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29 May 2012

Back to basics: How IT creates value

By Andrew Clifford

Understanding how IT creates value lets you deliver smaller, simpler, cheaper and more usable IT.

But there is a problem: we do not understand how IT creates value.

If you read a typical IT project proposal, you would think that IT creates value by implementing technology and changing business processes. But implementing technology does not of itself deliver value. And although IT can help businesses work in different ways, of itself it does not change how businesses work.

Because we do not understand how IT creates value we make IT much harder than it needs to be. We implement more technology than we need to in the vague hope it will be more useful. We also muddle the delivery of IT with other value.

For example, it is important to manage stakeholders in a project. Because we do not understand how IT create value, we try to manage stakeholders by treating everyone's political agenda and wish list as requirements. Many of these requirements can never deliver value as part of an IT system, but because we do not have a way of identifying and communicating this we include them anyway. This adds to implementation and ongoing maintenance costs, increases complexity and undermines usability.

To get closer to minimal IT, we need a different model for how IT creates value.

The model is very simple.

IT delivers value when it gives you information that helps you do something faster, cheaper, more accurately or more reliably, or that helps you do something you could not otherwise do.

However, IT can not create information from nowhere. And an IT system which only shows you information you have just entered would not create value. To create value, IT must add value to information in at least one of three ways, and typically a combination of all three.

  • Store. IT adds value to information by storing it so that it is preserved through time, more accurately than our memories and more conveniently than paper.
  • Calculate. IT adds value to information by transforming and combining information to derive new information.
  • Move. IT adds value by moving information through physical space, giving us information entered by other people or stored or calculated by other IT.

This simple model provides a very clear way of expressing the value of IT. The value of IT is the additional speed, cost reduction, accuracy, reliability or capability that is delivered by storing, calculating or moving information.

You can use this model to assess demands on IT and identify those that create little value.

The big enemy of IT value creation is the IT project. Of course we need to organise work, and co-ordinate IT changes with the business changes they supports. However, projects take on a life of their own, and the requirements of the project itself, which are often political and temporary in nature, become requirements on IT. You can use this model to weed out requirements that are nothing to do with IT, and which need to be managed separately from the IT delivery process. You can use it to identify the 20% of requirements that will deliver 80% of the value, and focus on those to deliver much smaller, simpler, cheaper and more usable IT.

Next: Back to basics: The importance of structure

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