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How to create value through information technology
INFORMATION technology is constantly on the move. IT is not only limited to issues related to hardware and software technicalities but also it addresses complex problem areas for corporate sector and provides solution to fit their challenging need, which has brought in a new value aded dimension to this field for end-users. Some of the essentials are mentioned below:
Customer-defined: Never forget that value is defined by those who use IT and those who pay for it. To understand the true nature of value, you need to get inside the minds and hearts of your customers, whether they’re internal or external. Define value using their vocabulary, not the “feeds and speeds” that you may be comfortable with. That means learning the language of CFOs, who think about return on assets, ROI and net present value, and of business executives, who define value in terms of shareholder value, inventory turns and customer churn. Vendors must communicate the value of their products not in terms of what these products do, but what they do for customers, expressed in a language that customers can relate to. Concepts, such as “utility computing” and “business agility” may be catchy vendor-speak, but these abstract ideas need to be made concrete and relevant for specific customers and vertical markets.
Opaque: An important consequence of value being defined by customers is that it is very difficult to quantify. To quantify value, you need to understand all factors that customers take into consideration in assessing value, and you have to understand the relative importance that customers place on each factor. In the absence of this understanding, you are shooting in the dark. You need to develop robust customer value models that are calibrated with data collected from customers. Once you understand the factors that specific customers consider when making decisions and how they make trade-offs, you can develop a better understanding of the value propositions that might appeal to each one.
Multi-dimensional: A common myth in business is that IT investment decisions are made solely on functional value — a product’s features and functionality. Value has two other dimensions as well: economic value — what these features and functions are worth to customers in terms of time and money; and psychological value — the emotional benefits that customers get from your products or your company. Functional value is a starting point, but you need to translate it into economic value. And you need to get beyond the “arms race” of functional differentiation by developing emotional appeals that are far more sustainable than today’s latest feature.
Trade-off: Value is the perceived worth of something in relation to the total cost that customers pay for it. As IT becomes an enabler of business agility and competitive advantage, we need to move the dialogue away from cost alone to the business value of IT. This definition underscores the fact that value is a trade-off between costs and benefits. Some experts are very much right in critic of measuring IT value in terms of total cost of ownership (TCO). TCO is a vestige of the days when IT was a utility in the back office to be managed at the lowest possible cost. As IT becomes an enabler of business agility and competitive advantage, we need to move the dialogue away from cost alone to the business value of IT. By focusing on total value, you can evaluate IT investments as a trade-off between the value created by the investment, relative to the total costs that you can expect to incur.
Contextual: You cannot divorce the value of an IT system from the context in which it will be used. Consider the purchase of a laptop computer. A salesperson who is on the road a lot and needs to communicate constantly with the home office will place great value on portability and connectivity. On the other hand, a design engineer in the same company who uses the laptop for computer-aided design and works out of the same office every day will value graphics performance and display quality. Unless you understand the end-usage context, you run the risk of creating value propositions and offerings that are irrelevant for customers.
Relative: Customers never assess value of an offering in isolation. They always consider value relative to alternatives. These alternatives may not be other products or systems, but other ways of accomplishing the same goals or doing nothing at all. It pays to understand who or what you are up against because this is the frame of reference that your customers use to evaluate your value proposition. By understanding competing alternatives, you will also be able to focus on points of differentiation relative to these options and ignore points of parity that clutter and dilute your value proposition.
Mind-set: Value-based management is more than models or processes. The value mind-set is grounded in the belief that the sole purpose of a company is to create value for its customers and to be compensated equitably for its efforts. Therefore, everything the company says and does should revolve around its customers - not its products. This is a radical shift in perspective, and few companies truly embrace this idea despite their claims of being customer-focused.
In stormy economic seas, value can serve as an anchor by reminding you that every initiative you engage in should be grounded in a clearly articulated customer value proposition. If you focus relentlessly on defining value as customers do, designing your offerings based on what customers value, and measuring your performance in terms of the value that customers experience, you will find your destination.
The writer is manager funds management & corporate affairs at the Aga Khan University, Karachi
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