A key challenge for every company is to drive increased effectiveness and efficiency in its technology function — or what we refer to as the organization’s “Technology Dexterity.” The combination of complex legacy technology issues, a move to modern, agile, cloud-enabled software development approaches and, in many industries, regulatory pressure concerning technology risk and resilience has made this challenge even more critical to solve.
As chief information officers (CIOs) and chief technology officers (CTOs) address technology dexterity, there are a wide range of metrics they can measure to help them understand whether the strategic changes they are making are having the intended impact. Below we highlight three of our favorite metrics that are the most indicative of true technology capability improvement.
Three key metrics to improve technology dexterity
1. Shift the ratio of Run versus Change spend
Most organizations measure the ratio of technology spend that is allocated to “run” expenditures, which are focused on the operational stability of the production environment, to “change” efforts that alter the technology and application landscape to meet business needs and pressures. However, the run versus change ration is often criticized but is rarely seen as an area that can be realistically improved without costly investment and overwhelming effort. A fully optimized organization will see a run to change ratio of 20% to 80%. But many organizations struggle with a 50/50 or even 70/30 ratio, where a significant portion of the technology budget is allocated to running and maintaining existing systems. This limits the resources available for driving innovation and improving the company.
Often the only method to materially move this ratio is to focus on retiring legacy technology, automating manual platform support processes, increasing standardization to reduce support effort, reducing architectural complexity, and moving to managed services on the public cloud. Creating business cases for these types of investments are usually straightforward, but they often get cut from budgets because they are perceived to add no immediate business value or fail to navigate the political implications of the perception that capability is being taken away from specific teams and business units due to platform rationalization.
Complicating the effective use of this metric is that many organizations are not stringent in what they book to their run costs. Often they hide ostensibly less material changes in the run budget, to reduce scrutiny of the criticality of the spend and avoidance of a formal business case.
Despite these challenges, companies that focus on shifting the ratio towards change and innovation see immediate business returns and competitive advantages.
2. Shift the contributor ratio within the change budget
Few organizations actively measure the contributor ratio within the change part of the technology budget. Contributor ratio measures the ratio of “contributors,” who are working on change and innovation initiatives and directly contribute to business and technology outcomes (such as writing requirements and stories, writing code, and performing testing) to “non-contributors” who are in management and coordination roles (project and product managers, scrum masters, architectural standards, oversight, risk and compliance, executive management, and so on). To be clear, non-contributor roles are critical to the success of business and technology change efforts, but too many of these roles relative to contributor roles drives up cost, slows the delivery of outcomes, and increases the complexity of delivery.
A highly optimized organization will have a contributor to non-contributor ratio of 5:1 to 7:1. On the other end of the spectrum, it is not unheard of to see ratios of 1:3 or 1:5 in less-effective organization. Moving this ratio is a complex effort involving methodology modifications, job architecture adjustments, and changes in accountability, performance measurement, and incentives. The difficulty of making such changes means that many organizations shy away from trying— but there are significant advantages to doing so.
3. Reduce the amount of change friction
The third metric is the most impactful but the hardest to quantify. It is a rare technology-enabled change initiative that delivers all target outcomes on time and at the expected budget. The reality is no matter how well executed the change, there is always a degree of friction that creates budget and time slippage.
There is a whole range of improvements to how companies govern and deliver technology, process, and people change that can reduce this friction. As an organization evolves, it is important to measure the impact of these improvements on the change friction metric.
Highly optimized organizations with mature change delivery capabilities typically drive their change friction percentage down to 15%, which means that for every dollar spent on change and innovation, 15 cents does not contribute to driving business impact and outcomes. More commonly, organizations operate at between 25% and 35% friction. And there are lagging organizations that see friction ratios of up to 50%. The potential positive impacts of reducing friction are immense.
Tracking this metric involves measuring the difference between original business case (costs, business outcomes, and time), approved changes to the business case, and final outcomes when the initiative is complete. The difference becomes the numerator in calculating change friction.
Recording this information and monitoring improvements year over year will give an organization perhaps the best measure of how its ability to execute change is improving. Given the size of the change budgets in most companies, even small improvements can result in large amounts of capital that can be redeployed back to shareholders or to business growth.