While this may be true, the reality is that the crisis is far from over. Most analysts see the economic downturn leveling off during the 2nd half of 2009, but they are quick to point out that this does not mean hard times are over. Unemployment rates will continue to increase, many businesses will continue to falter and revenue will remain stagnant or increase only slightly in many companies.
Financial departments will continue to carefully watch their budgets and control their costs. And as IT is by its nature a significant portion of many company budgets, technology managers will continue to find themselves justifying not only their budgets, but also the overall value of IT.
While specific justifications for IT will vary depending on the nature of the core business, the value of IT as a service provider is one that is common across the board. The value that IT brings in terms of servicing the employee, the company, and – in some cases – the revenue-generating customer base can help justify its existence.
But often IT management fails to leverage this value by focusing their justifications on areas that end-users do not find important. At one time “services” such as installing software, configuring laptops or even changing the paper in printers brought value, but today these are low value items that most end-users can do themselves. To truly justify itself, IT needs to focus its value proposition on unique services that bring value to the company.
A tool that can help IT managers identify those services is a modified VRIO analysis. VRIO (which is an acronym for Value, Rarity, Imitability and Organization) is a tool commonly used in merger and acquisition activities, market analysis, and – more recently – product development to identify potential competitive benefits. As IT needs to compete with other internal units for limited funds, the VRIO analysis is well suited to help identify the value of IT.
To begin a VRIO analysis, create a table (or spreadsheet) such as the one shown below:
Under the “Service Offered” column, start listing the various services that IT offers to internal employees, external customers and the overall company. Don’t limit the ideas to just those you think bring value; instead list any and all services that IT offers no matter how large or small.
After the services have been identified, analyze each one through a series of 5 “yes or no” questions.
The first question is whether or not the client sees any real value in this service. Questions such as “is it a unique service?”, “does it help the client do their job more effectively?” and “does it make the client’s job easier?” can help call out any real value. Getting actual customer input (through interviews, survey, etc.) is an even more effective way to identify the services that have true client value. If the service has value, enter Y in the “Client Value?” column, if not enter N.
The next question is whether the service is rare. Is it something that the user can only obtain through IT or is it a ready available service or function that clients can easily do on their own or easily obtain somewhere else? If the service is rare, enter a Y in the “Rare?” column. If it’s not rare, enter N.
The next question is whether the service can be easily imitated. Is the service one that is unique, company-specific or requires specialized company knowledge to perform, or is it basically a commodity service that can be obtained through an external vendor? If the service is difficult to imitate or unique, enter a Y in the “Difficult To Implement?” column. If the service is basically a commodity, enter N.
The next question focuses on the IT organization’s ability to effectively offer the service. Is this a service that IT offers – or can offer – effectively? Again, customer input can help identify those services that they feel are offered effectively and those services that IT fails to truly deliver on. This question is one that is often a bitter pill for IT to swallow, but it needs to be answered honestly and from the customer’s view so I highly recommend the use of actual client input to avoid any bias. If the service can be delivered effectively, enter a Y in the “Organized For?” column. If it can't or there appears to be user dissatisfaction with the service, enter N.
At this point, the table should look something like this:
After the services have been identified, analyze each one through a series of 5 “yes or no” questions.
The first question is whether or not the client sees any real value in this service. Questions such as “is it a unique service?”, “does it help the client do their job more effectively?” and “does it make the client’s job easier?” can help call out any real value. Getting actual customer input (through interviews, survey, etc.) is an even more effective way to identify the services that have true client value. If the service has value, enter Y in the “Client Value?” column, if not enter N.
The next question is whether the service is rare. Is it something that the user can only obtain through IT or is it a ready available service or function that clients can easily do on their own or easily obtain somewhere else? If the service is rare, enter a Y in the “Rare?” column. If it’s not rare, enter N.
The next question is whether the service can be easily imitated. Is the service one that is unique, company-specific or requires specialized company knowledge to perform, or is it basically a commodity service that can be obtained through an external vendor? If the service is difficult to imitate or unique, enter a Y in the “Difficult To Implement?” column. If the service is basically a commodity, enter N.
The next question focuses on the IT organization’s ability to effectively offer the service. Is this a service that IT offers – or can offer – effectively? Again, customer input can help identify those services that they feel are offered effectively and those services that IT fails to truly deliver on. This question is one that is often a bitter pill for IT to swallow, but it needs to be answered honestly and from the customer’s view so I highly recommend the use of actual client input to avoid any bias. If the service can be delivered effectively, enter a Y in the “Organized For?” column. If it can't or there appears to be user dissatisfaction with the service, enter N.
At this point, the table should look something like this:
The final step is to use the following VRIO criteria to identify the services that have a potential value proposition:
Applying the framework criteria to the sample table provides this overall analysis:
As with any tool the VRIO analysis is not an “end-all be-all”. The value it helps identify is “potential” value. Whether or not there is real justifiable value is something that needs to be decided by management and internal subject matter experts. But at a minimum, the VRIO analysis can help IT managers narrow in on those services that have potential value and can help justify the overall value of IT.
