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How do you do ‘the business of IT’? Managing IT for business value and not cost

Following on from my business architecture article, I am now taking this a few steps further but also slightly sideways. This time I want to talk about the business management of IT or how to run your IT like a business. I am not just talking about the CIO here, you can run your area of IT like a business if you have the data and defined operating model available.

I will discuss the operating model and capabilities in a separate article; otherwise this will turn into a TL;DR(too long, didn’t read). This article is more about the data and financial aspect of managing the business while managing demand and having the right conversation with the consumers of your services.

Rather than a cost to the business, we encourage IT to treat itself as a business as we believe that IT adds significant value to the business through the capabilities it delivers. For example, it is estimated that the explosion of technology driven projects at Commonwealth Bank between 2006 and 2014 added over 10% to their share price, helped increase their customer satisfaction ratio from the lowest of the major banks to the 2nd highest and reduced their costs as a percentage of income from greater than 55% to approximately 42% over the same period. Diaxion believes that technology, driven from a business perspective, can achieve this and is the reason we are investing in the provision of services that support the business management of IT.

So where and how do you use technology business management?

Depending on where you are on the maturity journey there are likely a number of scenarios that you could explore to understand (at the right level) your business and where it is from a business perspective. At the initial stages of maturity you would most likely want to provide more cost transparency for your IT services however as maturity increases you are more likely to want to plan and manage budgets more effectively and/or manage the financial lifecycle of projects under your control. Some other scenarios to consider are:

  • Vendor cost control and portfolio spend linked to performance and contracts
  • Cross cloud cost management including spend across IaaS, PaaS and SaaS by business unit and projects
  • Identifying and delivering on benefits
  • As your organisation becomes more mature, showback and then chargeback of services become more important. Providing an IT bill to the business units with the transparency stemming from fully understanding costs becomes both a way to move the organisation forward and to start the conversation with the business to show and influence how they consume IT. Insights into IT consumption including license utilisation, application usage vs. cost, application portfolio benefits, SaaS license allocation, cloud migration, storage consolidation and other areas to be discovered put you on a firm footing to support decisions and recommendations made within IT and with your business partners.

    What does technology business management enable you to do?

    Having the right information and being transparent with that information enables better conversations with business colleagues and a higher chance of influencing them. Using the information generated, it is possible to show the true cost of services you are providing and how those costs are broken down (a perennial business complaint about IT) and who is using the services and at what rate. What does this then enable you to discuss?

  • How business can reduce their IT costs
  • Use of ‘levers’ that the business can use to adjust demand, cost, usage, etc. to drive trade off decisions
  • The make up of IT costs
  • The value of IT to the business
  • Cloud cost and usage across IaaS, SaaS and PaaS
  • Project budget alignment to business goals
  • Application spend vs application value
  • Underused applications and infrastructure
  • From an IT perspective, technology business management allows you to see the true running cost and compare this with your current project/’new functionality’ spend. This is likely to initially horrify the business but shows results, in black and white, that have likely been already suspected. How can you turn that 70% (or greater) “lights on” to 30% “new work” ratio on its head? Having the right information to truly see where your costs are going and whether this is aligned to the business priorities provides the opportunity to identify cost savings and business driven budget allocations.

    What data do I need to generate the information?

    You will actually be surprised how much of this information you already have in your organisation. The issue is that this information is locked in silos and is hard to bring together in a consistent way. Many organisations use spreadsheets or BI tools to pull the information together but this still does not provide the flexibility needed and the process to accumulate and process the raw information is complex and time consuming.

    Typically, you can start with simple information such as GL information, vendor bills, asset information, service desk, etc. This is information that should be reasonably accessible. The magic happens when you link this information to a standardised IT specific taxonomy that organises the information in IT relevant areas and not GL relevant areas. This re-allocation and splitting is what provides the base for making IT business decisions. As maturity increases you can add extra information such as consumption information and other application related information. In the meantime, estimates and percentage distributions from a total will suffice.

    Are there tools to help me?

    The simple answer is yes! At Diaxion we have partnered with what we believe is the leading TBM / ITFM (IT Financial Management) tool in the market. This tool is Apptio. We have looked at a number of these tools as part of our work for customers, especially where we were asked to do cost analysis of areas like cloud vs. on premise and we think Apptio has the most mature offering. A key part of this is the ready-built and extensible taxonomy that comes with Apptio making the allocation of costs much simpler than trying to do this from scratch.

    Increase the maturity of your IT organisation

    So, to go from managing IT to managing a business, start implementing Technology Business Management and understand the insights this discipline can give you and your organisation. Be part of the business and not a supplier to it – a supplier can be replaced!

    After CPA Australia

    After CPA Australia

    “IT can build the bike but business has to decide what the bike will be used for, and pedal the bike to deliver the value.” Judy McKay – Professor, IT Swinburne University of Technology
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