How is the value that IT brings to the company measured? What metrics are used to know how the department is doing in the era of digital transformation? And above all, what KPIs are used to measure the contribution of IT to business objectives?
KPIs (Key Performance Indicators) are metrics that serve to measure the success or failure of certain actions concerning the objectives defined in the company's strategic plan.
Thanks to the KPIs, we can quantify the results, discard what does not work, and correct everything that is revealed as wrong or improvable. Therefore, the design and choice of KPIs is a complex task.
What indicators to use to measure the value that IT brings to the company in a digital era when everything changes so fast?
Today we will discuss some information that can be very useful to measure the contribution of IT to business objectives through certain KPIs.
How to choose KPIs adapted to the new role of IT within the company
Can you imagine that we tried to measure distances with a thermometer, heat with a clock, and time with a meter?
Could we expect some kind of success in a case of such a measurement? Doubtful!
So why should we measure with the metrics that were used when IT had a much more restricted role in the company?
The market has undergone profound transformations. Businesses are changing. Customers are the ones who run the business now. IT has become very important, and the role of the CIO has come to the fore. CIOs have risen to the boardroom of the company, which has led them to leave their "comfort zone" as directors of IT. Now they must perform functions as business leaders.
Now the situation is different. Technology creates value for the business in another way, and therefore adjustments must be made. The KPIs and metrics that were used to measure the performance of the IT department simply have to be rethought.
One of the problems in measurement is that while the rest of the executives (CFO, CMO, or a CDO whose skills we describe in this article expect to receive metrics aligned with the objectives of the company, the CIOs who continue to perform their traditional role only provide internal information. But, what are the KPIs that truly reflect the new IT situation in the company?
4 types of KPIs to measure IT contribution to business goals
We distinguished four fundamental KPI areas that could be adapted to the requirements of a large number of companies (making it clear that some of them are suitable only for a certain level of maturity of the corporations).
1. Security and cost
With the KPIs included in this area, business leaders measure the efficiency or suitability of IT technology investments, and whether they are aligned with strategic objectives. Some of the main KPIs in this area determine:
- Cost per unit of infrastructure (hosting, storage etc.).
- Cost reduction per unit of infrastructure, systems, applications, and maintenance, per year.
- IT spending per employee.
- Percentage of IT costs against total company income.
- Percentage of projects managed jointly by the CTO and other business leaders.
- Percentage of projects linked to business strategy.
- A number of security breaches/serious incidents.
IT's functions are to deliver optimal technology, get processes to run safely, and support operations. That is the way how IT delivers value. The project management office (PMO) or the Help Desk can provide valuable metrics, relating, for example, to customer satisfaction (internal and external).
Some useful KPIs:
- Average time to resolve Help Desk tickets (by severity).
- Average response time to incidents (by severity).
- Actual investments in IT vs. as planned.
- Execution of the SLA (Services Level Agreement) agreement (actual vs. objectives).
- Percentage of projects that meet/exceed expected benefits.
- Internal customer satisfaction survey.
- Percentage of IT partner contracts with business performance KPIs.
KPIs are aimed at measuring results to relate IT spending to business results, so they have a crucial type of metric to understand the value that the department brings to the business.
When it comes to quantifying results, Forrester cautions that CIOs often focus on expenses, while business leaders want metrics that inform them of value generated.
Some of the most suitable KPIs to evaluate results are:
- IT budget increase vs. increase in income (per year).
- Percentage of IT expenses.
- IT cost per business service.
- IT spending on each end customer.
- Percentage of IT spending on customer-oriented projects.
- Result of the external customer satisfaction survey.
- Earnings before interest, taxes, depreciation, and amortization (EBITDA).
- Customer index.
The agility to adapt to a market in which changes are happening faster and faster is one of the pending subjects for the most conservative CIOs of the companies being in the constant process of transformation. All this can be summarized in how agile is “the time to market”?
So here we present you some KPIs that measure agility, help company leaders to know if IT is capable of adapting to changes, anticipating the future, and developing new business models:
- The ratio of variable cost to fixed cost of IT.
- Percentage of IT budget dedicated to R&D and emerging technologies.
- Percentage of IT budget spent on architecture/standards/frameworks.
- Percentage of personnel that meet the required competence or training.
- The average age of IT employees.
- The number of projects with an innovation/incubation program in different investment/commercialization stages.
- Cancellation rate of projects in the innovation/incubation program at different stages.
- Percentage of partners participating in internal innovation programs.
Here we come with the KPIs to measure the contribution of IT to the business objectives.
If you have any questions about KPIs in the context of IT and its new leading role in companies, you have the comment field at your disposal.