Governance & Management Of Complex Multi-Supplier Value Streams

Transcription

1 Governance & Management Of Complex Multi-Supplier Value Streams

2 Executive Summary Managing the 21 st Century IT organization is a highly complex task. Information Technology has become deeply entrenched as a critical dependency for many, if not most business processes across a broad span of industries. Additionally technology, whether managed directly by the formal IT group or by technical staff within specialized business units, underpins the critical revenue streams for an enterprise. Finally, as we have seen in the last decade or so, managing IT is not limited to managing only the internal people, process and technologies under the direct control of the firm. It also includes governance and management of integrated technology suppliers, which has expanded externally through outsourcing arrangements including, the extended XaaS (all sorts of things-as-a-service) technology base. Right now, the IT sector is struggling with complex multi-supplier value streams. This paper is one of the series that came out of the Pink Think Tank at the 18 th Annual International IT Service Management Conference & Exhibition in February 2014 ( Pink14 ). In support of Pink Elephant s mission to research, document and promote IT best practices, Pink14 hosted and sponsored the assembly of a group of thought leaders to discuss a growing trend and challenge in the IT industry: the Pink Think Tank ( The specific challenge that was addressed at Pink14 was the fact that there is an observable increase in the use of third-party suppliers in the IT value system. The assembled Think Tank addressed the problem statement: How do you manage the current and growing challenge of multi supplier integration? There will be discussion of the governance implications of these findings at the 3 rd Annual IT Service Management Leadership Forum, PinkFORUM14, in August 2014 ( and will feed into another Pink Think Tank that will convene in 2015 at the 19 th Annual International IT Service Management Conference & Exhibition, Pink15, in February 2015 ( 2

3 Executive Summary Refer to the original white paper, Managing Complex IT Value Streams summarizing the outcomes of the Pink Think Tank, and the second paper, Integrating Suppliers: Current State Assessment which discusses our current challenges. The purpose of this paper is to look at how we address these challenges: through the definition of an end-to-end operating model which enables a value stream approach to IT governance. One critical benefit of this operating model is that it enables the goals of supplier management and integration. Jack Probst Principal Consultant, Pink Elephant Troy DuMoulin VP, Research, Innovation & Product Development, Pink Elephant Rob England ITSM Consultant & Commentator 3

4 Table Of Contents 1 Operating Model Value Stream Governance Suppliers Strategic Partner Standard Commodity Supplier Management Sourcing Operations Conclusion About Pink Elephant

5 1. Operating Model Effective governance and orchestration of the broader (plan, build, run) IT context has become increasingly critical to strategic business success. As an organization considers how to direct and govern this new complex reality, two leadership challenges come to mind. The first is how will we operate effectively in this new world and the second is how will we govern those arenas that aren t directly under direct control of a firm s IT management. Let s address the first question how does (or should) IT operate? Today many IT shops still organize and work based on the hierarchical tradition of technology specialization within two key domains applications and infrastructure. That vertically orientated organizational construct has worked well in the past, especially in the days of data processing. But considering that in today s business climate there is a need for an agile and flexible approach to IT, a different construct is in order, which focuses on the flow of work between practice areas and suppliers. We are finding that more and more IT organizations are beginning to organize based on a defined IT Operating Model. And it is the Operating Model that defines not only internal organizational structures but also how external parties such as suppliers are engaged and integrated into the overall value stream. An Operating Model is a logical representation or blueprint of the IT value chain process architecture, agnostic to existing organizational structure and sourcing strategies. And the Operating Model provides a strategic process architecture to support the goals of the IT Governance activities of evaluate, direct and monitor. An IT Operating Model enables governance objectives through the definition of a reference model that identifies and defines the major activities, capabilities, process dependencies and critical success factors required to directly or indirectly convert customer requirements or requests, into the expected service outcomes and deliverables. 5

6 An example of a generic IT Operating Model is shown in Figure 1: Operational Goal: Provide the Direction and Oversight for the Operating Model exercised through plans, standards and financial management Governance Strategy/Planning Process Governance Architecture Compliance Financial Operational Goal: Understanding and managing customer needs, requirements and expectations to solve business problems and deliver value Operational Goal: Design, Build, Test and Deploy services or service changes that meet defined requirements Operational Goal: Manage service operations to maximize customer outcomes and minimize cost Customer Engagement Design/Build/ Test/Deploy Operations Excellence Business Relationship Management Portfolio/Demand Management Service Definition & Performance Common Front Door Service Design Package Release & Deploy Testing Manage Operations Eliminate Or Mitigate Technical Debt Keep the Lights On Operational Goal: Manage the risk and resources to deliver quality, cost effective services and service enhancements Continual Improvement Figure 1 Monitoring Reporting Service/Process Improvement Efficiency/Effectiveness Common Process Ownership Priorities/Scheduling This IT Operating Model consists of five integrated domains that address two concepts that are critical to managing and leading an ITSM organization. 6

7 2. Value Stream The first concept is the value stream. Value is created for the customer through a logical sequence of activities that translate customer need into operational reality. These activities are called value domains and they are: Customer Engagement (The Funnel) Establishes a strong relationship with the business and understanding the current and future business needs, captures requirements that serve as an intake for IT work (business projects, IT foundational projects, and changes or requests). This domain also sets portfolio priorities for that work, and releases work into in the development or project management capabilities of the value stream production capability or the Factory Design/Build/Test/Deploy (Factory) Funded and/or approved work is transferred into the Factory where customer requirements are translated into designs that are then built, tested and deployed into production in an efficient manner. The key here is that deployed services meet customer expectations and the deployed service does not add to the technical debt of the operating environment Operations Excellence It is only after services are deployed into the operational environment that customer value is truly achieved. And considering that more than 90% of a service s life is spent in Operations, management of Operations must be resource-efficient and requirements-effective 7

8 3. Governance The second Operating Model concept is the governance of the value stream. Governance engages a number of critical decision-making practices all targeted at directing, monitoring, and evaluating the capability of the current value stream, the service portfolio and the dynamics of ongoing customer demand to assure that corporate goals are met. Included in governance are two domains: Governance engages a number of critical decision-making practices all targeted at directing, monitoring, and evaluating the capability of the current value stream, the service portfolio and the dynamics of ongoing customer demand to assure that corporate goals are met. IT Governance Provides a home for critical IT management functions and processes such as Strategy, Architecture, Security, PMO, Finance and the like. These processes underpin the basic governance tenets of direct, monitor, and evaluate. Continual Improvement The efficacy of the value stream is under continual stress due to changes in customer service demand, changes in personnel, technologies, development or operational methodologies and so forth. Continual Improvement provides the other domains with critical capabilities focused on the Monitor and Evaluate governance elements. Continual Improvement provides what might be called the disinterested third-party reality check of how well the rest of the organization is working and delivering customer value. 8

9 4. Suppliers Managing the value stream can be a challenge if the IT shop is only engaging internal or company resources. However given the realities of today s business climate, one must also consider how external parties such as suppliers or technology service providers would be integrated into the overall Operating Model. In order to address how they will be engaged, one first must understand that the level and formality of supplier integration will be dictated based on a supplier classification schema that is based on the nature of their relationship within the IT value stream. There are three classes of suppliers defined by their status of their engagement to or relationship with IT and IT leadership: 4.1 Strategic Partner This is a unique class of supplier that is considered critical to the long-term success of IT and participates in a quasi-leadership role. This category of supplier has an indepth understanding of the intricacies of their customer s service portfolio and how the portfolio is consumed by the business as well as the details of the IT Operating Model. Strategic partners typically will provide advice and counsel across the value stream, especially for customer engagement; but they also provide significant (or all of the) resources for the Factory and/or Operations. Strategic partners play a substantial role in governance, adding knowledge for strategy development, guidance on architecture and security, and knowledge or resources to support continual improvement. Although there is a contract in place that governs the terms and conditions of the relationship, the deep and dynamic working relationship between the supplier and IT leadership does more to define the engagement than the contract. Terminating this level of relationship is not without considerable effort especially as losing the supplier means losing a significant mindshare within the organization. 4.2 Standard This class of supplier is engaged to provide targeted resources or capabilities at unique points throughout the Operating Model. The rules of engagement are 9

10 defined exclusively by the contract. Standard suppliers will typically be associated with work in the value stream specifically in the Factory and Operations. It is not uncommon that entire elements or technologies of these domains may be contracted to the standard supplier. This supplier class is judged on the basis of the contract and defined performance levels. Contracts can typically be competitive in nature but it is not uncommon that the lowest bid does not win a standard contract. Instead IT leadership may take into consideration supplier experience and expertise when assessing a supplier s bid. The term of the supplier relationship is typically dictated by the contract. The value of the supplier is judged on the basis of contract performance. Terminating this relationship is not without some challenges depending on how deeply entrenched the supplier processes and Establishing a supplier practices are within the value stream and whether the client will face difficulty in transferring that skill set classification internally schema and or to another supplier. subsequent supplier integration 4.3 Commodity requirements is a key deliverable of the Supplier Management As is the case with standard suppliers, this class of supplier is engaged for point solutions. However the basis practice in support of the overall for this relationship is almost exclusively the price the IT governance skill, policies and capabilities or talents provided by this class is ubiquitous across the supplier universe. Typically these commodity strategic objectives. suppliers are engaged to provide unique capabilities that may be of a short duration and can be focused on almost any Operating Model domain. The relationship of the supplier to the client is governed by the terms of the contract, and commodity suppliers can be engaged and terminated relatively easily and without significant hardship to IT. Establishing a supplier classification schema and subsequent supplier integration requirements is a key deliverable of the Supplier Management practice in support of the overall IT governance policies and strategic objectives. 10

11 5 Supplier Management Supplier Management is a specific practice and function within the operating model that deals with the sourcing, and management of relationships with external suppliers: product vendors, service providers, outsourcers, contractors, and so on. It should be understood that Supplier Management is both a planning and ongoing management practice, which is separate and distinct from the financial procurement and tender support processes. It is not unusual for Supplier Management to be treated as a secondary process within IT, an administrative activity of lesser importance than some of the other processes. Supplier Management is a specific practice and function within the operating model that deals with the sourcing, and management of relationships with external suppliers. However, as we have discussed the importance of Supplier Management is increasing as we move to more complex externally-sourced value-streams. It is essential that this commonly undervalued practice area be treated as a core competency of the service aggregator. Whilst it is highly likely that the wider business organization has a Supplier Management function responsible for overseeing business process and service outsourcing, the outsourced IT elements often fall outside of the governance of the parent function. As is the case of Business Continuity Planning (BCP) and its IT counterpart of IT Service Continuity Management (ITSCM) the practices and function of IT Supplier Management should operate as a specialist subset of the overall business function, dealing only with the peculiarities of IT suppliers and leaving as much as possible to be performed by the organizational function. In this paper, we only address some of the core points of Supplier Management as they relate to the topic of governance of value streams. Supplier Management is described in the ITIL 2011 Service Design book, and described in more detail in the 11

12 COBIT book Vendor Management Using COBIT 5. There is also a significant amount of information in ITIL Service Strategy which is often overlooked, under 3.3 Service providers, 3.6 Service economics, and 3.7 Sourcing strategy. Enthusiastic readers may like to also seek out the original ITIL book Managing Supplier Relationships: you will be amazed at how little has changed since There is even a body of knowledge intended specifically to describe the practices of service providers and their customers, called e-scm. There are two works: e-scm- SP for the suppliers and e-scm-cl for their clients e-scm is a product of Carnegie Mellon University (as is the Capability Maturity Model, CMMI). As a planning practice area Supplier Management should take a strategic approach to supporting the full lifecycle of identifying, assessing, procuring and managing suppliers according to an organizational policy in alignment with the organizational strategy and plans. Suppliers should be profiled and prioritized so that effort is focused on those suppliers where: Supplier s role is important Supplier is embedded, difficult to shift to another Impact is high (positive and negative) Data is important Cost is high Interaction is frequent or complex 12

13 6. Sourcing The decision to source a capability externally is a complex one, with a number of non-obvious considerations. For example, immediate costs savings may not yield any benefit to the sourcing organization if competitive pressures force all the savings to be passed on to the customer, i.e. if there is no value capture from the outsourcing. A great deal of consideration, research, governance, due diligence, and expertise should go into sourcing decisions. Successful external sourcing depends on clear definition of requirements, and that is only possible with a clear understanding of how the service currently works. In addition, many believe that you should not outsource anything to a supplier which doesn t already work properly that outsourcing a mess won t fix it. For others, this is precisely the intent of outsourcing; to get it fixed by a supplier expert in that area. Service Level Agreements (SLAs) with suppliers are called Underpinning Contracts (UCs) by ITIL, when seen from the aggregator s point of view. From the supplier s point of view they are simply an SLA. One of the fundamental principles of SLAs is that your SLAs to your customers should align with your UCs with your suppliers: don t commit to a service to your Successful external sourcing customers that your suppliers aren t committed to deliver. depends on clear definition of requirements, and that is only There is an anti-sla school of thought, but it is generally advisable that SLAs be formalized and that they form part of the legal contract to make them enforceable. possible with a clear understanding of how the service currently works. 13

14 7. Operations Operationally there are several main activities of Supplier Management once a relationship is in place: Governance Accepting direction from governance functions; providing monitoring information to governors; and offering decisions and proposals for evaluation Classification of suppliers is based on value and risk to determine integration requirements with enterprise management practices and other service providers Relationship Management Service Level Management Guide the outcomes towards the planned goals Reporting service performance against agreed SLAs, and taking action to deal with deviations Contract Management Working with internal Service Owners to establish requirements and supplier measurement Ongoing tracking, negotiation and modification of the contract to meet the needs of the relationship Financial Management Risk Management Dealing with payments, penalties/credits, and cost tracking/control Compliance and audit; problem management; continuity planning; and other risk monitoring and mitigation 14

15 An effective relationship interface (engagement model) is essential to successful Supplier Management. The service aggregator organization must interface interlock processes with a supplier on the following levels: Executive Account Operational Support Change Agreeing the formation of the relationship; strategy, policy and governance Financial, contractual, and performance management of the relationship, with a supplier s Account Manager Day-to-day management of activities and processes by the Service Owner and process owners, with the supplier s Service Manager Interfacing with the supplier s Service Desk, usually on a desk-to-desk model; as well as incident, request, access, and problem process interlocks Change process interlocks for supplier changes, service customer changes, and changes requested by the service aggregator. This includes establishment transition of the supplier; operational changes; and project change Supplier Management interfaces with a number of other stakeholders within the organization as well: Executive management and governors Business service owners IT leadership IT service owners Risk, compliance and audit Legal 15

16 Security Personnel/HR Procurement The interaction between Supplier Management and procurement is sometimes problematic. Many organizations with a lower maturity of understanding of this practice confuse Supplier Management with IT Procurement which is a financial practice focused primarily on the acquisition and contracting element of the supplier relationship lifecycle. This lack of understanding frequently fails to address many of the critical success factors listed in the above table causing issues related to requirements definition, communication, operating model integration and failed delivery of the proposed value proposition. A confusion of Supplier Management with Financial Procurement and contracting processes has frequently been seen in IT organizations which have a high degree of focus on project and development practices, but struggle with effective IT Service Management process execution. This is often due to the fact that external tenders/requests for proposal processes resulting in the selection of a supplier are handled as transactional projects. Little thought is given to integrating the supplier into the existing management practices and how the suppliers will be measured for success beyond basic SLAs. As we have identified in our findings from the Pink Think Tank on the complexities of multi-supplier value streams, Supplier Management is becoming an ever-more important practice within IT management. Not only does its priority rise, but it must play a more integral part in the overall operating model. It must be better linked in with the other moving parts of IT management. 16

17 8. Conclusion When we gain an understanding of the organizational Operating Model how we govern it, how it manages the value stream, and specifically how we manage suppliers through the Supplier Management practice we gain control over the complexity of the multi-supplier value stream. We are then able to continually improve it to protect the organization s services and optimize the value returned from our Information Technology. 17

18 9. ABOUT PINK ELEPHANT Pink Elephant is proud to be celebrating 20 years of ITIL experience more than any other supplier. Operating through many offices across the globe, the company is the world s #1 supplier of ITIL and ITSM conferences, education and consulting services. To date, more than 350,000 IT professionals have benefited from Pink Elephant s expertise. Pink Elephant has been championing the growth of ITIL worldwide since its inception in 1989, and was selected as an international expert to contribute to the ITIL V3 project as authors of V3 s Continual Service Improvement book and through representation on the International Exam Panel. For more information, please visit Service Lines Pink Elephant s service lines each provide different, but complementary business solutions: PinkCONSULTING: Using the ITIL best practices approach as a springboard, Pink Elephant provides end-to-end solutions from assessments, to strategic planning to implementation, continuous improvement and beyond. Experienced consultants work hand-in-hand with customers every step of the way PinkONLINE: Use Pink Elephant's online ITIL Implementation Tool Kit and gain access to various services that support a service management improvement program, including PinkATLAS, containing over 1,000 process deployment documents PinkEDUCATION: Pink Elephant is the most prolific creator and widespread distributor of ITIL training, and leads the way with education based ITIL V3 s service lifecycle approach. Pink is internationally accredited with EXIN, APMG and PEOPLECERT, independent examination institutes that manage the ITIL certification program. The Project Management Institute (PMI) has also recognized Pink as a Registered Education Provider PinkCONFERENCES: Pink Elephant is the world s largest producer of ITSM conferences and delivers several major events per year to thousands of IT professionals Pink Elephant World Leaders In Transforming IT Services Pink Elephant, 5575 North Service Road, Suite 200, Burlington, Ontario, Canada L7L 6M1 Tel: PINK Fax: Pink Elephant Inc., The contents of this case study are licensed under a Creative Commons Attribution- ShareAlike 3.0 Unported License. Content must be attributed to " Copyright Pink Elephant Inc.". Pink Elephant and its logo, PinkVERIFY, PinkSCAN, PinkATLAS, and PinkREADY are either trade marks or registered trademarks of Pink Elephant Inc.. ITIL is a registered trade mark of AXELOS Limited. COBIT 5 is a registered trademark of ISACA. Worldwide Locations: Africa Asia Australia New Zealand Canada Europe Mexico Middle East USA