Using governance to navigate through troubled times

The traditional approach to cutting IT spending in an economic downturn is dangerous. The focus should be on value, instead of across the board spending cuts.

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Tough decisions will be required in today’s troubled economic times – times that may be with us thorugh 2009 and beyond.

The quality of those decisions will determine not just the performance of enterprises but their very survival. Many of these decisions will involve potential cuts to information technology (IT) spending – estimated at more than $US3.4 trillion worldwide in 2008.

The traditional approach in such situations has been to first freeze all spending then apply across the board, fixed percentage cuts – this is quick and simple but also very dangerous. Dangerous because IT is no longer a “black box” – although enterprises often still manage it as such.

Today, the box is empty – it’s contents distributed and embedded throughout the enterprise as the electronic bits of business processes – processes that run up, down, across, and between enterprises and their customers, suppliers and other stakeholders.

While many, if not all enterprises do have opportunities to cut costs, especially those that do not have effective governance in place, across the board cuts have a significant potential to destroy value and increase risk. This is where effective governance around value management comes into play.

In talking with a number of enterprises around the world who already have taken steps to improve the effectiveness of their governance, including enterprises in the energy and financial sectors, I have found that they are able to:

  • Make intelligent cost cutting decisions – avoiding the value destruction inherent in across the board (%) cuts
  • Ensure that their on-going investments create and sustain value and, where this is at risk, take early and appropriate corrective action
  • Identify, define, select and execute new investments such that they optimize value creation and sustainment, again taking early corrective action when this is at risk

Many of these enterprises are using proven principles based value management processes and practices that can be found in the Val IT™ Framework from the IT Governance Institute (ITGI).

Unfortunately, very few enterprises actively manage for value. Research carried out by The Cranfield School of Management suggests that less than 30 percent of the largest UK companies actually have a formal benefits management process . Anecdotal evidence suggests that similar figures are to be found among European and US companies as well.

In many, if not most cases, where value management processes and practices have been adopted the implementation has taken many years, and is still a work in process.

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