CHAPTER 4 : MEASURING THE SUCCESS OF STRATEGIC INITIATIVES
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The first thing managers need to understand about IT success is that it is incredibly difficult to measure. Determining the return on investment (ROI) of new computer equipment is difficult. For example, what is the ROI of a fire extinguisher?
If the fire extinguisher is never used, the return on the investment is low. If the
extinguisher puts out a fire that could destroy the entire building, then its ROI is
high. This is similar to IT systems. If a company implements a $5,000 firewall to
virus attacks on the computer systems and it never stops a virus, the company lost
$5,000. If the firewall stops viruses that could have cost the company millions of
dollars, then the ROI of that firewall is significantly greater than $5,000
Efficiency and effectiveness
Efficiency and effectiveness metrics are two primary types of IT metrics.
Efficiency IT metrics measure the performance of the IT system itself including throughput, speed, and availability. Effectiveness IT metrics measure the
impact IT has on business processes and activities including customer satisfaction, conversion rates, and sell-through increases. Peter Drucker offers a helpful distinction between efficiency and effectiveness. Drucker states that managers “Do things right” and/or “Do the right things.” Doing things right addresses efficiency—getting the most from each resource. Doing the right things addresses effectiveness—setting the right goals and objectives and ensuring they are accomplished.
Efficiency IT metrics measure the performance of the IT system itself including throughput, speed, and availability. Effectiveness IT metrics measure the
impact IT has on business processes and activities including customer satisfaction, conversion rates, and sell-through increases. Peter Drucker offers a helpful distinction between efficiency and effectiveness. Drucker states that managers “Do things right” and/or “Do the right things.” Doing things right addresses efficiency—getting the most from each resource. Doing the right things addresses effectiveness—setting the right goals and objectives and ensuring they are accomplished.
Benchmarking-Baseline Metrics
performance.
The Interrelationships of Efficiency and Effectiveness IT Metrics
Efficiency IT metrics focus on the technology itself. Figure 4.2 highlights the most
common types of efficiency IT metrics.
common types of efficiency IT metrics.
Figure 4.2
While these efficiency metrics are important to monitor, they do not always guarantee effectivenes. Effectiveness IT metrics are determined according to an organization's goals, strategies, and objectives.
Be sure to consider the issue of security while determinig efficiency and effectivenes IT metrics. Purely from an efficiency IT metric point of view, security generates some inefficiency. From an organization's business strategy point of view, however, security should lead to increase in effectiveness metrics.
Metrics for Strategic Initiatives
What is a metric? A metric is nothing more than a standard measure to assess performance in a particular area.
More business professionals are familiar with finantial metrics. Different finantial ratios are used to evaluate a company performance.
Most commo financial ratios include:
- Internal rate of return (IRR)
- Return on investment (ROI)
- Payback method
- Breack - even analysis
Most managers are familiar with finantial metrics but unfamiliar with information system metrics. The following metrics will help managers to measure and manage their strategic initiatives:
Website metrics
Most companies measure the traffic on a website as the primary determinat of the website's success. However, heavy website traffic does not mean it has large sales.
A web-centric metric is the measure of the success of the web and ebusiness initiatives.
Supply Chain Management (SCM) Metrics
A supply chain managemnt can help an organization understand how it's operating over a given time period. Supply chain measurements can cover many areas including procurement, production, distribution, warehousing, inventory, transportation, and customer service. To succed using the supply chain is by measuring the following areas:
- Back Order
- Customer Order promised cycle time
- Customer order actual cycle time
- Inventory replenishment cycle time
- Inventory turns(inventory turnover)
Customer Relationship Management (CRM) Metrics
The metrics to track are no more than seven out of hundreds possible.
Business Process Reengineering (BPR) and Enterprise Resource Planning (ERP) Metrics
Business Process Reengineering (BPR) and Enterprise Resource Planning (ERP) Metrics are lage organization initiatives. Measuring these type of strategic initiatives is extremely difficult. One of the best methods is the balace sorecard.
Balance Sorecard: is the management system, in addition to a measurement system, that enables organizations to clarify their vision and strategy and translate them into action. It provides feedback around both the internal business processes and external outcome in order to continuously improve strategic performance and results.
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