KPI’s Revisited: Part 2 Key Business Indicators and the CIO
Submitted by Hans van Nes on Fri, 10/12/2010 - 17:00
In Part 1 the concept of Key Business Indicators as a stronger format for performance based measuring systems has been introduced. Using transparent indicators to show actual performance against key business requirements, this is practical solution for groups in an organization working on the same specific business goal. But how to apply this for a CIO?
The role of a CIO is rather broad and sometimes his or hers performance is superficially seen not easy to describe in terms of key business requirements. In fact one could argue that for all supporting staff in an organization, not working directly towards one of the companies prime goals, it is difficult to apply the KBI-idea. But it becomes easier when we first drill down to the objectives of a job.
The CIO in my opinion has to balance between two business charters each of which lead to two expected roles:
- Chief Implementation Officer
Executive role: make sure ICT contributes to a profitable company
Operational Excellence role: make sure that ICT resources are used best - Chief Innovation Officer
Innovation role: make sure that ICT helps to innovate the business
Change role: make sure that the right ICT resources are used
Per above role relevant KBI’s can be defined. By balancing the relative importance of the KBI-set during a period for a CIO, one can make sure that all roles will get the required attention they need at that time. Again: not to many KBI’s. Rather select one or two that really focus on the needs for the upcoming period. If the (financial) impact of a KBI becomes too low, it will not work.
Some examples and the rationale or business goal behind them to make this more clear and to give you a start to project on your own situation:
Executive role KBI’s:
- Percentage of ICT cost in relation to Actual Revenue
Business goal: agile business awareness and quick adapting to market change - Average time-to-profitability for changes to existing products/services
Business goal: Change Management efficacy (relevance, cost and speed of change)
Operational excellence role KBI’s:
- Percentage of IT-costs for a business transaction
Business goal: cheaper cost price e.g. in Order-to-cash business transactions - Percentage of ICT costs associated to ICT maintenance
Business goal: structurally lower maintenance costs to keep ICT affordable
Innovation role KBI’s:
- Percentage of current business initiatives driven by ICT
Business goal: pro-active role of ICT towards future business is measured - Percentage ICT Capital Spending of Total Investment
Business goal: compare ICT organization relative to peer group or market
Change role KBI’s:
- ROI on ICT Capital Spending
Business goal: manage the actual result on revenue and profit of ICT investments - Percentage of ICT resources associated to ICT non-maintenance tasks
Business goal: drive continuous change focus
If you think about the importance and relative value of ICT in your organization, you should fairly easy come up with more sensible KBI’s for your CIO and his team. If not, there is a good chance that the role of ICT is not (enough) determined in the business plan. Correction is needed, otherwise you will fall back in the technical KPI’s that are used to often too measure the ICT-performance. Watch out for KPI’s with a false sense of safety: Percentage of up-time: hurray for the 99,5% on average. But what can go wrong business wise in the 44 hours a year that you are down?
In Part 3: KBI’s in not-for-profit environments.
As always: comments welcomed.
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