Chapter 2 / Competing with Information Technology ●
R EAL WORLD
How to Win Friends and
Influence Business People:
Quantify IT Risks and Value
IO Tim Schaefer thinks words do matter.
When he looked at the words IT used inside
Northwestern Mutual Life, he felt that they sent exactly the wrong message about IT’s role in meeting business goals. So, over the last 18 months, these words are out: IT costs, internal customers, IT leaders, alignment, and IT systems.
These words are in: IT investments, external customers, business leaders, integration, service levels, and IT assets. In addition, “IT and the business” is now referred to as “our business.” “We came to realize we ourselves were building the wall.
We were distinguishing ourselves from the rest of the
company,” says Schaefer. “We were somehow different. We
had all this special knowledge. So this whole concept of
black box, and the gap in the relationship, we came to realize was of our own doing.” As part of a broader change of IT
strategy and culture, Schaefer has asked the top 150 leaders in IT to commit to being business leaders, not IT leaders.
Symbolic, semantics, and a whole lot of fuss? Sure—if IT
continued to behave exactly the same way it always has. At
Northwestern Mutual, a life insurance and investment company with more than $155 billion in assets, IT has not. IT started by working very hard to put a real value on IT assets. Although the process is ongoing, Schaefer says the company
now knows it has IT assets worth “somewhere north of $3
billion.” IT can talk about service levels in terms that business units care about: Causing problems in the underwriting process costs $11,000 an hour in lost productivity, and problems that keep the field force from using their client management tools costs $25,000 an hour. Schaefer’s goal is to get IT systems to be viewed as a
business asset, with a value every bit as real as the buildings
F IGURE 2 .1
Being able to quantify the value of IT initiatives
allows CIOs to show their impact on the bottom line.
Source: © Getty Images.
and land the company owns. Getting there requires a portfolio approach to all of its IT assets. That’s not a project portfolio approach that many IT teams have, but an investment portfolio with the same type of processes the company uses to manage holdings in stocks, bonds, real estate, or private equity. Instead of considering whether to buy, hold, or sell assets, though, the IT asset portfolio assesses IT systems and applications through a framework called TIME: tolerate, invest, migrate, or eliminate. Putting a value on an IT asset isn’t easy. Northwestern
Mutual’s IT team does so by working hand-in-hand with the
business units that rely on them. How many more employees
would it take to process claims if the software system used for that didn’t exist? What’s the replacement cost? What’s the cost per hour to the business if it goes down? Getting an asset value is only the first step, though. All of these factors go into whether and how to invest more into that asset. “If we don’t do the right things with these $3 billion worth of assets, we’re not going to optimize the value,” Schaefer says.
This asset-and-investment philosophy drives which IT
projects the company invests in. Lots of companies have a technology strategy committee to help guide IT spending, as does Northwestern Mutual Life. “We’re transitioning them into an investment management board,” Schaefer says. Northwestern
Mutual Life has a number of boards to guide its investment
into financial asset classes on behalf of policyholders; these boards set broad strategy to determine the best opportunities for return in those categories. Discussions in the technology strategy committee are moving in the same direction.
From that process, the committee has targeted specific
high-return investment opportunities for technology. For
example, technology that reduces barriers of...
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