The ops approach: How to move IT out of the silo
Enterprises have myriad sources of value. Sales, finance, and even human resources are consistently recognized as adding rather than detracting from the value of other departments.
IT hasn't been so lucky. In most enterprises, IT is still viewed as a cost center, one commanding an increasingly large share of every business's operating expenses.
The reality is that IT doesn't just add value to the organization—as laid out so convincingly in the book The Phoenix Project. In today's world, IT is an essential part of creating value in every other department. So how does today's CIO turn IT into a business enabler and move IT out of its silo and into the value equation?
Take the Technology Business Management (TBM)-approach
Consulting giant KPMG has spent years crafting strategies to help CIOs do exactly that. The firm's approach is called Technology Business Management, or TBM, which is a framework originally developed by the TBM Council that offers a set of "new standards and best practices for measuring, improving, and communicating the value of IT."
I asked Steve Bates, KPMG's global lead partner for TBM, about the value optimization journey and how CIOs can make this perceptual shift in their enterprises. "TBM is all about 'running IT as a business,'" he says. "There's nothing new about that phrase, but there's been a lot of better technology and process management that's emerged in the last five or six years to make it easier."
As with any large-scale shift, it starts with creating a road map for change. "The typical project trying to make this evolution never yields results because IT falls back into a firefighting mentality after the low hanging fruit is consumed," says Bates. These transitions can often take years to complete and then must be sustained. Without a long-term perspective, the value journey is doomed.
Bates says it's important to remember that the value journey requires a behavioral change, not just from the IT department but from all the consumers of IT resources as well. Kevin Coppins, general manager of EasyVista, an enterprise IT service management firm, says, "IT is part of everything in every business function, whether or not it is allocated to the IT cost center."
"Business services cross functional boundaries, and the common thread that binds them together is IT."
To succeed at TBM, the entire business will need to be transformed, and this requires time and resources, says Bates. Support from the highest executive levels is essential, particularly the finance function. "Remember you're moving away from the traditional IT cost management paradigm that has lasted for the last 12 to 15 years."
Transparency is key
Bates makes an analogy about the difficulties of even beginning to have cost discussions when it comes to IT. "Imagine that a cell phone user asks why his costs keep going up. For the carrier, that's a zero sum game. If Verizon or AT&T were to ask you, 'How would $10 a month sound?' you would say that's great. Eventually you will ask, 'Well, how about $5?' That's great for consumers, but the carrier ends up on a declining cost curve that only ends when the customer says service should be free. That's what happens to CIOs. Getting into a cost discussion is a no-win situation."
"Less than 60 percent of IT costs are actually controlled by CIOs," says Bates—and that number is going down. "The value of investment in IT today is everybody's business."
The key first step in the TBM journey is to understand your actual costs in full and to implement transparency of those costs in the IT organization.
For many organizations, this is a tough process. IT is typically funded as a lump sum. Even in organizations that utilize chargeback, there's often little rationale for the way expenses are allocated to other departments. Transparency involves a true understanding of the cost of providing services, including both fixed and variable costs, along with an understanding of the value generated from those costs.
But as Bates points out, "Transparency alone isn't useful—it's what you do with that data that's important." Introducing transparency into the technology portfolio and financial resources is a complex undertaking that involves cataloging service offerings, building service cost models, and tracking consumption of services, among other metrics that must be developed. Bates admits that this is difficult, saying, "Most organizations are good at knowing their infrastructure costs but are bad at linking those costs to applications and at linking those applications to business capabilities. That's what we help organizations do: get beyond infrastructure and into portfolio management."
The end goal of the transparency exercise is ultimately to build use cases that translate transparency into actionable costs. "You want to give control of consumption to the business by providing them a menu of IT services," says Bates. "CXOs are very much used to seeing costs passed over to them by being billed for the router or the switch—but you want to bill for the service. The consumer needs to know their fixed versus variable costs and be able to pull levers to see different delivery platforms and service levels available to them. Then the decision to use a new service can be made at the business level. There's a lot of effort in communicating that."
Optimizing costs, continuously
Once transparency has been achieved, the TBM road map leads to cost optimization. This doesn't simply mean driving down expenses. TBM advocates a metrics-based approach to the service catalog that the organization has already developed. "Performance-oriented metrics like availability and uptime are fine, but these are not business-oriented metrics," says Bates. "A hospital wants to know the cost of a customer or a bed, and one of the largest contributors to those costs is technology. The CIO needs to know what levers he can pull to drive down those costs."
"This isn't about pulling spreadsheets together, it's about continuously being able to look at your environment to make smart business planning decisions," Bates adds. "The companies that are advanced in TBM are taking this beyond IT. They look at each department and are building frameworks for how services are offered to the organization. It ensures this process is sustainable and not just a one-off project."
Avoid common pitfalls
Such a radical shift can present challenges, but Bates says that enterprises have no choice but to embrace the shift now. "The democratization of IT isn't an option. It's simply where things are going," he says. With that said, he offers some tips that can help CIOs avoid some problems along the way.
- Garbage in, garbage out: Many organizations have trouble getting started because they don't have quality data and metrics, making transparency difficult. "Some transparency is better than no transparency," says Bates, but he notes that a KPMG engagement will often start by refining data and tracing consumption of IT resources to business services. A true understanding of the data is always a key first step.
- Transparency can increase costs considerably: As hidden costs are uncovered, service costs may increase, sometimes to the point where IT services aren't competitive with the market. These costs will be optimized in the second stage of the plan, but a CIO may be threatened by mounting pressures to cut costs early on. IT consumers may also opt to outsource services rather than buy what's on the IT "menu" if the expense is too high. Bates says that in general, CIOs need to let the free market rule. "Users should be allowed to leave if it's best for the business."
- Explaining all this is hard: "The skill CIOs most lack is the ability to tell a story, because it's difficult to explain the value of a switch. They need to learn to tell stories in the language of business services. Until a CIO can speak in the language of a CFO and talk in the language of a utility provider, he'll continue to struggle," says Bates. Dave Wakeman, principal of the Wakeman Consulting Group, echoes this sentiment, saying, "IT executives are happy to list the activities that they do, but they never make the connection with value delivery."
Moving out of the IT silo
Whether or not you follow TBM's guidelines to the letter, it's important to understand that its principles, particularly cost transparency and the transition to a value-based menu of services, are quickly becoming a fact of life. It's a lengthy process that requires significant commitment from management, but it's a process likely to become standard operating procedure in every IT organization—whether you like it or not.