Storage Decisions 2003

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Top 10 Ways to Maximize ROIT
Presented by Thomas Pisello, CEO
and Bob Denis, CIO Vice President, Trimble
Navigation

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Agenda

• Why ITVM matters
• Alineans Return on IT (ROIT) Index
• Defined
• Sample findings
• Leaders characteristics
• How to Improve your ROIT
• Aligning business goals through metrics of
  interest
  
• Top down competitive benchmarking
• Bottom up - portfolio optimization
• Top 10 Ways to Maximize Your IT Budget
• Future State
• QA

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Why IT Value-Chain Management Matters
IT Spending has permanently changed post-bubble.
Companies will no longer invest without a tang
ible business reason to make the investment a
priority.
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The Elephant in the Boardroom

• 1 Trillion domestic (2 Trillion Global) annual
  spend on IT1
  
• 10 of US GDP
• Typically 50 of a companys capital expenditure
• Over 40 of IT projects fail trillion dollar
  global corporate governance issue? 2
  
• Risk-averse business climate
• Corporate governance legislation
  (Sarbanes-Oxley)
  
• IT budget growth era superseded by value for
  money
  
• Socioeconomic factors (dot-com crash, Sept. 11)
• 1 Forrester Research TechStrategy Report March
  2002
  
• 2 - TechRepublic IT Project Management Research
  Findings, November 2000
  

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IT Budgets have changed Post-Bubble
IT spending rose from 18.2 of all capital
investments to a peak of 46.7
2004
2003
Measurable 20 decline in US IT Spending from
2000 to 2003 2004 Budgets 5-8 increase M
ost of increase already earmarked for needed
security, compliance and upgrades
Source Bureau of Economic Analysis, Table 5.5.
Real Private Fixed Investment by Type, Billions
of chained (1996) dollars, December 21, 2002,

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High Overhead Reduced Degrees of Freedom
Only 10 or less of budget is left for innovation
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IT Projects Track Record
In budget, on schedule and meeting expectations
28
Completed over schedule and with less
functionality
49
Cancelled or failed prior to completion 23
More than 2/3 of all IT projects fail with
regards to schedule, budget or features
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Rogue Spending on the Rise
Alinean - 2004
Companies need a consistent and meaningful
way to manage IT Investment in decentralized
business environments
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CIOs 2004 Priorities

• Prove and improve the value of IT
• Over 80 of companies now require ROI analysis to
  be performed on most IT investments
  
• CEO or CFO sign-offs required for projects
  50,000
  
• Requires clear cost-benefit analysis
• Do more with less
• IT spending will grow 5-8 in 2004
• Budget growth consumed by Sarbanes-Oxley,
  security and infrastructure upgrades
  
• Backlog is still building, up 30 from 2002
• Communicate more effectively to Stakeholders
• 40 of technology spending is now controlled by
  business or functional managers
  
• Growing Rogue / Shadow IT 20 share of total
  IT spending in most organizations
  
• Alinean, ComputerWorld - 2003

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2004 Top IT Spending Priorities
Alinean, Inc. 2004
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Turning the Elephant into the Golden Goose

• Management 101 you cant manage what you dont
  measure
  
• Companies have the opportunity to do more without
  increasing current spending levels
  
• Companies with better than average IT
  governance earn at least a 20 higher return on
  assets than organizations with weaker
  governance1
• Companies using ITVM methodology achieve ROIT
  that are multiples of the competitions2

• Three year study published in May 2004 by MITs
  Center for Information Systems Research (CISR)
  
• Alinean research - 2004

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Alineans Return on IT (ROIT) Index
CEOs and Board Members can no longer fulfill
their fiduciary obligations without understanding
how IT Investments relate to shareholder value
and competitive advantage Theyve moved from no
t asking the question to demanding the answer .
. . in their terms!
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ROIT Defined

• The formula
• ROIT EVA / IT Spending
• Where
• EVA (Economic Value Added) is the Stern Stewart
  Co. financial performance measure of net
  operating profit minus an appropriate charge for
  the opportunity cost of all capital invested in
  an enterprise
• IT Spending is Alineans estimate of an
  organizations IT spending determined by the
  total of
  
• Formal IT spending (that allocated and controlled
  by the CIO and IT group)
  
• Business unit IT spending (the IT budget
  controlled by business units and leaders)
  
• Shadow IT spending (the hidden expenditures of
  business units and users)

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ROIT Insight 1
ROIT vs. IT Spending Per Employee
Shareholder Value is not a function of IT
spending levels
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ROIT Insight 2
Top 20 Companies spend about the same as bottom
20 Companies
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ROIT Insight 3
For 2003 Database Average 3.73 Top 20 US Ave
rage 0.82
Bottom 20 US Average 2.72

• ROIT leaders are prudent - spend less than 1/4
  of average company, and less than 1/3 of Bottom
  20 Companies
  
• Bottom 20 also under spend average
• Spending is heating up

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IT Spending and Shareholder Value are Correlated
for 16 of 36 Industries
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Top Ten Sectors Large Variance in IT Spending
and Levels of Return
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ROIT Mid-Market Leaders
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ROIT Leader Characteristics

• Success is based on
• 65 - focused on business alignment toward
  competitiveness - gained/reinforced market
  position
  
• 15 - frugal/prudent
• 10 - higher project success rates
• 10 - focusing on core competencies and
  appropriate use of strategic outsourcing
  
• Bottom-Line
• Frugal is no longer best time to invest again
  wisely
  
• Not how much you spend, but what you spend it on

Alinean, Inc.
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How to Improve your ROIT Ten Steps to Superior
IT Efficiency and Effectiveness
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1 - Think Like a CEO
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2 - Communicate in Stakeholder-Specific Terms
Metrics of Interest
Competitive Advantage Growth, Agility, Image
Income Statement, Balance Sheet, Cash Flow
ROIT (EVA / IT Spending) , IT Spending
NPV, Payback Period, IRR, Project Selection
Key Business Metrics (Revenue, DSO, Sales Cycle,
Productivity)
Total Cost of Ownership Key IT Metrics (Staff per
user, Call Time)
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3 Think Strategically Top Down Benchmarking

• Competitive Comparison
• Industry
• Company size
• Company location
• Company name
• Similar company business models
• Best practice leaders
• Peer group average
• Industry group average

• Analyze based on key metrics
• Correlation of IT spending vs. performance
• Financial performance (EVA, income statement,
  balance sheet, cash flow)
  
• Key business performance indicators (KPIs)
• IT spending per capita
• TCO
• Data center, servers and client hardware
• Purchased software
• Purchased services
• IT operations and administration
• Application development
• Facilities
• Availability

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4 Know Where You Stand
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5 Manage Tactically Project ROI
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6 - Dont Forget the Intangible Benefits and
Risks

• Costs
• Business unit
• IT costs
• Tangible benefits
• IT cost reductions
• Business op efficiency
• Business strategic advantage
• Financial impact
• Revenue/profit
• Operating expenses
• Accounts payable
• Accounts receivable
• Inventory
• Net fixed assets
• Risks
• Intangible benefits

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7 - Manage IT Investment as a Portfolio
Allocation
Investment, Risks, Rewards, Value Map
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8 Translate Bottom-Up Project ROI into
Financial Impact
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9 Remain Agile

• Moores law and changes to competitive landscape
• Chunk down large projects into components that
  deliver short-term payback
  
• Have a project exit plan in the event of budget
  reallocation

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10 Establish Internal and External ROI SLAs
for Continuous Improvement
Benchmark - Align - Optimize - Audit - Learn
Plan
Refine
Select
ROI Lifecycle Management
Compare
Deploy
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Future State

• Massive opportunity to create shareholder value
  and competitive advantage
  
• Measurement will evolve to management
• Management will enable accountability
• Internal stakeholders
• External vendors
• CIOs control the checkbook ROI SLAs are
  coming!
  
• Continuous improvement
• Better returns
• Enhance predictability
• Alignment
• Competitive advantage
• Greater innovation possible (more with less)

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Conference Attendees

• Complementary Alinean Press publications
  available to conference attendees
  
• e-Books
• IT Value Chain Management - Maximizing the ROI
  from IT Investments (January 2004)
  
• White Papers
• Using IT Value-Chain Management (ITVM) to
  Maximize Shareholder Value and Gain Competitive
  Advantage (July 2004)
  
• Return on IT Investment -ROIT (June 2004)
• Conference pricing available for on an ROIT
  checkup - contact Ingrid Urrutia
  
• Email IUrrutia_at_alinean.com
• Phone [phone]

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Questions?

• To learn more about Alineans solutions please
  visit www.alinean.com
  
• Tom Pisello contact info
• Email tpisello_at_alinean.com
• Phone [phone]