Measuring your suppliers
pharmafile | October 20, 2003 | Feature | Business Services |Â Â IT, measurement, suppliersÂ
When Pharmafocus suggested an article on measuring IT suppliers, this led to much scratching of heads in the Technophobe household.
How, we wondered, can you measure IT? Really, any supplier is only as good as his last project, and every project is different, so it doesn't make sense to apply measurement criteria because you will always be comparing apples and eggs. But that argument, heard so often when the 'm' word is mentioned, is typically the refuge of the mediocre and insecure.
Measurement, in principle, is like apple pie and motherhood. No one can object to it, but try putting it into practice. Not that that has put off the Government, which has brought measurement into the public sector, notably with schools and universities, prompting the various league tables that appear, like the first buds on the trees, in the spring.
So, like it or not, we are now well into a measurement culture. IT, being more (black) art than science, has avoided this, despite the fact that rivers of journalistic ink have been devoted to IT project overruns and outright failures over the past 20 years. Do a Google search on 'Measuring your IT suppliers' and you will get some pretty random stuff about business measurement in general, but very little about measuring IT.
What is emerging is a version of the balanced scorecard approach, used in manufacturing for several decades. A simple industrial scorecard ranks suppliers across three categories. The 'Quality' score is based on failures to meet specifications. The 'Delivery' score reflects the percentage of items due, which have actually arrived. The 'Tangible Value Added' score is often derived from cost savings.
Analogies for IT projects are obvious, if fraught with difficulties. The biggest difficulty is the subjectivity of the development process. A physical component, like a light bulb, either works or it doesn't. A software component may well work, but it will work more or less well, or quickly or slowly, or be more or less easy to use than another, and all these measures will be, to some extent, subjective.
But it is no use the supplier holding out against the idea that his work should be measured. The key driver here is that the customer wants it, and sooner or later, the supplier will have to accede to customer demands.
The raison d'etre of any IT project is the difference it makes to bottom-line value. If a project doesn't increase sales more than it increases costs of sales, reduces cost of sales or cuts fixed costs elsewhere in the business, it has negative value. Curiously, the first time IT teams woke up to this was during the dotcom boom when IT projects became e-business, and became key to getting, servicing and keeping business, instead of just being back office processing operations.
One of the great beauties of a web-enabled operation is that absolutely everything is measurable. This prompts some thoughts on a balanced e-scorecard, which could include:
Innovation and flexibility
Average time from concept to start, speed to match a rival's site, time between relaunches.
Customer loyalty and information
Percentage of visitors who return, time between visits, duration of visit, conversion rate, percentage who give personal information, percentage of visitors providing e-mail addresses.
Transactional quality
Unique visitors each month, on-line sales abandoned, percentage of orders correct, time to respond to a customer, percentage of orders filled on time.
Supply-chain excellence
Inventory levels, inventory turns, order confirmation time, percentage of products built to order.
Financial performance
Return on investment, market capitalisation growth, percentage of total revenue generated on-line.
E-business metrics have to track user behaviour, not just results, and that's different from traditional IT metrics. Metrics include where customers are coming from, what's driving them to buy, which content is compelling them, why they abandon the transaction. User behaviour is a lot more critical and difficult to track, so coming up with metrics is an evolving science.
For instance, there is the distinction between measures and indicators. Measures are what you look at after the fact. For example, on-line sales are a measure of what you've been doing. Indicators are things along the way that point toward the outcome – are you attracting users, interacting with users, transacting with users, retaining users, growing with users? Those answers indicate how you're doing.
Measures must be simple, meaningful, quantifiable and auditable. For example, key measures for business-to-business projects in which you are the buyer include the effort it takes to consummate a purchase how long does it take, how much detail you need to provide, and so on.
When you are the seller, you can measure customer satisfaction by looking at whether customers are returning and buying more from you. These basic metrics are essentially the same for any business, and e-business projects – and their suppliers – have to prove their value like all the rest.
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