IT Business Management: It’s More Relevant To CIOs Than Ever

[stephenmann]

This blogs complements a recent ServiceNow webinar on IT Business Management (requires registration).

Over the last couple of years, I've often used the following three bullets to describe the challenges many CIOs, and their corporate IT organizations, face:

• Increased business scrutiny. The need for IT cost transparency and business-value demonstration.
• Increased business and customer expectations. Around IT agility, availability, "personal hardware," and support and customer service.
• Increased business and IT complexity. Particularly cloud, mobility, and compliance.

Original source: http://blogs.forrester.com/stephen_mann/11-12-16-top_10_it_service_management_challenges_for_2012_mo...

But for me the real CIO challenge has been summed up with one phrase: The need to reduce costs AND improve service.

But many CIOs are now looking beyond cost

For many CIOs, and IT organizations, this need to reduce costs is morphing into something more akin to the need to demonstrate:

1. Effective financial stewardship; and
2. The delivery of business value.

Along with other activities such as supplier management, performance management, and service level management, it's what many call "IT business management" or ITBM. Or maybe technology business management. Or business technology management.

It's about the determining and demonstrating the cost, quality, and value of IT.

Effective financial stewardship is more than budgeting and accounting

ITIL espouses the "ABC" of financial management — that's accounting, budgeting, and chargeback. But I'm talking about more than the high level number crunching done solely to appease the finance department and its ledgers. So please humor me for a moment …

You've probably heard, or even used, the mantra that "IT needs to be run like a business." But how many successful businesses survive without a detailed insight into, and understanding of, the demand for their products and services, and the costs associated with providing those services?

Then consider your average IT organization which, even if it knows the IT services it offers and delivers (service catalog 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. And thus, when asked to reduce costs or accept mid-year budget cuts will they:

• Cut IT services that, while delivered only to a relatively small number of consumers, deliver the greatest business-value?
• Continue to deliver IT services where the cost of provision is actually disproportionate to the business's perceived value of those services?

The bottom line for me is, that without a detailed understanding of what IT services cost and the business value they deliver, how can corporate IT organizations 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 organization 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 your IT Governance framework, which is needed because of what Wikipedia describes as:

"The on-going need within organizations to focus value creation efforts on an organization's strategic objectives and to better manage the performance of those responsible for creating this value in the best interest of all stakeholders."

But there is so much more than effective financial stewardship to IT Governance. And, unfortunately, IT Governance can mean different things to different people.

IT Governance?

So when you are talking "Governance" with other IT organization team members, or business peers, are you actually talking about (or expecting) the same thing or things? IT Governance might include: IT investment planning; financial management; demand management; project and portfolio management; risk management, security, and compliance; change management; enterprise architecture; IT service management (ITSM); IT process management; resource and skills management; IT performance management; supplier management; and IT asset management amongst other things.

From an ITBM perspective, I've already talked to the need for better financial management but there is also the need for better:

• IT asset management
• Supplier management
• Project and portfolio management
• Performance management.

In the webinar we also touch on all four of these areas but for now I'll only drill down into the first.

IT asset management — ITSM's poor relation?

Many organizations struggle to start, or to main tain their momentum for, IT asset management (ITAM), including software asset management (SAM).

ITAM can sound stuffy — just Google an online definition. And complicated; many ITAM "experts" will tell you that you need specialist resource to operate the technology and understand software licensing complexity in particular. And that the specialist resource is scarce, and expensive. With more significant expense involved if you buy a standalone ITAM or SAM tool.

However, IT organizations can't continue to ignore the financial wastage and compliance risks that they are exposed to through inaction. That they're 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.

And, with the consensus that software vendors have increased software audits as new sales revenues have suffered in light of SaaS alternatives, IT organizations definitely need to be in control of software usage and licensing. Not only ensuring compliance but also optimizing software, and hardware, spend against real business needs.

And similar stories can be told for supplier management, project and portfolio management, and performance management — to help improve IT organization performance and to better determine and demonstrate the cost, quality, and value of IT.

The value of IT?

So how does what we invest in IT each and every year positively affect business performance? And I deliberately used the word "invest" here rather than saying "spend on IT." It's a simple question that most IT organizations would struggle to answer. After all, value is an odd thing — it's corny, but I always like to say that value, like beauty, is in the eye of the beholder.

And I still like to think that: "If we could demonstrate the business value derived from IT, surely we would be being asked to spend more rather than having to respond to corporately mandated, quick fix, end-of-year budget cuts." Source: http://blogs.forrester.com/stephen_mann/11-12-16-top_10_it_service_management_challenges_for_2012_mo...

But it isn't "IT value" that's important

The big problem for me is that what IT thinks of 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 ask yourself: "What value does IT deliver 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; such as increasing revenue, decreasing costs, delivering specific operational efficiencies and competitive advantage, acquiring and retaining customers, helping to accomplish strategic business goals, contributing to company profit and margins, or something similar. It's not an easy thing to quantify, especially when multiple business stakeholders are factored in.

But start by considering the following questions

Unfortunately there is no magic formula for gauging or measuring business value. The closest thing I've seen is this blog by Ken Gonzalez.

The important thing for me though is to be seen to be focused on the right things, with the right motivations, and to talk to the importance of delivering value (and using specifics rather than generics).

It sounds simple but ask yourself the following questions:

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? And that it 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?

Your answers might shed some light on why your business peers struggle to see the value created by your IT organization.

Image source: Flickr: kafka4prez's Photostream