Gartner: ROI fading fast as measure of IT success

Attention CIOs: Stop thinking so much about operational excellence and return on investment. Start thinking more about how you're going to create value and generate revenue for the business. That will be a key message at this week's Gartner Symposium/ITxpo, says senior vice president Peter Sondergaard, who gives the opening keynote presentation Monday morning.

I spoke with Sondergaard before this week's event to find out where the Gartner brain-trust sees IT heading in 2011.

Sondergaard sees the confluence of four events driving a change in IT's mission: 1. The advent of cloud computing; 2. Context-aware computing, with "super-intelligent devices" at the edges of the IT infrastructure; 3. Business use of social software networks; and 4. The rise of pattern-based strategy leveraged through the adoption of advanced analytics and predictive analytics tools.

What does he mean by "pattern-based stategy?" Using advanced analytics to detect patterns that may be predictors of future behavior – knowing what your customers and prospective customers will do before they know themelves. Or using advanced analytics across multiple customer support call centers to spot trends before they become big problems. Or extending analytics beyond just identifying behavior patterns on your Web site associated with customers to include those who left - and where they were at the time.

Thanks to information that can be gleaned from those super-intelligent devices so many people are carrying, the social networking interactions they have and their interactions on the business' Web site, IT has the opportunity to massage a treasure trove of data to determine what leads to certain patterns as well as to predict what Sondergaard calls "indications of future behavior."

"It's about extending your reach," he says.

IT, he says, needs to "use the collaborative nature of social networks to drive innovation. The infusion of social software and collaborative mentality into business processes creates value."

The big IT vendors are scrambling to provide the tools for this new transition, Sondergaard says, which is exactly why HP bought 3Par and IBM scooped up Netezza in the last 90 days.

Meanwhile, investments in IT infrastructure, which heated up earlier this year, are cooling off. Sondergaard expects investments in infrastructure as a percent of the IT budget to drop over the next few years as companies continue to make that infrastructure more efficient.

And the move to cloud should have CIOs focusing more on delivering service and value creation. "There will be less focus on the hardware spend. Companies will refocus on software and services, resulting in larger value and longer cycle contracts," he says.

Tell it to the CFO

Which leads us to the suggestion that IT stop focusing so much on ROI. How do you do that when the CFO is focused above all on keeping share prices up - and quarterly earnings reports as high as possible?

Sondergaard says CIOs must build tight relationships with their CFOs and start talking about taking risks. "It's always been difficult to articulate the value of IT," he says, but that's in part because for the last 40 years IT has focused on operational excellence and cost optimization.

IT should articulate initiatives in terms of investments linked to key business metrics and how the initiatives will improve those business metrics that are important to the company's unique business needs. CIOs need to know those metrics, whether it be new customers captured, better retention of existing customers, or increasing the cross-selling of products or services.

But knowing them isn't always enough. Unfortunately, Sondergaard admits, "There are aspects of IT that will lead to revenue generation but not everyone believes it right now."

If the CIO can't forge that relationship with the CFO and realign IT priorities around value and revenue generation, the business will suffer. In this environment, metrics such as IT spend as a percent of revenue are a distraction.

"This may be the first cycle where the majority of trends are focused at revenue generation as opposed to the operational excellence of what we do inside the business," he says.

That trend portends a significant transition for CIOs – and not just because the CFO may not be receptive. IT has been laser focused internally on operations and has traditionally shied away from risk. "IT has always been about minimizing risk. Going forward its all about acceptable risk."

ROI is still relevant, Sondergaard says. But it's no longer dominant.