Actual benefits Market Leaders have achieved through Itdm include:
- Doubling discretionary IT spend with no increase in current expenses
- Increasing effectiveness of technology ROI by 25-50%
- More transparent, accurate and actionable understanding of costs and drivers
- While most companies focus on internal efficiency, Market Leaders use Itdm to focus on business effectiveness.
IT Demand Management (Itdm) is a critical success factor in building efficient and effective organizations. Research by InterUnity Group on the relationship between IT investment and corporate financial performance indicates that Market Leaders have established successful Demand Management programs. These programs are utilized to interact with internal customers (employees and business units) and external customers. In addition to providing a focus for re-evaluating current IT projects, Itdm becomes the key foundational element for all strategic IT enabled initiatives.
The benefits of IT Demand Management result from:
- IT flexibility in response to dynamic business changes, including variable cost emphasis
- Structured approach to evaluating the strategic, and financial, impact to the company when presented with these changes
- Methodology and tools to help capture, document and manage the impact, decisions and results associated with these changes
- A constantly evolving company specific knowledge-base to evaluate proposed initiatives.
Market Leaders approach IT Decisions in a top down manner. In today's economy, portfolio management has been primarily viewed from a bottom-up perspective, focused on IT resource management. Existing IT projects are evaluated in terms of risk/reward to the firm those deemed still viable are captured in the portfolio management system. In this role, portfolio management initially becomes a tool to prioritize, allocate resources and track resource time by project. Monitoring project progress is simplified, from both a duration and cost perspective.
From a financial impact perspective, the "Bottom Up" approach can provide a $1B (revenue) company annual cost savings of $5-$10M, assuming 10% IT spend-to-revenue and a 5-10% annual cost savings target. In light of the current IT spend conservatism, one factor sharpening this cost reduction focus is the fact that most vendors are promoting this aspect of their portfolio management systems.
While the "Bottom Up" approach can play a role in IT demand management, this approach is limited to the prioritization of existing initiatives. When incorporating a "Top Down" perspective to portfolio management, the movement towards shared responsibility for IT demand management becomes apparent.
At both enterprise and business unit levels, the need for strategic alignment becomes a prerequisite to successfully implementing IT demand management. An agreed upon governance structure can help ensure a balanced portfolio, ultimately leading to the optimal mix of customer satisfaction and realizable benefits. These benefits can include reduced risk, at the same time providing an opportunity to increase discretionary IT spending through transparency and an actionable understanding of costs and drivers. An overall improvement in business performance, directly correlated to IT investments, can therefore be enabled.
From a purely financial perspective, applying the same rationale as the earlier "Bottom Up" example to a "Top Down" perspective yields similar, immediate, returns of $2.5M - $15M (assuming gross revenues ultimately yield 5-15% in net profits. Returns are therefore similarly impressive for the "Top Down" perspective, even before taking into account the full potential of the higher reward/higher risk opportunities now available to the company.
Understanding the possible benefits from the higher reward/higher risk opportunities made available by a "Top Down" perspective can be seen in corporate examples such as:
Deutsche Bank - Dramatically reduced M&A costs resulting in increased business agility and competitiveness. Additional acquisitions, which are beneficial to earnings and growth in the short term, can now be pursued.
Horizon Blue Cross Blue Shield of New Jersey - Improved level of Hipaa compliance, at a lower cost. Horizon was able to shift Hipaa compliance from strictly a cost effort to one that can gain them additional profits through enhanced internal business efficiencies.
CNA - Moved IT spend (effort) from 62% maintenance, 38% new projects to 63% new projects in one year. This resulted in additional $200M investment in initiatives.
The above examples demonstrate how business benefit results from a "Top-Down" IT Demand Management approach versus a"Bottom-Up" cost reduction methodology. The overall benefit is that Itdm, can make a business difference that is greater than one achieved via a focus on pure cost reduction.