New Information Economics

New Information Economics

The collection of methods used by The Beta Group to help a company get to the IT Improvement Zone is known as New Information Economics (NIE). NIE is an integrated approach to controlling IT budgets and getting the biggest bang for the IT buck. Starting with a coordinated business/IT strategic planning process and continuing through to business/IT performance measurement, NIE is a suite of tools for understanding, managing, and controlling the entire IT spend, all aimed toward producing exactly the right IT actions for the organization.

The central concept of NIE is the Strategy-to-Bottom-Line Value Chain, a framework for organizing the processes that move a company from business strategy to the right IT decisions.

Companies need their own version of a Strategy-to-Bottom-Line Value Chain. This is what the Beta Group does: help companies improve the bottom-line impact of IT activities by adapting the principals of New Information Economics in their specific context.

The Strategy-to-Bottom-Line Value Chain

The Value Chain integrates 5 Beta Group practices that a company can use to get the most bottom-line impact from IT activities, including:

Strategic IT Demand/Supply Planning

Innovation

Prioritization

Alignment

Performance Measurement

To support these practices, The Beta Group uses robust Portfolio Management and Culture Management practices, all focused on making IT produce measurable bottom-line impact. Finally, all of these are tied together with the Business Value Maturity Model, a tool for assessing the readiness of the organization to use IT most effectively for the business.

Why Should A Company Use NIE Methods?

The main question we are answering for companies in applying NIE is, "What does it take to produce higher bottom-line impact and more effectively manage IT costs? " The answer: we need effective planning processes, appropriate resource decisions, and workable budgets and plans. We need them to work together consistently. The Strategy-to Bottom-Line Value Chain ties all of these elements together.

But companies already do this, managers may say. They work to improve the bottom-line performance of their company. From year to year, they set budgets on-going operations, and invest in projects or initiatives to change or add to the business. Managers then expect that new budgets will support better bottom-line performance than prior-year budgets, and that investments in projects or initiatives will produce better bottom-line performance.

The practical problem is that most companies do planning, prioritization, resource allocation, budgeting, and performance measurement in silos or stovepipes. We mean this in two ways. First, in management process terms, business planning, IT planning, prioritization, budgets, and performance measurement are poorly connected. These management processes operate, but not consistently or from a common base of information, and are disconnected. Second, many companies are organized in silos or stovepipes, and the various management activities do not take an enterprise perspective nor do they coordinate across the barriers between silos or stovepipes.

Most companies and organizations have a loose collection of disconnected management processes around IT. Considering that it has been more than thirty years since these problems first became apparent, there must be more to it than simple management process disconnects. We often find:

Business plans do not drive IT plans
IT plans focus on technology rather than directly addressing business strategies
Business managers do not see IT as supporting their strategies
IT projects do not support business strategies. IT spending on infrastructure and application maintenance does not support strategy
Company budgets do not reflect the results of IT planning
IT plans are shelfware, that do not guide management decisions, projects, or budgets
IT governance practices do not direct IT from a business perspective

These are characteristic of companies with disconnects. What gets in the way, fundamentally, is different views among business and IT managers about the role IT plays in the business, the value that IT can bring, and the management practices needed to effectively bring IT to bear on business strategies. These different views result from, and in, the failure to plan, align, prioritize, innovate, and measure performance for IT, consistently, from a business strategy perspective. The failure results from management cultures in business and IT that are incompatible with taking the business perspective in managing IT.