Kumar are the authors of ‘Making SIAM work: Adopting Service Integration and Management for Your Business’. They are thought leaders and expert in IT strategy, SIAM, ITSM and Transformation. Currently they are associated with one of the world’s leading IT Service Providers.

 

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