THE SOFTWARE VALUE gap is the unexploited potential
of an IT division to increase the value of the overall
organization. In today’s dynamic business environment,
most companies depend on value creation from
software solutions delivered by IT.a These solutions are
crucial for day-to-day running, controlling, and growing
the business, as well as complying with regulatory
requirements. In many cases, the availability of suitable
software solutions is a prerequisite for launching new
business initiatives and innovation.
In most companies demand for software solutions
and functionality exceeds the IT budget (or capacity
of the related human resources) for development and
maintenance by up to 500%, especially when accounting
for the “hidden queue” of software solutions.
9 This occurs since even the most prosperous companies cannot
afford to allocate unlimited resources to IT, as it would
adversely affect the value of the overall organization.b
a Value creation through a software solution is the marginal
discounted cash flow originating from use of the solution.
b A company’s value is its discounted cash flow.
Corporate boards and top executives
decide periodically on an affordable IT
budget, meaning business needs are
only partially met. Moreover, the eventual software delivery flow is too small,
late, and expensive. The software value
gap is particularly disturbing in major
industries (such as financial services,
telecommunications, insurance, airlines, health care, and Internet retail),
as well as in governmental agencies.
One approach to reducing the software value gap is to invest in IT resources by hiring more IT employees
and subcontractor employees, outsourcing projects to subcontracting companies (onshore and/or offshore), or purchasing off-the-shelf
software packages. However, the extent to which companies are able to
add more employees or budget is limited. Moreover, mere investment of
additional money in IT is no solution.
Outsourcing software development
and purchasing software packages
both involve allocating significant internal IT resources for requirements
definition, systems analysis, integration with other software solutions,
data migration, databases, data warehouses, implementation, and maintenance. In many cases, the extent of
software-solution deployment is limited by the ability of the organization
to define and agree on its needs, and
later to implement, assimilate, and
adopt new systems.
Another approach is to increase
software development productivity by
implementing one or more of the following methods:
How to cope with the growing demand
for software solutions at no extra cost.
BY SHIMEON PASS AND BOAZ RONEN
Software solutions delivered by IT
divisions usually do not achieve full
value creation potential.
A comprehensive approach is needed to
boost productivity and ensure IT
Throughput enhancement and lead-time
reduction can be achieved with simple