Is 80% of your IT spending going to waste? It would seem so. It is also easily provable!
As discussions on IT Alignment and Value are the hot topic of the day and will be for the foreseeable future, it is appropriate to ask this question. How much IT spending is enough to get the most business value?
It seems logical that just like every other thing in life the 80-20 rule should apply to IT investments as well. Does it?
For those of you who are wondering about the 80-20 rule, it is a simple rule of thumb – I consider it a statement of fact – that the first 20% of your effort produces 80% of your gains and at the fastest rate of return; the last 80% produces the remaining 20% of the returns and at an incrementally lower rate of return. In other words, only 20% of things really matter in life. This rule is also known as Pareto Principle – 80% of consequences stem from 20% of causes.
So is there a magical 20% marker on IT investments? Where is it and how to find it?
Let us expand this argument a bit further and say that the “20% marker” is not a thin “line” but a “zone” – with a “floor” and a “cap.” The former is the least amount of investment needed to “optimize” investments and beyond the latter you are wasting your time and money!
Is there is a “cap” and a “floor” to IT investments?
If these points exist, then shouldn’t the whole idea of IT alignment be to find them? I mean we stand to save 80% of our IT investments!
I believe that the 80-20 Rule applies to IT investments. No doubt about it. I also believe that on average, over 50% of IT ROI is wasted. This is not quite the 80% number but still pretty significant.
So how to we save this wasteful spending on IT projects? The answer seems simple – do an IT alignment project. Identify a list of business imperatives. Draw a Perato diagram… Voila!
Well, that is certainly the logical way of addressing the problem. But there is another rule of thumb – in every team endeavor there is politics! This implies the existence of sub agendas – objectives that are logical to one or more people on the team but might not be in the team’s interests. In this case our assumption is that the team wants to maximize the organization’s IT ROI.
So projects that do not maximize IT ROI will be funded under one guise or another. The goal of IT ROI maximization is unachievable and will be till we figure out a way to get all objectives aligned. Overcoming politics, you see, is a much more difficult thing to do than applying the Pareto principle to IT investments.
