Information Technology (IT) is an immense field which covers the use of electronic computer hardware and software applications to:

  • safely convert/store/protect/process/transmit/retrieve data and information ranging from texts to films, graphics and sounds
  • electronically control machines of all kinds.

Actually the field is so vast that from an IT-organizational standpoint, one can easily get lost trying to understand and make sense of the innumerable fields of IT applications and IT developments. For that purpose one of the very best synthesis was made by Andrew McAfee in 20061 where he described three categories of IT, each of which provides different organizational capabilities:

  • Function IT (FIT) : IT-software that assists with the execution of discrete tasks, e.g. spreadsheets, statistical software and CAD
  • Network IT (NIT) : IT-software that facilitates interactions, e.g. e-mail, messaging, wikis and blogs
  • Enterprise IT (EIT) : IT-software that specifies business processes, e.g. enterprise resource planning (ERP),
    Customer Resource management (CRM) and Supply Resource Management (SRM), and so on

Although these three levels of IT-software are general enough to covers most of organizational IT-applications, the McAfee classification missed the fourth level of IT-software which ensures the ‘business value’ of results obtained from the first three levels applications:

  • Valuation IT-software (VIT): IT-software with the capability to assess the economic value of the outcomes obtained from the first three levels of software applications (FIT, NIT and EIT) and the resulting economic viability of the whole business.

The following matrix, adapted from the original 3-levels McAfee matrix, integrates the four levels of IT-software available:

IT Categories Definition Characteristics Examples
1.st Level Software Function IT
(FIT)
IT that assists with the execution of tasks Design engineers, doctors, accountants, graphic artists & a host of other specialists and knowledge workers use FIT all the time • Simulators
• Spreadsheets
• CAD
• Statistical Software, etc.
• Business Intelligence
2.nd Level Software Network IT
(NIT)
IT that facilitates work interactions It facilitates collaboration, allows expression of judgements, foster emergence of high-level information patterns from low-level interactions • email
• instant messaging
• wikis
• blogs
• groupware, etc.
3.rd Level Software Enterprise IT
(EIT)
IT that specifies business processes across the enterprise Unlike NIT, which percolate bottom-up, EIT is top-down; i.e. purchased and imposed on organisations by senior management • ERP (Enterprise Resource Planning)
• CRM (Customer Relationship Mgnt
• SCM (Supply Chain Management)
• EPM (Enterprise Performance Mgnt)
• etc.
4.th Level Software Valuation IT
(VIT)
IT that reveals the business-value and the economic-viability of the enterprise Feeds on FIT, NIT & EIT Outcomes and ensures that these IT-Outcomes:
• Create & preserve the economic value and ultimately, the viability of the business
• BS Optimization
• ALM
• Risk-based PPM
• Capital Management
• etc.

There is a key distinction between a Level 4 IT-software and the Levels 1 to 3 software and a way to understand this key distinction is to refer back to two fundamental concepts of IT-performance metrics: the ‘efficiency’ metric and the ‘effectiveness’ metric. Unfortunately many people either confuse them, interchange them or simply ignore them. The usual common-sense way to define them is to say that ‘efficiency is about doing things right’ whereas ‘effectiveness is about doing the right things’. In IT-software terms it means:

  • Efficiency is about the IT-outcomes ‘being done right’ where ‘right’ is specified with multiple criteria like speed, reliability, etc.
  • Effectiveness is about IT-outcomes ‘being the right things to do’, that is the IT-outcomes correspond to ‘IT-goals achieved

Organizations seek IT-software whose outcomes are ‘effectively efficient’ (see upper right quadrant of the Efficiency/Effectiveness Plan of the left diagram below). The problem here is that IT-outcomes can be effectively efficient but not business-viable. To put it bluntly:

  • an IT-software can deliver top performance with outcomes that are completely flawed from a business-economic standpoint,

This paradoxical situation of ‘top performing IT-software which are still economically underperforming or even damageable’ is captured through the 3rd dimension of a 3D Metric diagram of IT-outcomes (see right diagram below). Frustrated senior Executives who feel their IT infrastructure does not deliver the promised return on investment usually experience the bottom upper-right quadrant of the efficiency/effectiveness/economic-viability space. The goal for organizations is to have IT-software architecture which occupy the top upper-right quadrant of this 3D-space.: IT-software which efficiently deliver goal-effective outcomes which are ‘business-viable’.

4th Level Software

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1 A. McAfee, Mastering the Three Worlds of Information Technology, Harvard Business Review, November 2006.

 
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