October 27, 2005

THE CHALLENGE: To ensure that IT dollars are spent wisely, business executives often require CIOs to quantify the return on technology investments. But ROI isn't always the best measure of an IT project's value. To prove IT's worth, many CIOs are employing new metrics.

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Senior management often preaches about the ability to measure the value that IT projects provide the business using return on investment (ROI). But there is more to measuring the success of technology initiatives than just ROI. In fact, many technology leaders are pointing to metrics such as speed to market and cost efficiency to show the business side the true value of IT investments.

Comparing success metrics from firm to firm is difficult, since most IT departments have their own particular way of measuring success. And it's often no easier to do within an organization either - different business lines frequently have different definitions of success. Such is the case at San Francisco-based Barclays Global Investors (BGI). "Even within BGI, the way we measure value varies depending on the product you look at," says Craig Squires, who recently became global head of technology at the firm.

Squires notes that for more mature businesses, ROI is an important measure. But, in the case of new products, innovation and speed to market are more important measures than ROI, he asserts. In fact, BGI often measures the success of a new product by looking at whether or not it was brought to market quickly while downplaying ROI, which can be difficult to measure. With new products, "The present value calculations are all guesses," Squires says.

BGI's index business, for instance, is a large-scale operation, and some of the key measures of success around it have to do with productivity and minimizing rates. But those criteria don't apply to BGI's new businesses. "Fixed income is a business we are trying to grow rapidly, so I don't think you can apply the same set of criteria because we are taking bets on those businesses," Squires relates. Similarly, when BGI decided to launch iShares, its exchange-traded-fund (ETF) product, it made a strategic decision that it wanted to be in the business. Therefore, "The economies around the IT spend became secondary considerations," Squires says.