Technology Business Management

Transcription

1 Innovation is Your Business TECHNOLOGY BUSINESS MANAGEMENT WHITE PAPER Technology Business Management EXECUTIVE SUMMARY IT is once again in the eye of the perfect storm. Enterprise CIO s must manage IT budgets of hundreds of millions of dollars and reduce operating expense 10 percent to 15 percent year over year. While doing this, they must provide higher quality service that aligns with the business and manage a service delivery stream that is being turned on its head. Just another day in IT. Luckily for them, this is a path that manufacturing went down in the 1980s, and that industry can provide some valuable lessons to IT. One lesson on the road to Lean operations is that IT needs the systems and processes in place to run a strategic business function. Technology Business Management (TBM) enables IT leadership to manage the business of IT. TBM provides IT organizations with the software and methodology to manage the cost, quality and value of their IT Services. TBM solutions enable IT leaders to have ongoing and credible discussions on the cost and value of IT with business unit leaders and executive management. It provides IT operations managers the insight and data to reduce the cost of operations while improving service quality. And it enables IT Finance to provide a fair and accurate Bill of IT back to the business and simplify the budgeting, forecasting and planning processes. TBM solutions ensure that decision makers on both sides of the IT fence have transparency into the cost and quality of IT in order to drive better decisions and alignment on the allocation of IT resources to business priorities. Apptio is the leading provider of TBM solutions. Their suite of applications and SaaS delivery model provide IT organizations an efficient and cost effective approach to quickly adopt and realize the ongoing benefits of TBM. More than half of all capital spending by businesses worldwide goes to IT. Yet most non-technical leaders remain skeptical about whether their IT investments are paying off. They are frustrated with their IT departments - and they respond by putting pressure on IT costs. -Richard Hunter, George Westerman. The Real Business of IT. How CIOs Create and Communicate Value. Boston, MA: Harvard Business Press, LIFE IN THE PRESSURE COOKER I Why does IT cost so much? I can get services online cheaper than this! How much do we spend on each year, fully loaded? We just bought 24TB of storage! Where did it all go? Who s using it and how are we going to fund this? What is the ROI on our server virtualization project? I know we can save money in application rationalization, but I don t have the data to prove it. We have to start the budgeting process in August to get it all in by the end of the year, and it s still never right. These questions and comments (or similar) are heard in nearly every large enterprise IT shop around the world. IT has grown so fast so quickly, it hasn t had the time to build in proper financial management systems or 21st century business processes. Other business functions have developed processes and systems to help them manage their business. Finance has Corporate Performance Management systems, Sales has Customer Relationship Management, and Manufacturing has Enterprise Resource Planning. You can be sure that most modern manufacturing managers can tell you the cost to produce their widgets down to the penny, including all material, labor, facilities and operations costs. APPTIO 1

2 Unit cost per service is a far better metric. It provides information that everyone can use and assess across enterprises Such measures also help IT make the case that value-for-money performance is improving. -Richard Hunter, George Westerman. The Real Business of IT. How CIOs Create and Communicate Value. Boston, MA: Harvard Business Press, However, IT has to deal with additional complexity as well. They have a factory floor IT operations that changes on a weekly basis due to new systems, new architectures and new projects being deployed. Most IT shops also have a significant amount of infrastructure that is virtualized, blurring the lines of cost allocation. And finally, The Cloud provides completely new, or possibly many new, supply lines for IT service delivery that IT has to manage, provide cost transparency and manage the cost and quality of IT service delivery. And all the while, IT s customers (the business units) are screaming it costs too much, where s my money going?, why can t I have 24x7 support service?, and I need more! IT leaders can no longer afford to calculate the cost of IT services on spreadsheets. Nor can they put off implementing real cost allocation systems (chargeback or showback ) to provide business users the proper financial reporting on where they are spending their IT budgets. And they shouldn t settle for last-century processes for budgeting, forecasting and planning while their business counterparts all have better tools to do their jobs. TIME TO LOOK AT THING DIFFERENTLY To effectively and accurately manage the technology resources and new investments of enterprise IT, new methods and solutions are required. IT must think about running IT more like a business. They should focus on three critical elements: 1. Customer value -- Providing high value products and services to their customers (the right service at the right price) 2. Operational excellence Continuously driving down the cost of operations while increasing service quality 3. Strategic relevance Increase the value of IT s role in the business through tighter alignment with business priorities and a more proactive role in driving company initiatives Many IT organizations are adopting ITIL best practices in mapping out the services IT provides to the business units. This is the first step in aligning to customer value. And indeed, ITIL guidelines are written to help IT align around the value they are providing to the business. If IT is a factory, the services it provides are the economic unit of value for the business. To align on customer value, IT needs to understand the total cost it takes to deliver those services on an annual basis, communicate the cost, consumption and performance metrics to the business consumers, and have regular discussions on how the business values those services. By having an open discussion between the buyer and seller of IT services with full transparency into the cost and performance of those services, the true value of services will be understood. Every business organization must continually improve the cost of operations. But most IT shops actually have pretty poor data on the total annual cost to provide IT services. They can t identify key IT cost drivers nor where to find cost inefficiencies. Nor do they have the specific tools to help analyze ROI or provide justification for cost reduction projects. Without this data, operation managers are ill prepared to effectively improve cost efficiency. Successful manufacturing organizations and supply chains have rigorous processes and sophisticated tools to track and analyze the cost of production or supply at every step of the operation. Whole teams are organized around squeezing pennies out of a manufacturing line. And this is not a once a year or quarterly process, but a day-in and day-out part of every manager s responsibilities. The difference between manufacturing and IT is that manufacturing has the tools and processes in place for every manager to individually make better decisions on reducing the cost of operations. IT does not. With respect to strategic alignment of IT to the business, it is critical to the success of the CIO to show the value of IT to the organization. In doing so, CIOs build credibility in their ability to run a financially responsible organiza tion that is APPTIO 2

3 aligned with the priorities of the business. But this is something that is earned over time and as a response to being successful in demonstrating customer value and operational excellence. As any technology vendor to enterprise IT organizations knows, you first have to prove that you provide high quality product at prices better than the competition, over and over again, before you gain the trust, respect and credibility to become strategic. Beyond that, the CIO must provide accurate and thorough financial reporting. They need the ability to track business unit spend on IT in order to manage a budget, plan accurately, track common financial performance metrics like ROI, ROA, CapEx vs. Opex blend, Fixed vs. Variable, and provide proper transparency to all stakeholders. By running an efficient organization, the CIO builds credibility and creates the platform to drive more strategic initiatives. For some businesses, government, and non-profit organizations, the perceived lack of measurable value from IT investments results from the IT service provider s ineffective business practices. Business Practices include the methods, processes, procedures and rules followed by an organization to achieve its objectives. -Robert Ryan, Tm-Raducha-Grace. The Business of IT. How to Improve Service and Lower Costs. This is the era of Lean IT and better business alignment through a new paradigm in managing IT like a business. To drive that transformation successfully, CIOs need the tools and processes that businesses use to manage their cost efficiency and financial performance. A BETTER WAY TO RUN IT This category of business management solutions for IT is called Technology Business Management (TBM) software. TBM is a promising new software category intended to facilitate CIOs and IT Leaders in their understanding of the cost, quality, and value of IT services. With TBM, IT leverages accepted best practices of financial and performance management systems used by other business units and then applies those to the complex environment of IT. This creates a better, consistent approach for IT business management and the business overall. For IT Operations, TBM provides insight into cost, quality and utilization of IT services, at a granular level. This empowers IT managers to make cost optimization decisions and understand the impact of those decisions on the IT services and users. Through greater insight, analysis, and decision support tools, IT can reduce the cost of operations by 10percent to 15 percent annually. For IT Finance, TBM provides Service Costing and Chargeback capabilities to drive better analysis of cost drivers and financial reporting mechanisms. TBM also delivers the Budgeting, Forecasting & Planning applications to establish a system of record for budgeting and forecasting, and to simplify the B&F processes for faster cycle time and improved accuracy. Having a TBM system of record automates the data acquisition and management processes. This frees up IT Finance to provide more valuable analysis, reporting, and recommendations. For the business units the owners of the IT budget--, TBM provides transparency into IT spend. Finance leaders can understand where their budget is going and influence the future direction of their IT resources based on business priorities. For the CIO, TBM is a system to manage his or her business. TBM provides the reporting and dashboards necessary to manage the business performance of IT. It empowers the IT team to drive cost optimization efforts at a grass roots level and forces business leaders to become accountable for their impact on IT spend. And it gives them the data to prove their success and drive more important initiatives. HOW THINGS WORK TODAY In today s world of enterprise IT, accurately understanding financial aspects of IT is extremely challenging. Typically, a sea of spreadsheets is used to figure out the TCO of IT. The cost of assets hardware and software may be kept in IT Asset Management systems, procurement or General Ledger (GL) systems. Service Desk systems track labor resources in operations, but rarely have cost associated with them. Project and Portfolio Management tracks labor in development and Change the Business (CTB) operations. Any outsourcing charges usually come in a lump sum and do not reflect their allocation to IT services as defined by the 2010 Apptio, Inc. All rights reserved. APPTIO 3

4 business. And facilities, administration and other costs are lost in a myriad of spreadsheets. To consolidate these costs and allocate indirect costs to their respective IT services is a manual and painstaking process undertaken each budgeting cycle. This process results in IT and Finance regularly spending a ridiculous amount of time to inventory and track IT assets. The outcome at the end of this process is at best a point-in-time understanding of the direct costs of IT Services with limited ability to drive improvement decisions, provide proper financial transparency or indicate quality or value. At worst, it is only vaguely accurate, drives incorrect business behavior based on unfair allocation policies and is out of date as soon as it is complete. This drives financial reporting that is not trusted, not widely distributed, and incapable of providing the analysis capabilities to actually drive improvement decisions. MAJOR INEFFICIENCIES Today s existing methodologies for managing IT financial costs are inefficient, expensive, and incomplete. IT Leaders simply do not possess the data and tools necessary to make good cost-based decisions, therefore leaving a lot of inefficiency within IT. When TCO projects are undertaken (usually on a yearly or greater basis), the data collection and modeling take weeks to complete. The spreadsheet-based cost models are overly complex and accessible to only a few people, making them impractical for wide-spread data analytics. This hampers individuals ability to understand and cost optimize in their own domain. Likewise, during the budgeting, forecasting and planning process, the opportunity cost of labor is high. It is reported that IT and Finance organizations can typically expend up to 10% of available staff hours on budget projects during forecasting periods. Jack Welch, former CEO of GE, was quoted as saying The budgeting process at most companies has to be the most ineffective practice in management. Again, due to the reliance on spreadsheetbased, non-collaborative and manual-intensive processes, the budgeting, forecasting and variance reporting times are the bane of IT finance. And yet, why is it that IT is one of the last groups to use these arcane processes and not take advantage of 21st century technology? Techniques in this category (Reduce Resource Costs) will usually pay back within a year, and have the potential to reduce the IT budget by 10% to 20% when combined. -A Checklist for Cost Optimization. Michael Smith, Richard Hunter, Barbara Gomolski. Boston, MA: Gartner, May INTRODUCING TECHNOLOGY BUSINESS MANAGEMENT The Technology Business Management class of software represents a new concept and opportunity in enterprise IT Financial Management and planning. TBM brings parity for CIOs with their counterparts in other business units such as Finance, Manufacturing, and Sales by providing financial and performance management capabilities. It leverages the well known and widely accepted best practices of financial and performance management, used regularly by other functions in the organization, and now applies them to the complexity found in IT environments. TBM aims to help IT leaders manage the business of IT through deep visibility into the cost of IT and improved communication to the business units on the cost, quality and value of IT. TBM allows for streamlined and more accurate budgeting, forecasting and planning capabilities. TBM is comprised of a complete suite of applications that provide closed loop cost and performance management, cost optimization, financial and performance reporting (i.e., IT Cost Transparency), business demand-based budgeting and forecasting, all within the construct of IT Services and the ITIL framework. IT SERVICES AS THE ECONOMIC UNIT OF IT VALUE Central to the architecture of a TBM solution are the set of IT Services delivered to the business. Organizing around IT services provides a common language on which to align IT with the Business and create a market for IT products. This establishes a framework for IT to operate like a business and manage the true costs and value of the services delivered., IT can then make supply decisions based on demand and weigh market alternatives (cloud, outsourcing) on equal terms. In addition, IT can establish a credible baseline unit cost of each service and acquire visibility into APPTIO 4

5 the discrete cost drivers of each service. By tracking the cost per business service, IT leaders can communicate with business leaders in a language they understand, manage demand for IT Services, and better align with business priorities. TBM gives the CIO the cost and quality data and system of record to drive cost efficiency within the IT organization and the reporting to drive alignment across business units. The CIO now possesses the data and business case to drive the strategic initiatives necessary to take the business where it needs to go. THE BENEFITS OF TECHNOLOGY BUSINESS MANAGEMENT Organizations realize benefits from implementing a TBM solution in three main areas: IT Cost Transparency, Communicating the Cost and Value of IT and Improved Budgeting, Forecasting and Planning Processes. ACHIEVE IT SERVICE COST TRANSPARENCY IT Service Cost Transparency provides deep visibility into the true costs and cost drivers of IT services. A clear understanding of the unit cost drivers along with powerful data analytics and What If scenario analysis enables IT managers to root out cost inefficiencies and make cost optimization a continuous and organization-wide effort. Cost data can be input into the TBM system directly or via spreadsheets. For true activity-based costing, TBM systems can be integrated with existing IT management systems (Asset Management, Service Desk, PPM, etc.). As a result, organizations will find it possible to reduce the cost of IT operations by 10 percent to 15 percent year over year. Fair and accurate service costing also becomes the basis for proper chargeback policies. As most organizations move to a shared service model to gain economies of scale, it becomes increasingly important to understand the IT Service TCO in order to charge the business units for their fair share of IT resources. When IT departments leverage virtualization or Cloud services, the ability to track service TCO becomes more complex. But chargeback will only work if the allocation policies are fair and accurate, thus driving the need for proper, and preferably activity-based, IT service costing systems. COMMUNICATING THE COST AND VALUE OF IT There is likely not a CIO in the world today that hasn t heard Why does IT cost so much? Where is my money going? I m sure I can get services from the Cloud cheaper! To the contrary, most enterprise IT shops can provide most services at a cheaper rate and higher quality than outsiders due to scale, lower overhead and no profit margin. However, without proper IT Cost Transparency and financial reporting systems, CIOs would never be able to show where the money is going, how much it truly costs, and how they are better than the alternative. In the new era of TBM, where IT is run like a business with transparency, IT needs to provide good reporting on the cost and value of IT services. IT leaders cannot become strategic partners with the business if the business doesn t trust that IT is handling their costs properly. But beyond building trust and proving proper cost management, TBM makes a business unit accountable for managing the demand of IT Services and fulfilling their roll in reducing cost. IT now has a framework for reporting the cost, consumption and value of IT services, enabling the business units to make decisions based on the consumption and value of IT services. The only way to improve ROI estimates in new projects is to increase visibility into the costs associated with the existing approach, because if you can t measure what you are paying today, you can t estimate what you ll save tomorrow. Therefore, IT organizations must start to build cost models for their existing infrastructure, which isn t as easy it sounds. -Counting the Cost of the Elephant in the Data Center. Consider a Bill of IT Services, just like one might get from a wireless phone company, that includes the various services one subscribes to (voice, data, text, etc.), how much of those services one consumes (minutes, kilobytes, etc.), the unit rate for those services and the total bill. The subscriber then is responsible for how much he or she spends, which services are most important to him, and whether they want to subscribe to more or less services. Through TBM it is possible to create a Bill of IT for each business unit consuming IT resources and create a process for managing APPTIO 5

6 the demand for IT. The Bill of IT also becomes the basis for Chargeback policies whether with direct bill back, or by setting unit prices based on clear understanding of the IT Service TCO. BUDGETING, FORCASTING AND PLANNING Improved budgeting processes based on the TBM solutions results in a more collaborative and efficient experience for the organization. Forecasting, budgeting, and planning can now become joint exercises between IT and the Business Unit teams. Together, they can leverage a single system of record designed for IT, standardize workflow processes and create a collaborative and streamlined process. This eliminates the inefficiencies of today s sea of static spreadsheets and helps reduce the time and labor in the overall budgeting process. Critically important to the TBM process, and IT s ability to communicate with the business, is a budgeting and planning process built around IT Services. Instead of the typical General Ledger line item view of the past, TBM solutions transform the GL view into a services view to align with Service TCO, Bill of IT and the language of the business. When IT leaders know with great certainty the annual cost to deploy and maintain any IT service, they eliminate a great funding challenge the classic problem that IT never receives adequate funding to maintain new IT projects or services. With clarity on the TCO of services, IT can push funding back to the business by saying this is how much this is going to cost IT to run for the next 3 years. I need these dollars in the IT budget before I can support this project. But more accurate planning and budget control is a huge benefit to the business. With service costs being tracked automatically (in real-time), IT finance can run variance reports on an as needed basis, obtain alerts on budget overruns, and determine the cause of unexpected cost trends directly in the TBM system. The ability to provide accurate rolling three-year forecasts enables the business to operate much more efficiently. The CIO can then give the CFO a plan to manage the fixed vs. variable cost, transfer Keep-the-lights-on (KTLO) operational expense to Change the Business (CTB) projects, and optimize Return on Assets (ROA). This will earn the CIO many gold stars and the latitude to pursue more strategic initiatives. APPTIO S TECHNOLOGY BUSINESS MANAGEMENT SUITE In reviewing solutions available today in the Technology Business Management market, Seattle based Apptio is the clear leader. Apptio s modular and scalable enterprise Software as a Service (SaaS) solution is successfully being used by many Fortune 500 firms today. Apptio s suite of applications lends added flexibility for IT organizations as they build a fully mature budgeting and financial management lifecycle process. Apptio s best-ofbreed portfolio approach eliminates the potential for the boil the ocean project mentality. Instead, specific Apptio modules can be incrementally turned on to help customers recognize quicker time to value on software investments while establishing a modular, extensible TBM solution architecture for their project. Apptio s portfolio is comprised of five separate SaaS-based applications that leverage a common modeling, analytics and data management platform. IT SERVICE COSTING This module enables the IT and Finance teams to work together to appropriately model their fully-loaded costs of IT services being delivered. It creates a single system of record that helps automate the service costing processes, manage and track any changes made over time, and contribute validated data to cost allocation or Chargeback policies that may be in effect for the organization. Apptio s visual modeling and allocation policies are easy to use and flexible enough to get started fast with a simple services model and mature into an activity based costing methodology. The analytics available within Service Costing assist IT in understanding cost drivers, identifying areas for potential cost reductions, and offering What If analysis to quantify the financial impact of IT investments. BILL OF IT The Bill of IT module enables IT organizations to distribute reports to the organization s business units and other significant departments on the financial costs of the IT services they are consuming. The reports are similar in concept to a cell phone statement. Reports detail the IT services being consumed and associated costs. This module APPTIO 6

7 helps articulate the actual value of IT services in a language that the business units appreciate. It encourages ongoing conversations between the business units and IT regarding future demands for IT services and prioritization of resources. BENCHMARKING The Benchmarking module offers a cost efficient and long-term methodology to IT cost benchmarking that supports Apptio s concept of Continual Cost Optimization. Apptio provides industry cost and performance measurements side-by-side with the actual costs and metrics from the customer s model. Benchmark metrics are collected from over 3,000 companies across more than 20 major industrial segments by an independent benchmarking agency. Metrics are updated on a regular basis. The data includes high level financial benchmarks, granular infrastructure and support unit cost metrics, and application service unit costs. SERVICE QUALITY AND UTILIZATION The Service Quality and Utilization module measures and tracks metrics that map the value and usage of delivered IT services. Calculating and reporting on these service levels provides a measurement of the value of a service back to the business units. These service levels can then also be used to tier the pricing of otherwise similar services. Operational metrics around usage of IT services provides insight into capacity and helps identify underutilized services that are targets for IT consolidation or virtualization. Actual usage data can then drive true consumption-based chargeback policies (i.e., activity based costing). NEVER A BETTER TIME TO GET STARTED Technology Business Management is ushering in a new way of running IT. TBM improves cost efficiency, tightens alignment with business priorities, and increases the productivity of the IT organization. TBM enables IT leaders to gain control of and properly manage cost, quality, and value of their IT Services. Through better visibility and analysis of the costs of IT, the IT organization will make better decisions to reduce costs and increase efficiency. With proper reporting of the cost and value of IT services to the business units, IT will drive a better working relationship aligned on business priorities and properly managing the demand for IT services. With TBM s closed loop financial management process, IT will be able to manage the financial performance of the department more closely and with greater agility. IT can then allocate more resources to higher priority, strategic projects. Apptio is a leader in delivering TBM solutions to enterprises. Their best-of-breed suite of applications and SaaS delivery model provide IT organizations with an efficient and cost effective approach to quickly adopt and realize the ongoing benefits of TBM. Global 2000 IT organizations have adopted Apptio to provide credible ongoing budgeting, financial reporting, forecasting, and strategic planning on the costs, utilization, and value of IT services. Just as companies in the 1980s improved operations by adopting Lean practices and resource planning, IT organizations adopting TBM today will become more cost efficient and agile. The strategic advantage will make them market leaders for decades to come. For more information, please visit BUDGETING AND FORECASTING The Budgeting and Forecasting module bridges the gap between the corporation s general ledger and the services view IT requires to operate their business. Apptio s application streamlines planning processes and increases productivity within the organization. Automated data management can eliminate juggling of spreadsheets and role-based access and versioning control enable group collaboration. APPTIO 7

8 ABOUT APPTIO Apptio is the leading provider of SaaS-based Technology Business Management (TBM) solutions. Apptio enables IT leaders to manage the cost, quality and value of IT Services by providing deep visibility into the total cost of IT services, communicating the value of IT to the business through an interactive Bill of IT, and strategically aligning the planning, budgeting and forecasting processes. Using Apptio, IT leaders can drive cost reduction decisions, manage the utilization and performance of IT services, and more effectively run the business of IT. Apptio s TBM solutions play a critical role in helping companies understand and drive chargeback, virtualization, cloud and other key technology initiatives. Organizations such as Blue Cross Blue Shield of Kansas, BNP Paribas, Cisco, EMD Chemical and Starbucks use Apptio to reduce cost and align IT with business priorities. For more information on Apptio, please visit or the Lean IT blog at apptio.com/ blog. Corporate Headquarters USA (+1) Apptio Europe +44 (0) APPTIO 8