I recently met with the IT management of a large international company, and I asked them for an example of how they approached innovation. The senior person in the room told me, proudly, that the company had spent an entire year and $5 million developing a new innovative solution, but the project didn’t work so they ended up pulling it.
While it’s great that the company was willing to take risks and was not afraid to fail, I asked him if he could tell me how the company could have come to the same answer for $50,000 and done it in four weeks. He had trouble rationalizing my question, as it was such a foreign concept to him, his team, and the company. They had never put real thought into how they could prototype their solution by starting small and proving the idea had business value (and that it helped work toward a business goal) before they made a much larger investment.
[ Culture change is the hardest part of transformation. Get the digital transformation eBook: Teaching an elephant to dance. ]
IT ROI: A product mindset changes the equation
We will never improve IT ROI until we learn to identify and prove business value first. Too often, IT teams force projects to completion without considering what the business return will be. Significant money and resources are poured into projects that don’t ultimately serve business goals.
IT needs to stop thinking of its work as a project and instead build products. Projects are one-time efforts. Products receive continuous improvement long after their initial introduction. That distinction can help you uncover new ROI for IT. Here’s how.
Prove business value first, then optimize
To change from long-lead-time, large-budget projects, IT teams need to take a more iterative approach to working with the business. Instead of trying to build a large system in a multi-year project, they should start small and see how customers (external or internal) use what was started. Then they can do more of what works and either fix or eliminate what doesn’t. The goal is not to complete the IT program, but rather to achieve "proof of value" (POV) that demonstrates credible business results that contribute toward the longer-term vision or roadmap.
This is key. There must be a clear, well-defined business result that must be achieved in the near term, and then IT must continue to iterate a solution with the business group around furthering this result.
Amazon is particularly good at using this iterative approach, focusing its efforts on the customer experience and user adoption. Amazon starts small and sees how people use the application, then grows it, changes it, or kills it based on the business results. These types of successful companies start with prototyping and minimally viable products (MVPs) and continually evolve them.
[ How does the MVP approach add agility? Read Why minimum viable product isn’t just for startups. ]
Focus on how people use what you’ve built
Once you’ve embraced the iterative approach, it will create a basis for shifting IT’s thinking from projects to products, even if they’re only for an internal audience. A project has a definitive start and end, while a product continually evolves and grows. It never ends.
Thinking of the end result of IT efforts as a product rightly puts the emphasis on the customer experience. It’s less about the how – your process for developing and delivering (though those remain essential) – and more about the value the customer derives from what you’ve built.
Introducing incremental features enables IT teams to make improvements based on clear customer feedback and adoption. This process enables IT teams to understand the business value (or lack thereof) and adjust on the fly to maximize ROI. It’s a winning formula for the business and its customers.
The CIO role: 4 keys
Shifting from a project to a product focus involves a complete change in the mindset of the IT department and requires strong leadership from the top. This is not really a technology shift, though having the right technologies and methodologies in place can help. Adjustments need to be made in:
1. Culture. This is perhaps the toughest area because it involves the unwritten “rules” and assumptions that everyone in the organization makes about how work gets done and how employees interface with customers. Adopting a DevOps mentality can help, as it builds a feedback loop between development, operations, and the end-user that reinforces cooperation and continuous improvement.
2. Measurement and accountability. What gets measured gets done. If your metrics and KPIs still focus on project milestones, this will probably doom any effort to shift to a product mindset. Think instead of metrics that reinforce a product mentality – user adoption rates, user completion of goals, or even business results such as revenue, profit, or customer growth. Hold the team accountable for achieving those metrics.
3. Start small. Just as an IT product should start with an MVP, change your department’s approach little by little. Find a project with a clearly defined near-term business goal for a department head you have a strong relationship with, and then keep iterating on that product until you’ve proven the business value of the approach. Then start looking for other projects where you can duplicate success, expanding the team and the scope of your efforts as you go.
4. Work closely with the CFO. The CFO may not initially understand why taking an iterative approach could mean that the work done last month must now be re-engineered or revised. It may look like the “project” is falling behind, when actually you are making clear progress on improving the “product” and improving the business outcome to be achieved. Ultimately, approaching work iteratively, building products, and focusing on delivering greater business value will improve the ROI of IT, and that will keep the CFO happy.
Improved IT ROI, step by step
Business value is uncovered and identified not in big-budget projects, but in small iterations to a product. Adopting this new perspective isn’t easy, especially if your entire IT organization is geared toward projects.
But step by step, iteration by iteration, this approach will help you quickly and cheaply uncover what works, pivoting each product toward value and ultimately, greater ROI.
[ Read also: How to measure IT ROI in the digital era. ]
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