Metrics for E-Success

SAN MATEO (05/15/2000) - What happens when your CEO hauls you into the corner office and asks, "What will this e-commerce initiative contribute to my business?" How will you respond when the CFO throws up a challenging remark, "We're giving you the budget you demanded, what's the return?"

Knowing the right answers -- or better yet, ensuring that those questions never need to be asked -- can mean the difference between success and failure in the high-pressure world of today's CTO.

Stamford, Connecticut-based Meta Group Inc. calls the art of reinforcing businesses' perception of IT's credibility "value management." Other analysts and top IT executives have their own names for assessing, measuring, and communicating the value of technology. Horse sense might be one of them.

But whatever you call it, all agree: CTOs who adroitly address the connection between technology and business are solid managers. And those who flounder, before or after they have been hauled onto the carpet, had better polish their management skills soon.

This fine art is especially critical in an Internet economy. In this bold new world where business and technology intertwine, some of the traditional metrics for judging technology spending no longer work.

"The days of the technologists who worry about the data center are gone," says David Stoltzfus, CTO of Logical Designs Solutions, an e-commerce consulting company based in New York, and the former chief technologist at The Vanguard Group of Investment Companies. "[CTOs] need to be business partners, helping the business see the possibilities [of technology]."

Setting cohesive business goals

In order to evaluate the potential payoff of an IT initiative, a CTO needs to consider the business strategy behind the effort. Consider whether the effort is intended to increase transactional efficiency, improve customer loyalty and retention, drive revenue, or provide a new channel of distribution, Stoltzfus explains.

"The need for a strategic understanding of the business is so much greater when you talk about e-business because it touches your customers and your business partners," Stoltzfus says.

Cory Isaacson, CTO of Capita Technologies, in Newport Beach, California, says that Capita's IT services "used to be measured on a cost basis or cost saving."

Now, he explains, "It's 'how fast can I get to market with a new project or site?' and 'how can we contribute to the revenue stream?' "For example, Capita had a tight seven-week time frame to complete Fannie May Candies' new e-commerce site. A percent of revenues generated by visitors who come by way of Web affiliate programs or banner ads will go to Capita, says Gerald Ostrowsky, Capita's vice president of marketing.

Crossing the cultural divide

But the business-oriented approach is not easy for IT organizations and managers schooled in the old ways, said Steve Diorio, president of IMT Strategies, a Meta Group affiliate.

A cultural gap exists between the performance measurements employed by IT and the lines of business, Diorio explains. When traditional IT managers talk about strategy, they're thinking in terms of architecture. When sales and marketing managers talk about strategy, they're thinking about a growth plan, he says.

When traditional IT managers consider ROI milestones, they are likely comparing the performance of software and hardware against the budget they have received to buy, make, and implement the solution. When sales and marketing managers contemplate ROI, they are thinking about revenue growth and market share, Diorio says. The cultural divide continues in perceptions about objectives, planning, organization, and incentives, he addsTraditionally, IT has been viewed as a cost center, but now it should be value-based. The companies that succeed will be those that integrate IT and business strategies, defining e-business systems to drive customer acquisition, market penetration, and customer retention.

Translating technology decisions

Judging what the business might lose if you don't move ahead on a technical matter is also key, according to Monis Rahman, co-founder and CTO of eDaycare.com, a Web-based service for child care providers and parents.

"What's key on the Internet is opportunity costs -- that's everything," Rahman says. "If you lose the market for six months, there's no point in being there."

Rahman used this approach when explaining to his CEO why he wanted to spend a significant sum to build the company site with Java and JavaServer Pages (JSP) rather than to take a less expensive approach with Active Server Pages. With JavaBeans, he realized he could split the business logic and the presentation logic, so programmers could update the business logic on the Web pages without altering the look and feel of the pages. The site would be much more scalable, he reasoned.

The technical explanation was not what won the fatter budget, though. What proved convincing to the CEO, Rahman recalls, was a straightforward business point: The less expensive approach could cost the company more down the road in terms of the time it would take to upgrade the site as it grew. By investing more up front, the company could more readily adapt to change.

To nip potential conflicts between the business and technology sides of the house in the bud, eDaycare.com starts with cross-departmental teams to develop new initiatives. For each new initiative on the Web site, a team -- including Rahman and a marketing manager -- creates a marketing requirement document that outlines the features of and builds a business case for a new initiative.

That document then gets translated into a functional spec, which later gets translated into engineering and technical details. Essentially, each document is a contract from one business unit to the other.

Still, it's difficult to know how well their efforts will pay off. In the Internet business arena, there is little historical data upon which to rely, Rahman says.

"At the beginning, it's a gut feeling" for determining the payoff of an e-commerce move, Rahman says. "We have no way of knowing how successful a feature will be."

IT professionals who want their organizations to recognize their value must build credibility step-by-step, says Meta Group Inc. analyst Karen Rubenstrunk.

"You have to have trust before you have respect. You have to have respect before you drive toward transformation."

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