Over the last couple of years, CIOs and their corporate IT organisations have been faced with three key challenges.
Increased business scrutiny. CIOs are being asked to be more transparent around IT costs while demonstrating the value of IT to the business.
Higher expectations. Business users and customers are expecting IT services to be agile, available and well-supported.
More complexity. This is particularly true in the areas of cloud computing, mobility, and compliance.
The first challenge, increased business scrutiny, is becoming a mandate for all CIOs. It’s evolving rapidly from looking at costs to focusing on the need to demonstrate effective financial stewardship and business value.
Along with other activities such as supplier, performance, and service level management is what many call “IT business management.” This is about determining and demonstrating the cost, quality and value of IT and it’s a top priority for CIOs.
Effective financial stewardship more than budgeting and accounting
The information technology infrastructure library (ITIL) espouses the ‘ABC’ of finance management – accounting, budgeting, and chargeback – but this needs to go beyond the high level number crunching done solely to appease the finance department and its ledgers.
Most CIOs have probably heard the mantra that “IT needs to be run like a business.” But how can successful businesses survive without detailed insight into, and understanding of, the demand for their products and services, and the costs associated with providing those services?
If you consider an average IT organisation which, even if it knows the IT services it offers and delivers (service catalogue initiatives have definitely helped with this), probably doesn’t know what each IT service costs to deliver at both a consolidated and consumption-unit level.
Nor the value they deliver relative to that cost. Consequently, when asked to reduce costs or accept mid-year budget cuts they may unknowingly:
- Cut IT services that, while delivered only to a relatively small number of consumers, deliver the greatest business value; or
- Continue to deliver IT services where the cost of provision is actually disproportionate to the business’ perceived value of those services.
The bottom line is that without a detailed understanding of what IT services cost and the business value they deliver, how can corporate IT organisations make optimal financial decisions about where they invest and divest?
Stewardship: The ethic that embodies the responsible planning and management of resources.
IT is, and will continue to be, a sizable expense to the business. If you stop to think about it, the IT organisation is spending the business’ money, and so the business quite rightly wants to know whether it’s being spent wisely.
Financial stewardship (or management) should be part of any IT governance framework, which is particularly important for businesses because of the on-going need to focus value creation efforts on an organisation's strategic objectives.
But there is so much more than effective financial stewardship to IT governance, which unfortunately can mean different things to different people.
When talking about governance with other IT organisation team members, or business peers, it’s important to understand whether you are actually talking about (or expecting) the same results.
IT governance might include IT investment planning; financial management; demand management; project and portfolio management; risk management, security and compliance; change management; and enterprise architecture.
It may also include IT service management (ITSM); IT process management; resource and skills management; IT performance management; supplier management; and IT asset management among other things.
From an ITBM perspective, there’s also the need for better IT asset management, supplier management, project and portfolio management and performance management.
IT asset management: ITSM’s poor relation
Many organisations struggle to start, or to maintain their momentum for, IT asset management (ITAM), including software asset management (SAM).
ITAM can sound stuffy and complicated. Many ITAM “experts” will tell you that you need specialist resources to operate the technology and understand software licensing complexity in particular.
You may also hear that the specialist resource is scarce and expensive and with even more significant expense involved if you buy a standalone ITAM or SAM tool.
However, IT organisations can’t continue to ignore the financial wastage and compliance risks that they are exposed to through inaction.
They are potentially wasting a significant part of their IT funding each year on:
- Procuring new hardware and software when they don’t need to;
- Paying for support and maintenance (S&M) for assets they don’t actually need or use, or for “shelf-ware”; and
Supporting and hosting, and paying external S&M on assets that should have been decommissioned long ago.
In addition, with the consensus that software vendors have increased software audits as new sales revenues, it has suffered in light of SaaS alternatives.
But IT organisations definitely need to be in control of software usage and licensing, not only ensuring compliance but also optimising software, and hardware, spend against real business needs.
The value of IT
So how does an organisation’s investment in IT each year positively affected business performance?
It’s a simple question that most IT organisations would struggle to answer. After all, value is like beauty; it’s in the eye of the beholder.
The big problem is that what IT thinks as “value” is not necessarily what business peers think of as value – and there is probably a big difference between IT value and business value.
So CIOs need to ask themselves what value IT delivers to the business.
Not in generic terms like business process-enablement, delivering technology supported efficiencies, or delivering high-quality, business-enabling IT services, but rather business value defined in terms of things that a business values.
This could include increasing revenue, decreasing costs, delivering specific operational efficiencies and competitive advantage, acquiring and retaining customers, helping to accomplish strategic business goals or contributing to company profit and margins.
But it is not an easy thing to quantify, especially when multiple business stakeholders are factored in.
Start by considering the following questions.
Unfortunately, there is no magic formula for gauging or measuring business value but the important thing is to be seen to be focused on the right things, with the right motivations, and to talk to the importance of delivering value – using specifics rather than generics.
It sounds simple but by asking yourself the following questions you may see that it is a little more difficult then first perceived.
1. Do your people care about delivering business value or just IT services (or maybe just IT components)?
2. Are you focused on managing and reporting on the IT “inputs” rather than business outputs or outcomes of IT services?
3. Do you understand what value is (or might be) from a business POV? Remember, this might differ from stakeholder to stakeholder.
4. Do you actively try to communicate your delivered value or are you still reporting on how well you do operational things?
Understanding and being able to show clearly the value of IT to business executives has always been a challenge.
However by having clear visibility of exactly what IT services is costing the business and how that investment is resulting in business benefits is the first step to turning IT from cost centre to contributor.
CIOs today must define and deliver on IT business management as part of their value in driving effective enterprise services.
Peter Doherty is regional manager, solution consulting ANZ at ServiceNow.