On Identification of IT Capabilities to Achieve Maximum Business Outcome

Outcome-based business (OBB) is a business model that links a service provider’s revenue to the value delivered by the IT services to the client. For the model to be profitable to a service provider, it is critical to align key business outcomes of the client with underlying IT assets that support these outcomes. In addition, the financial construct in OBB allows for a shared risk, shared reward model where the service provider earns its fee upon meeting mutually agreed benchmarks that affect these key client outcomes. An OBB engagement typically requires establishing a long-term relationship with the client and reduces the risk for the client during the business transformation.

A successful OBB engagement requires the service provider to have a deep understanding of the client’s business and the corresponding business value drivers to achieve the desired goal. The first step is to identify the business value drivers which if improved, will provide most business value to the client to complete the business transformation. The second step is to identify the appropriate assets that best enable a client’s transformation plan to improve their business outcomes. The final step is to quantitatively correlate the business transformation to key financial or operational performance indicator improvements for the client. In this paper, we outline a framework to help service providers identify the key IT assets that will help achieve the maximum business outcome for the client. The framework includes two type of analysis.

First, we utilize gap analysis to identify gaps in the client’s financial or operational performance. Then, we identify the business capabilities that can improve those financial or operational gaps. Next, we map the prioritized business capabilities that will help improve financial performance to the underlying IT solutions that impact these capabilities. Based on the causal relationship between the IT solutions and the prioritized business drivers, we can identify the priorities of the IT capabilities for gap improvement.

In our second analysis, we assume that each business driver can be measured by a key performance indicator, KPI. We link the business drivers (or KPIs) of interest to the underlying IT capabilities that can impact them. This is accomplished by: 1) creating a casualty relationship called service-value map to associate the business drivers with the underlying business value drives and IT capabilities; 2) creating two baselines that define the bounds of the KPI; and 3) using maturity analysis, defining the degree of completion for business transformation, to predict the KPI performance within the bounds.

By: Nianjun Zhou, Satya Nitta, Ajay Mohindra

Published in: RC25397 in 2013


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