The metric most commonly used by respondents to report on the value and impact of technology capabilities is return on investment (ROI). While this may be considered a crude indicator of value, 67% of respondents rely on it. However, this metric doesn't always measure or reflect the long-term impact that technology investments can have. Nearly a quarter of respondents use net present value (NPV), which takes time into account, but there may be projects or initiatives that don't have quantifiable value associated with them, such as building capacity or extending core technology capabilities. These initiatives may be necessary, but they may not have an ROI.
Not all investments are guaranteed to produce immediate benefits, so technology leaders must take different approaches depending on the type of investment, including customer impact, agility, and other competitive advantages that technology provides.
“We value not how much we spend, but how innovative we can be,” says Diogo Lau, executive vice president and chief information and digital officer at Eli Lilly and Co. “One example of this is machine learning for drug discovery. It's not a big expense in the grand scheme of things, but it's a huge amount in terms of the innovation we can get from our best minds and engineers.”
When thinking about impact, tech leaders can start by looking at the five capabilities of transformational tech leadership – engineer, architect, data scientist, change agent and owner – which highlight areas where executives can create clear value.8 While how to measure and articulate that value will vary from company to company, here are five approaches technology leaders can consider:
1. Discard your current technology strategy. Gone are the days when technology functions operated in silos and communicated with executives sporadically. Today, technology leaders must ensure that technology investment strategies align with and drive the overall company strategy. Technology functions can have roadmaps that serve the business strategy, but they should not have a separate strategy.
In fact, without this alignment, you could be missing out on benefits: A recent Deloitte analysis found that the right combination of digital transformation initiatives could add as much as $1.25 trillion to market capitalization across the Fortune 500. But the wrong combination could put more than $1.5 trillion at risk.9
“My advice to new tech leaders is to make the tech strategy a joint company and business strategy,” says Sathish Muthukrishnan, chief information, data and digital officer at Ally Financial. “When the strategy was developed, I sat down with business leaders, colleagues, and my team to get input on how the strategy is relevant to their business. In every presentation, I make sure to clearly communicate how the tech strategy is driving progress and value to our business and end customers.”
To proactively engage with business leaders and drive overall business strategy, technology leaders need to consider three aspects:Ten
- Enable transformation: The strategic possibilities created by technology transformation. Examples include new capabilities, new markets, new products, etc. Essentially, it is a term that describes efforts to realize a larger strategy, which may span multiple business units.
- Building the roadmap: Technologies that accompany digital transformation. “Strategic aligned” means that these technologies can be leveraged to achieve specific goals and deliver on the strategy.
- Change Management: The ability of an organization to adapt and adopt new processes, resources and ways of working. Often refers to the more qualitative human characteristics required for change and encompasses different areas of talent.
To ensure investments support the entire business, Mark Burson, senior vice president and CIO at Gilead Sciences, said the company created an innovation fund and ultimately changed its governance structure around setting priorities for digital transformation: “Now we work cross-functionally to collectively prioritize investments, and our technology organization coordinates that process.”
2. Balance qualitative and quantitative measurements. Measuring value isn't always quantitative. Technology investments can help employees work more efficiently and reduce mundane tasks to free up time for higher value projects. Increasing technology investments can also allow employees and leaders to leverage specialized skills to add more value.11
“It's good when people reach out to me for help solving a problem because they trust me,” says Jennifer Krolikowski, former CIO of Space Systems Command. “Proving value can be hard because my technology investments often translate to making people more efficient, which isn't something that's easily quantifiable. Some people are skeptical of giving me budgets because they don't know the ROI, but that's because they're looking for the technology ROI and are missing out on the people ROI.”
When it comes to quantitative measurement, it’s useful to think about it from three perspectives: how effectively technology supports business strategy, growth and outcomes; how value is delivered to key stakeholders; and how effectively the technology solution delivers the products and services the business needs.
3. Create an “agile” fundraising process. Our research shows that on average, organizations allocate 25% of their budget to agile initiatives, but their budgeting approach and process may be quite different.
Today, technology leaders need to approach budgeting differently. Budgeting needs to happen more frequently, not just once a year. And it needs to be value-driven, not project-driven. Technology leaders shouldn't commit to a set of assumptions and activities that may or may not come to fruition every six months. Budgeting needs to be viewed as an adaptive process that is inevitably subject to change.
Taking a more agile approach to budgeting requires efficient decision-making structures to reprioritize and reallocate funds as needed. While this may require more time from both business and technical leaders, that time can be minimized and ultimately results in a more efficient use of capital.
Take generative AI, for example. This technology is changing so rapidly that many organizations with traditional budgeting processes are at a competitive disadvantage. But those with a more agile approach may be better able to take advantage of the opportunities ahead.
4. Never present costs that have no impact. Technical leaders need to change how they traditionally communicate the role and impact of their technical teams. Technology is not a cost center, it is a value generator. Technical leaders need to work with other executives to define how value and business outcomes will be measured up front during budget planning so that they are already somewhat prepared when it comes time to present to stakeholders. Translating the business case into tangible and intangible outcomes is key when communicating value.
“We've been monitoring our support functions primarily based on cost and how quickly we can get down the curve,” says a former CIO of a large manufacturing company. “But we need to think of every dollar in our technology organization as an investment, not just as a cost that we're managing — an investment that will generate profits. The big shift for us is to talk about the value of everything we do — and not just talk about it, but to measure it, quantify it, and demonstrate that we've delivered it.”
Arkansas CTO Jonathan Askins has a similar mindset, explaining that while projects often seem expensive, rather than just looking at hard numbers, executives should find a way to communicate what the investment will deliver, even if it can't be fully quantified.
“I’d love to put a value on some of the things we do and say this is worth $2 million, and I know it only cost $200,000 to build, but it’s worth $2 million,” Askins said. “The quickest way to know we’re not delivering is if costs exceed our expectations. [our agencies] What the customer perceives is the value they're getting. Conversely, when a customer calls and says, 'This cost isn't as bad as I thought it would be,' that's an early indicator that we're providing the value we should be providing.”
Accountability lies with the executives who will be affected by the outcome of your technology strategy. This includes the board of directors, who should approve the desired outcomes up front and provide input during execution. Often, execution challenges will require you to reset these expectations, but it should still be done collaboratively. Joint ownership can be the key to success.
5. Recognize that measuring impact is both a science and an art. Not every company is the same, and management's value expectations may vary. First, technology leaders must establish a perspective of what value each technology investment will bring. Second, ask stakeholders what they want to get out of each investment. What does success mean to them? Knowing this up front can help technology leaders plan and determine the right path forward.
For Gilead Sciences, demonstrating impact is as much an art as a science, and people-focused metrics are just as important as IT-related ones. “We publish a dashboard each month that shows detailed metrics on the performance of our IT transformation initiatives and operational security and reliability,” says Gilead's Marc Berson. “We also look at how our organizational health and culture is doing, including employee engagement, skills growth, and development. Looking at these metrics is useful, but without a people-focused balance, they can seem transactional.”
“At Chevron, our IT and digital investments are tightly integrated with the goals each business sets and how they measure value,” says CIO Bill Brown. “This has brought us to a level of maturity where we no longer need to try to carve out separate value from the 'digital' elements of our work. We team up to blur the lines between business and IT, fully understanding our priorities and the value we pursue as we pursue our corporate goals of higher revenue and lower carbon safely.”
Given market volatility, uncertainty, complexity, and the pace of innovation, technology leaders must engage in scenario planning to explore different options with their executive team and jointly decide which scenario to move forward with. This involves aligning key business, operational, and technology priorities, researching leading practices, pressure-testing and validating the resilience of their technology strategies under various scenarios, and aligning their leadership to expected financial and operational outcomes.
