IT Finance: Why Capabilities?

Tuesday, November 10, 2009 |

Why is Technology Investment Management Method (TIMM) focused on Capabilities?

If we look at the IT finance arena, from which viewpoint we would like to valuate an IT investment, the investment should look like something multiple stakeholders can easily comprehend in the same or similar way. Such an investment must have boundaries that are semantically clear. And clear means clear to the customer who would attribute value to the investment.

Traditionally IT systems, and all types of staff have been targets for valuation. Departments, divisions, products, customer acquisition systems and backend processing systems, infrastructure all fall into the current valuation perspective. But if that mix feels a bit disjointed then it could be a problem. Departments, divisions, etc. are all things in the generic sense but they’re not peers. Some of them depend on others. Also they don’t always resemble each other enough for a fair comparison much less a comparative valuation. There are too many details to manage in an annual planning effort.

So what to do?

By talking to your IT consumers and using the capabilities they want to qualify their goals you will move away from telling them about your services to a dialog about how you can satisfy them. The capability approach uses a consumer perspective to define consumer investment and it is based on their language and knowledge.

From Marketing Myopia, Harvard Business Review, Jul 01, 2004 by Theodore Levitt, “It is constant watchfulness for opportunities to apply their technical know-how to the creation of customer-satisfying uses that accounts for their prodigious output of successful new products.” Mr. Levitt was writing about Dupont and Corning but the same holds true for IT Finance and how IT Finance can serve their customers, consumers of IT services.

Organizations have many consumers, business, technical, risk, and human resources at a minimum. Each of these groups look at their organization in a different way. Each requires its own view. But the views sometimes overlap slightly and they clearly interconnect in support of each other.

So TIMM uses the detail of all these systems, technology infrastructure pieces, departments to validate what we call Capabilities. These capabilities are lightweight, logical, abstract, conceptually meaningful to stakeholders from one area to another in the consumer pantheon listed above.

Using capabilities with which to plan gives all stakeholders a handle on a range of topics that they can easily identify and comprehend in the same way across consumer disciplines (the pantheon again). And because they can easily understand what they are, the valuation task becomes much simpler and direct.

That is an important breakthrough and a big deal.

1 comments:

Pete said...

Great comment on the ebizQ Forum, and excellent blog. Would love to sign you up for the Forum officially, which would mean you'd get the questions emailed directly to you. Drop me an email.

Best,

Pete