2005: Study based upon the views of

Nordic companies

The value of IT
 Table of contents

Introduction 3

Findings
CEOs consider IT to be business critical, even more than CIOs realise 4
The importance of justifying IT costs is clear, but few manage to track benefits 4
Few companies show IT governance excellence 6
Finnish companies’ use of business cases improve their governance performance 7
Only minor differences exist between industries from a product lifecycle perspective 8

Conclusions 9
Companies in the study show strategic ambition 9
A tactical overview is missing 10
Lack of measurement is a source of problems 10

Our point of view on the value of IT 12

To maximise value, IT must be managed in a differentiated way 12
Understanding and managing IT as a portfolio help companies meet objectives 12
Excellence in measurement and benchmarking is key for competitiveness 13

About this study – intention and method 15

INTERVIEWED COMPANIES AND ORGANISATIONS

In Sweden: In Finland:
• Apoteket • RFV • ABB Finland • The Finnish Broad-
• AstraZeneca • Sandvik • E.On Finland casting Company
• Atlas Copco • SBAB • Fazer Group • Vaisala
• Axfood • Scania • Finland Post Group • VR Group
• Billerud • Seco Tools • Fortum
• Cloetta Fazer • SJ • Inex Group
• DeLaval • Skatteverket • Kesko Corporation
• Eka Chemicals • SKF • Metsäliitto Group
• Electrolux • Stena Line • Metso Corporation
• Fritidsresor • Stora Enso • Ministry of Defence
• FöreningsSparbanken • Swedish Match of Finland
• H&M • Tetra Pak • OP Group
• Handelsbanken • Vattenfall • Rautakirja
• If • Vin&Sprit • Sanoma WSOY
• NCC • Volvo Penta • Sanoma Magazines
• Nordea • Volvo Trucks • S-Group
• OMX • Stockmann

Design: Fresh Design

2 THE VALUE OF IT – Study 2005 Print: Trosa Tryckeri
 Introduction

IT is a well-established and important part of today’s business world. During the last
decades, IT has moved up the value chain and into the company boardrooms, becoming a
key topic on CEO agendas. Many companies have come a long way in their integration of IT
into the business model and processes. There are however still significant challenges ahead.
These are to a large extent associated with the difficulties that many companies have in
relating the effects of IT to bottom-line results. In other words, many companies are yet
incapable of defining and capturing the value of IT.
The role of IT in business continues to grow and develop. Companies are increasingly
regarding IT as part of their attacking game. This means that companies are more often
channelling their investments into IT with the goal of increasing revenue and customer
value. In this way, a new environment for business and IT management is arising. To be
successful in this new playing field, an updated mindset and approach is vital. This
encompasses decision-making principles, governance practices, strategy and measurements.
Capgemini works in close collaboration with our clients to integrate IT and business
from strategy to execution in order to achieve measurable results. During the last years we
have launched highly appreciated studies investigating IT costs (2002) and IT governance
(2004). During the many years that we have had the privilege to help companies increase
the value of their IT, we have become convinced that the quest for the value of IT will be a
key challenge in the years to come.
We thank the participating companies for sharing their views and their time and hope
that you all will find this study valuable.

THE VALUE OF IT – Study 2005 3

 Findings

THIS SECTION SUMMARISES THE STUDY FINDINGS. THE PARTICIPATING

COMPANIES EXPRESS THEIR VIEWS CONCERNING HIGH-LEVEL AS WELL AS
DETAILED ISSUES WITHIN THE FIELD OF IT.

���������������������������������������� CEOs CONSIDER IT TO BE related decisions follow the same corporate

����������� BUSINESS CRITICAL, EVEN principles as other decision making, see
������������������������
����������������������� MORE THAN CIOs REALISE figure 3. This leads one to wonder why IT
��������
��
������������������������� The majority of Swedish and Finnish is treated differently and whether it is lack
�� ��������
��� CEOs1 and CIOs2 consider IT to be crucial of appropriate quantitative information
���
��� for their business, while very few define IT that prevents the application of the regular
as a commodity, see figure 1. Some decision processes.
�� respondents confirm the shift in mindset A clear majority of the responding
���
���
that has been on everybody’s lips in recent companies answer that they govern all IT
���
years: “IT has traditionally been regarded as a in the same way, see figure 4. Only 3%
���
tool to improve internal efficiency; now IT is choose not to govern all IT the same way,
� �� �� �� �� �� �� ��
also considered as an enabler in the creation of which is somewhat remarkable. Would
new business opportunities”. you use the same strategies, measurements
CIOs seem to underestimate the and incentive schemes for all products and
���������������������������������������������������������
business management’s level of awareness services your company provides?
��
��� �����������
of the value of IT. When asked how they Few companies in the study apply
��������������������
����������������� believe their CEO would define IT, only benefit tracking. 32% of the respondents
��
46% of CIOs thought their CEO would do not establish business cases before
�� view IT as business critical. It is obvious project start up and very few track and
���
that there has been progress at the follow up benefits during and after
��
management level. 65% of CEOs now projects: “We don’t follow up effects since we
�� emphasise the crucial importance of IT. don’t have a structured way of doing it”. Also,
only 26% use incentive schemes linked to
��
��
THE IMPORTANCE OF JUSTIFYING value creation in the business.
�
������������ IT COSTS IS CLEAR, BUT FEW On the whole, companies do not
MANAGE TO TRACK BENEFITS benchmark sufficiently. 25% state that they
������������������������������������������������������� are not at all aware of their IT excellence
� ����������������������������������������������� For the companies in the study, IT
� ���������� compared to main competitors. They are,
spending is predominantly cost driven,
however, interested in becoming more
meaning decisions are taken with
��� informed about their relative position:
����� consideration solely to costs, see figure 2.
”We must be at least as good as our
������
���
Insight in how to justify IT investments is
������� competitors at using IT.” Many companies
however increasing: “We have been cost
������� also have difficulties quantifying
��������
�� driven but want to become more business case
productivity increases: “It’s complicated, but
driven”; “we are working on pushing the
��� �� we’re very interested in finding methods to
innovation part”. This indicates a shift
������ perform such quantifications.”
����
�� towards a view of IT as a value-driver, not
When it comes to project management,
� �� �� �� �� �� ��
only a cost.
only 5% of the respondents are able to
. High awareness does however not
frequently reprioritise or stop ongoing IT
automatically lead to application of
projects, see figure 5.
corresponding operational routines. Only
In the few cases when projects are
54% of the respondents agree that IT

1
The term CEO represents respondents from the business side including CEOs, CFOs or other business managers
2
The term CIO represents respondents from the IT side including CIOs, IT directors, IT managers, IT strategists or
4 THE VALUE OF IT – Study 2005
other IT decision makers
stopped, reasons mentioned are changes in Without measurements, companies �������������������������������������������������

scope, structural changes, exceeded costs are adding uncertainty to an already

and complexity: “It’s often hard to back out demanding environment ����� ���
of IT projects.”
������ ���
�������

�������
��
��������

��� ��

������
����
�������� ��������� ��������� ��������� ��������� ��������� ���������

���������������������������������������������������������

����� ��

������ �� ���

��������� ���

���������� ��

� �� �� �� �� �� ��

THE VALUE OF IT – Study 2005 5

������������������������������������������������������ FEW COMPANIES SHOW IT
� ������������������
GOVERNANCE EXCELLENCE
���
��
When diagnosing the performance of
��
Swedish and Finnish companies,
�� Capgemini has employed MIT Sloan’s
�� newly developed IT governance
�� ��� ��� performance index3. The index shows, on
�� ��� a scale 0-100, how successful companies
�� are at achieving set objectives and
��
� �� governing IT towards effective cost control,
�
growth, asset utilisation and business
����� ����� ����� ����� ����� ������
flexibility. The index average score, based
��������������� ������������������ ����������������
on the performance of 256 world-wide
enterprises, is 69.
The average score among the
responding companies in this study is 67,
slightly below the index average. 65%
score on or below the index average, see
figure 6. In the interest of further
comparison we classify companies scoring
80 or higher as high performers, while
companies with a score below 60 are
considered low performers.
There is a positive relationship between
high governance performance and con-
tinuous use of methods and routines for
planning and quantifying the effects of IT.

Low performers High performers

Use business cases to govern IT spending 25% 40%

Are able to quantify productivity increases from IT 36% 63%

Use incentive schemes for IT 27% 56%

Number of years that CIO has been at position < 2 years > 10 years

3
Weill, P. & Ross, W. (2004), IT Governance: How Top Performers Manage IT Decision Rights for Superior Results, Harvard
6 THE VALUE OF IT – Study 2005 Business School Press.
 Companies are facing the
challenge of assessing whether
their IT governance is achieving
the desired effects

FINNISH COMPANIES’ USE OF ����������������������������������������������������

� �����������
BUSINESS CASES IMPROVE THEIR
GOVERNANCE PERFORMANCE ��
��� �����������������
�����������������
85% of Swedish companies consider ���
�� ���
themselves to be innovators or early adopters ���

of core business technology, see figure 7. ��

“We try to be as innovative as possible when it
comes to core business technology”. In contrast, �� ���
���
81% of Finnish companies position
��
themselves as early adopters or followers.
Typical quotes are: “We don’t want to be the ��
�
pilots”. However, when it comes to IT, ��������� ������������� �������� ������������

Swedish companies are less bold. 84% see

themselves as early adopters and followers. ��������������������������������������������������������������
� ������������
Meanwhile, 81% of Finnish companies hold
��
the same position in IT as core business ���
�����������������
�����������������
technology (early adopters and followers). ��
���
50% of Finnish companies govern IT with
business cases, while only 30% of Swedish ��

respondents do so.
�� ��� ��� ��� ���
Swedish companies are instead more cost
���
��� ���
driven (65%) than Finnish companies (48%).
�� �� ��
Finnish companies are further the only ones
to score 90 or higher on the governance �
����� ����� ����� ����� ����� ������
index, see figure 8. They also have a greater
average performance score than the Swedish
companies.

THE VALUE OF IT – Study 2005 7


IT has high management attention
Few companies show governance
excellence
Finnish companies’ use of business
cases improve their governance
performance
Companies have difficulties in
tracking IT value
8 THE VALUE OF IT – Study 2005
Figure 9 How is IT positioned along the product lifecycle? ONLY MINOR DIFFERENCES
INNOVATION/ DELIVERING VOLUME/ EXIST BETWEEN INDUSTRIES
EMERGING RESULTS COMMODITY
Strategic and FROM A PRODUCT LIFECYCLE
Business case driven Cost driven
tactical investment
PERSPECTIVE
34%
It is important to understand that IT,
just like other products, goes through a
43% product lifecycle with different stages.
44% Typical uses of IT within Financial Services
23% in the early stage of the product lifecycle
34% (innovation and emerging) are tools for
22% analysing the financial portfolios. For a
travel company it could be systems for
Revenue
e-commerce and for a manufacturing
company it could be product data
management systems (PDM). During the
Finance & Public
Margin Manufacturing & Trade upturn of the product lifecycle (delivering
results) it could be logistic systems
for manufacturing companies, yield
management and production optimisation
systems for travel companies, and deposit
and lending systems for Financial Services.
Within the later stage (volume/commodity)
typical examples of IT for Financial
Summarised findings Services are transaction system within
retail banking, for manufacturing or travel
The majority of Swedish and Finnish CEOs consider IT
to be crucial for their business, even more than CIOs companies HR and administration systems.
realise. For both Finance & Public and
Manufacturing & Trade, the concentration
There are relatively few high performers and the average of IT is in the later stages of the product
score is lower than the index average. High performers
lifecycle, see figure 9. Many companies do
are better at quantifying productivity increases from
IT and more commonly apply incentive schemes or however not use the product lifecycle to
business case driven governance. distinguish between different uses of IT. It
is instead more common to think only in
Swedish companies emphasise innovation in core terms of business unit: “R&D is innovation
business technology, while Finnish companies do not
and administration is cost and volume”.
distinguish between core business technology and IT.
Finnish companies’ IT spending is more business case
driven and their governance performance scores are
higher.
Too few companies track benefits before, during and
after projects. Likely, they lack the necessary capabilities
and tools, forcing them to make decisions on loose
grounds.

COMPANIES ARE STARTING TO OBTAIN THE APPROPRIATE MINDSET FOR THEIR
IT, BUT LACK THE ABILITY TO PRIORITISE AND EXECUTE. WITHIN THIS SECTION
WE ANALYSE THE RESPONDENTS’ ANSWERS AND DRAW OUR CONCLUSIONS.
The question of the business value of IT
has been widely discussed over the last
years. This study helps us understand how
large Nordic companies view the issue.
On a strategic-conceptual level, the
companies in the study show insight
and ambition. Through the study, it has
however also become clear that tactical
and operational capabilities are under-
developed, as illustrated by figure 10.
To capture the value of IT in an optimal
way, there must be balance along the three
dimensions.
COMPANIES IN THE STUDY SHOW
STRATEGIC AMBITION
As we have seen, IT has high management
attention and is viewed as valuable to
the business, especially by CEOs. IT is
considered to be an integral part of the
business and a way to create added value.
It is described as a tool to reduce costs and
improve decision-making as well as process
management. This indicates high maturity
in strategic thinking.
Conclusions
Further, companies use IT differently Figure 10 Dimensions of IT excellence
depending on industry and type of Strategic excellence
business. IT in the financial industry
is often part of the business model or
constitutes part of the product itself, while
IT plays more of a business support role in
the manufacturing sector. Unfortunately,
companies do not distinguish often enough
between different uses of IT, neither at Value of IT
the company level nor at the business
unit level. Therefore, many companies are Tactical Operational
struggling with prioritising the use of IT in excellence excellence
different products and business units.
In this study, companies who apply
differentiated governance and manage
IT spending with business cases are also
the ones to score high on the governance
performance index.
THE VALUE OF IT – Study 2005 9
 A TACTICAL OVERVIEW IS MISSING
The value of IT is still perceived as
something intangible which is difficult to
define and measure. Because of this, many
companies also experience that they are
unable to apply their normal business
principles for IT decisions. While many
respondents profess that “IT is a necessity
for us to do business”, prevailing concerns
among respondents include understanding
“What value do I get for my IT costs?” and
“How can I measure it?”
We have further seen that only 5% of
the participating companies stop or
reprioritise their IT projects.
The respondents can also see that
IT, like any product or service, evolves
through different phases over time. Still,
only 3% use differentiated IT governance,
which is worrying. Only a few respondents
recognise that “IT should be governed as a
portfolio along the product lifecycle”.
These facts indicate that companies lack
the tactical ability necessary to maintain an
overview of existing and new IT projects
and to assess their relative value to the
business.
Even high performers have problems
along this dimension. Despite that they
find it possible to define the bottom line
result from IT and are better at quantifying
productivity gains from IT, they have the
same low ability to execute reprioritisation
and shutdown as low performers.
10 THE VALUE OF IT – Study 2005
LACK OF MEASUREMENT IS A
SOURCE OF PROBLEMS
From an operational perspective
companies have difficulties in measuring
the value of IT in operations, investments
and projects. Respondents commonly
express that they are “dissatisfied with
available metrics, which don’t account for IT
related changes”. Several companies state
that they use business cases to measure
results and have principles for value
calculations and costing of IT projects.
When it comes to applying these
principles, there is however a lack of
structure and formalisation. In many
companies, incentive schemes for value
creation are also lacking, or they are not
connected to business cases.
As a result of the lack of measurement,
prioritisation on the tactical level can not
be made. Without processes to follow and
without measurement of actual outcomes,
expected benefits are likely not to be
realised.
Without continuous evaluation
and prioritisation companies are
unable to build long-term stability

THE VALUE OF IT – Study 2005 11

 Our point of view on the
value of IT
THERE ARE FUNDAMENTAL PRINCIPLES TO FOLLOW IN ORDER TO REACH IT
EXCELLENCE. WITHIN THIS SECTION WE PROVIDE OUR RECOMMENDATIONS
ON HOW TO BECOME BETTER IN REALISING THE OPTIMAL VALUE OF IT.
Figure 11 IT responsibilities at different levels in the TO MAXIMISE VALUE, IT MUST BE
organisation
MANAGED IN A DIFFERENTIATED
Strategic perspective WAY
To create value, it is essential to align the
Business/IT strategy Governance model
IT and business strategy. The CIO must
Policies/guidelines Industry/competitors play a business role as much as a
technology role. To be able to plan and
Tactical perspective coordinate IT according to business
strategies, the CIO needs to participate in
Organisation Portfolio management
strategic forums and to have a constant
IT budget Product lifecycle dialogue with the business, both at the
Investment analysis corporate and business unit level.
Each part of the company has different
Operational perspective demands and different uses of IT. IT may
be used as support for the purpose of
Capabilities management Measurement
increasing efficiency, thus reducing costs
Project management Operational development for the company. IT can also help increase
revenue, or customer value. The purpose
of IT governance must be to manage
integrated IT in a differentiated way,
towards specific business aims, in order to
create value. Managing IT in a uniform
way, as most Swedish and Finnish
companies do, will not yield good results.
Showcase First, companies need to classify the
different uses of IT at all levels within the
A client in consumer products was facing company. The result is likely to be unique
post merger issues. The company lacked a
to each company and will depend on the
industry that the company operates in, the
common IT strategy and there was limited
company’s mission, vision, objectives and
alignment between business and IT. In
strategy. Some IT, like infrastructure
collaboration with Capgemini, the future
maintenance, should for most companies
strategy for IT was defined and a
be cost governed. Other types of IT should
governance structure that facilitated an be governed by business case or
adaptive and business oriented approach innovation. An HR system implementation
was put in place. may for example be business case, or even
cost driven for a manufacturing company,
whereas it should be considered as
innovation for a recruiting or employment
services company. What is important is to
map every aspect of IT to the business
strategy and govern it accordingly.
12 THE VALUE OF IT – Study 2005
UNDERSTANDING AND MANAGING
IT AS A PORTFOLIO HELP
COMPANIES MEET OBJECTIVES
Setting the right priorities is only a start.
Without consequent organisation and
execution it will lead nowhere.
Differentiated governance needs to be
supported by an effective process in which
the tactical and operational issues are
addressed. The prioritisation of projects
has great impact. If projects are not linked
to the business and IT strategic principles
optimal results will not be reached. When
possible, IT projects should be treated as
an integrated part of business development
projects. Managing IT as a portfolio is a
key factor for getting the most out of IT.
Portfolio management takes a holistic view
of a company’s IT projects. It is an
approach where IT and business leaders
evaluate projects and investments by
matching them with both IT and business
strategic objectives. This means that the
right projects are sponsored and the
unprofitable projects can be stopped.
IT portfolios are managed similarly to
financial portfolios. Riskier strategic
investments, equivalent to high volatility
stocks, are balanced with more
conservative investments, corresponding to
bonds or money market instruments. With
a portfolio, it becomes easier to plan and
monitor IT throughout the product
lifecycle and to see which projects are on
track, which need rethinking and which
should be shut down. Overall, as
evidenced through the study, companies
need to find ways to better prioritise their
IT activities. Stopping projects should be
viewed as constructive and sound. Business
priorities change constantly and IT should
change with them.
 A structured process for tracking benefits
before, during and after projects enables
decision makers to make informed decisions

Showcase

A major global investment bank needed

to reduce IT costs and consolidate
systems, while at the same time
maintaining a high service level. Working
with Capgemini, they implemented a
portfolio management process and
method that helped them reduce total IT
costs by 20%, while increasing the
budget for strategic developments by
10% over a three-year period.

EXCELLENCE IN MEASUREMENT
AND BENCHMARKING IS KEY FOR
COMPETITIVENESS
A possible explanation for the frustration
that companies express is that the “gut
feeling” that helps business managers make
decisions in the absence of measurements
often is lacking when it comes to IT
managers. To remedy this, companies need
to quantify and follow up the value of IT. It
is especially relevant now that IT is not
only a tool for reducing costs, but also for
creating value. This also makes measuring
more challenging. To allow for a strategic
prioritisation of new and existing IT
projects, companies need to set up a
balanced scorecard, a key performance
indicator (KPI) dashboard, or some other
type of performance measurement system
for IT.

THE VALUE OF IT – Study 2005 13


Showcase
A global high-technology company’s IT
services were facing fierce competition
from external service providers and thus
had to increase competitiveness
significantly. Together with the client’s
management, Capgemini developed a
system for monitoring key performance
indicators at the operational, middle
management and ownership level, with
target levels according to best practice
and specific needs. The company is now
able to monitor performance trends and
make informed decisions and thereby
increase their internal as well as external
performance.
14 THE VALUE OF IT – Study 2005
In companies like financial institutions
where IT knowledge is high, there is less
frustration and higher confidence in IT
measurements. In addition to
measurements, companies need to improve
the “IT awareness” among their general
managers, especially in areas where IT is
becoming increasingly important.
Measurements are important both for
internal benchmarking, for following up
effects and as a way of monitoring the
position of the company relative to its
competitors. Benchmarking is a key to
actual improvement opportunities and
concrete action-plans. The companies who
successfully apply it will have a great
advantage in the competitive world of
today and tomorrow.
 About this study –
intention and method
THIS STUDY IS BASED ON 77 FACE-TO-FACE INTERVIEWS WITH CEOS (37) AND CIOS
(40) IN SWEDEN AND FINLAND. THE INTERVIEWS HAVE BEEN CONDUCTED BETWEEN
AUGUST AND OCTOBER, 2004. THE PURPOSE OF THE STUDY IS TO SURVEY HOW
SWEDISH AND FINNISH COMPANIES VIEW THE VALUE OF IT AND TO INVESTIGATE
HOW THE BUSINESS AND IT MANAGERS DIFFER IN THEIR VIEWS.

To this end, both the CEO and CIO from each company were interviewed when possible.
The responding companies4 have an average turnover of four billion Euros and an average IT
budget of 93 million Euros. The responding CEOs have on average been in their position five
years. For CIOs the average time is four years. The responding companies represent a variety
of industries such as financial services, manufacturing, life sciences and the public sector.
For the purpose of comparing industries, we have classified them into Finance & Public
and Manufacturing & Trade. The interviews have been conducted by senior Management
Consultants within Capgemini.
The first section of this study contains an account of the respondents’ answers on
individual questions. The second section gives our conclusions from the study. Finally, we
present our point of view on the value of IT.

CONTACT PERSONS FOR THE STUDY

Ulf Larson, Consulting Services Sweden, +46 8 5368 5427
Jari Narhi, Consulting Services Finland, +35 89 4526 5753

Project sponsor: Nicolas Moch

Project leader: Niclas Elfström
Project team members: Louise Gyllenswärd, Sumit Malhotra, Linus Nilsson and Anna Plantén
Interviewers: Christer Arvas, Joacim Dahlgren-Vanhainen, Jan Jarlsén, Ulf Larson, Jari Narhi,
Nicolas Moch, Mauri Pyymäki, Mikko Valorinta and Jukka Virkkunen

ABOUT CAPGEMINI
Capgemini, one of the world’s foremost providers of Consulting, Technology and
Outsourcing services, has a unique way of working with its clients, which it calls the
Collaborative Business Experience. Through commitment to mutual success and the
achievement of tangible value, the company helps businesses implement growth strategies,
leverage technology, and thrive through the power of collaboration.

Capgemini employs approximately 60,000 people worldwide, of which 3,000 work in the
Nordic region, and reported 2003 global revenues of 5.8 billion euro. More information
about individual service lines, offices and research is available at www.capgemini.com

4
Company is a term applied throughout the study as a common way of describing companies, organisations and
public authorities
Capgemini
Gustavslundsvägen 131
P.O. Box 825
161 24 Stockholm
Sweden
Tel: +46 8 5368 5000
Fax: +46 8 5368 5555

www.se.capgemini.com