Proving the Business Value of IT

Demonstrating value helps CIOs maintain their budgets and their authority as a C-suite experts.

eBook cover of Gartner CIO Agenda. Topic is delivering digital dividends your senior leadership expects.

CIO’s Guide to Demonstrating the Value of Digital

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Showing value of digital is key for CIOs to prove the value of IT

80% of CEOs are increasing digital technology investments but CIOs still struggle to deliver the digital dividends that meet expectations. This represents a key weakness in the IT value story.

The 2023 CIO Agenda identifies four actions that will accelerate impact and deliver the digital dividends that senior leadership expects.

Download the eBook today to:

  • Discover the four actions you can take to accelerate impact
  • Understand where you are and how to move forward
  • Develop an action plan to meet CEO expectations

Marry business views about impact to tell an IT value story

CIOs help their business peers understand the value of IT when they talk about it in terms of the priorities, outcomes and KPIs that the business understands.

Document the priorities of IT’s primary executive stakeholders

Value is in the eye of the consumer — that is, of the business stakeholder — not of the provider, or IT department. CIOs who successfully communicate the business value of information technology will maintain 60% higher funding levels than their peers who don’t.

Communicating well is easier said than done. CIOs tend to communicate value in terms of technological performance or operations, not in terms of business returns . To more effectively communicate the business value of IT, CIOs must translate technology factors into the language of business outcomes that stakeholders understand and care about.

To do that, CIOs must first understand how business stakeholders define value. Usually it is based on their highest priority business objectives. The three most common objectives are:

  • Revenue (in profit-driven organizations) or value creation (for nonprofit organizations and government agencies)

  • Cost optimization, or the programmatic reduction of costs to improve profitability and value

  • Risk identification, quantification and remediation

Business leaders often emphasize certain subgoals that fall under one of these common umbrellas, requiring CIOs to translate a more granular goal. Examples related to revenue include competitive differentiation, customer satisfaction (as reflected through sales or renewals), market share and so on.

Some business areas may emphasize a fourth objective, such as environmental, social and governance (ESG); diversity, equity and inclusion (DEI); customer services; or, in healthcare, patient care, etc. CIOs should evaluate whether a potential fourth priority is truly separate and if IT activities can directly affect outcomes.

Framework shows key components of business value as perceived by business executives.

There are also organizations for whom the priority business objectives are not obvious or consistent across all areas of the organization. In these cases, CIOs can look for signs of stakeholder priorities in

  • Corporate mission and vision statements

  • Board or leadership reports and KPIs scorecards

  • Company communications from business leadership

  • Annual reports

  • Metrics that executive team members review at defined intervals

Once IT has documented stakeholder objectives and how they relate to value, validate them with the executive/leadership team. Revisit these value drivers at least once a year, as they will change.

 

Leverage priorities and business value metrics to tell an IT value story

The second step in communicating the business value of information technology is to craft  a compelling story about how IT has helped achieve business goals. At the highest level, there are two types of information technology value stories: run value stories and change value stories.

  • A run value story highlights the ways in which IT allows the business to operate faster, smoother or more efficiently. Since stakeholders expect their business processes or critical applications to be available 24/7, the run value story highlights how IT has maintained high performance levels and sustained operations to facilitate business performance.

  • A change value story highlights the ways in which IT has helped the business expand existing capabilities and deliver new ones. CIOs must be able to articulate how they go beyond “keeping the lights on” to demonstrate how they have made investments that contributed to business growth or even transformed the business.

While it may seem more exciting to focus on change value stories over run value stories, Gartner data shows that for most organizations, over 70% of the IT budget is spent on maintaining current operations. Therefore, run stories are very important for representing the total business value of technology.

To ensure those run stories are still interesting to business leaders, CIOs should show how technology is reducing the costs and/or improving efficiency of critical business activities. Focus on large programs with scale impacts and consider grouping smaller cost and efficiency efforts with larger, multiphased initiatives.

Consider the following examples of run and change value stories aligned with the different types of business priorities (revenue, cost optimization or risk mitigation):

Revenue-related value stories

Examples of how IT sustains current revenue streams (run) include:

  • Supporting revenue-generating business processesImproving availability or performance of revenue-affecting applications

Examples of how IT helps generate new revenue streams (change) include:

  • Maximizing platform capacity to support new revenue streams

  • Creating or launching new digital services

Strategic  cost optimization value stories

Examples of how IT improves efficiency and productivity of current systems (run) or enables cost cuts include:

  • Reducing manual intervention 

  • Improving hardware efficiency or investing in technology that reduces energy demand across the enterprise

If your organization prioritizes risk mitigation

Examples of how IT delivers on risk mitigation on existing systems (run):

  • Providing protection for the organization’s digital assets

  • Mitigating third-party risks

Join Gartner experts. Learn to communicate a clear technology value proposition.

Identify IT-influenced business value metrics to enhance the story

The next step in communicating the business value of technology is to understand how IT affects critical business priorities and measure both the cost of related IT activities and the resulting business impact.

Many organizations forget this step or get it wrong. In fact, 67% of all organizations say they work with key stakeholders to determine, define and validate value for the organization at least annually. But only 22% turn that into a standardized process for mapping IT spend to business outcomes and KPIs that measure business value.

Even CIOs that map IT spend to business value make the mistake of selecting and tracking metrics that put the technology first, rather than the business outcomes. This happens when CIOs highlight the quantity of technology delivered (for example, number of tickets resolved) or how technology is delivered (for example, number of bugs found in testing). This is an understandable mistake, given that these technology-first metrics are often easily accessible and trackable within IT’s domain. Furthermore, resolved tickets or debugged applications do matter — but only for IT teams looking to continuously improve their processes.

Executive stakeholders, in contrast, care less about the fact of ticket resolution than they do about how ticket resolution helped their teams achieve business goals. As a result, CIOs need to measure business value in a way that shows how IT spending contributed to a concrete business result. Clear and mutually agreed-upon business impact metrics are key to quantifying and then communicating information technology value.

The right metrics map back to the identified priorities and goals related to revenue, cost optimization and/or risk mitigation, as discussed above. 

Business-outcome-driven metrics (BODMs) are what we call the metrics that allow business teams to track progress toward concrete business goals. CIOs should either work with their stakeholders to understand which BODMs they currently use to measure business value, or collaborate with the business to define relevant IT-related BODMs. The collaboration can go both ways, with CIOs also showing how existing technology-outcome-driven metrics link into BODMs.

Follow these rules when developing metrics:

  • Identify impact metrics for each IT area that contributes to business goals.

  • Prioritize ways to measure the cost of IT and the resulting business impact, including financial impact.

  • Include application service-level commitments (where they exist) that measure availability and response time, and their business impact.

  • Limit information to one page of summary/a dashboard of metrics and two clicks’ worth of detailed drill-down.

Keep in mind that executives usually care very little about what the technology is or how it is configured. They care about what it allows them and their teams to do and how the measured value relates to their priorities and goals.

Join Gartner experts. Learn to effectively demonstrate the business value of IT.

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