Business Executive Series #2

 

Solution Delivery Responsiveness, Cost Reduction (IT Services)

Representative goal statement -  “I need IT to significantly increase IT performance (time-to-results) and reduce cost bases by at least 15%.”

The second most popular theme submitted for discussion in the Business Executive Series was the responsiveness of IT in delivering business solutions. As discussed in the FAQ section, the main dimension of value to the business for the IT Function that I refer to as Business Solution Delivery is usually speed of delivery.

There are three key conditions that must exist for IT to accelerate time-to-results in a sustainable fashion:

1. IT can see ahead of the business curve.
2. IT can effectively implement multiple solution delivery options.
3. IT can efficiently integrate new services.

To some extent, all the functions of IT play a role in new solutions delivery. Let’s focus on the ones that are generally responsible for causing these three conditions to exist.

 

Seeing Ahead of the Curve – The Business Value Discovery Function

The Business Value Discovery Function of IT is the first function that is crucial in improving speed of delivery. Because this function is closest to the business, it has the greatest opportunity to influence the responsiveness of IT by understanding and communicating business strategy.

Without listing the myriad of services that this group may be responsible for, it is the Relationship Management performed by this function that links the business strategy with IT, providing the greatest time-to-results enhancement opportunity.

If IT is a trusted partner of the business, the linkage here between IT and the business strategy gives IT the opportunity to be ahead of the curve in understanding where the business is headed and thinking about the capabilities that they will need to be successful. It is the difference between IT having a reactive posture versus an ability to anticipate needs and make offers to the business.

It is necessary but not sufficient for IT to have this strategy-level linkage for the “seeing ahead” capability to exist in IT as a whole. There must be an effective process for the team performing this function to engage with rest of IT. This process must enable Solutions Architects and Service Delivery Managers to engage in the forward-looking discussions so that they can bring options and tradeoffs to the table in a more anticipatory fashion, thereby accelerating delivery of the solution.

 

Multiple Options – The Business Solution Delivery Function

The Business Solution Delivery function has a large role to play in the acceleration of IT time-to-results. In many ways this is a process discussion, but not in the traditional software-centric context. The process for Solutions Delivery must have the capability to deliver across the continuum of sourcing options, whether BPO, COTS, SAAS, internally developed, externally-developed, hosted or combination of options that maximize the value proposition of the solution to the business*.

Most groups responsible for Solutions Delivery still refer to themselves as the “Application Development” organization or at least include the “Application” word in their functional title. Because this is the function that they are used to performing, they identify most closely with solutions as delivery of software, versus an end-to-end business solution. The Solutions Delivery process is an Application Development Lifecycle. In today’s world where solutions may take many forms and each has to be judged by its value proposition to the business, this is an unaffordable anachronism.

To accelerate IT time-to-results, the Solution Delivery process must be fully capable of delivering solutions effectively across multiple sources of supply.  To the process, this means linkages that transcend internal IT and have inter-process interactions with Strategic Sourcing, Legal, Finance, and other enabling services.

 

New Service Integration – The Service Delivery and Support Function

The last of the three functions that play a key role in expediting solution time-to-delivery is Service Delivery and Support (a.k.a. Service Management, Technology Operations, etc.). The bottom line is that no matter how quickly a solution is built, if the process for integration is deficient, all that great effort is for naught when the solution will not be able to be put into “production”.

Fortunately, the requirements for integration of a new service are articulated as part of the ITIL Service Delivery processes (SLA Management, Availability Management, Capacity Management, Financial Management, Service Continuity Management) and can be linked with the Solutions Delivery process (ITIL v3 – Service Transition has elaborated this topic).

Finally, I would be remiss (not to mention at serious risk of having a few of my friends and colleagues miffed with me) in not mentioning a couple of other important functions that play important roles in the acceleration of IT responsiveness.

Enterprise Architecture

The EA approach to Solutions Architecture, specifically in the business process/business domain and future technologies integration (and vendors!) is an important contributor to the efficient development of multiple options for business solutions.

 

Support Functions External to IT

Other internal support organizations are necessary to implement multi-sourced options and satisfy regulatory, legal and financial requirements are important contributors to the acceleration of IT delivery as well. These necessary functions should be identified for each type of option and should be built into the Solutions Delivery process.

 

Oh, and as for the second part of the representative goal statement (reduce cost bases by at least 15%), I’ll refer back to the first post of the Business Executive Series for the general solution and go out on a limb by stating that if you can significantly improve IT’s speed-to-results, you won’t be hearing too much about the reduction in cost bases!

 

* Please note that all example lists are  illustrative, not comprehensive.

Delay of Game

I just wanted to insert an note of apology for not having put up the second post for the Business Executive Series in a timely fashion. It will be up tomorrow, with the next two installments Wednesday and Saturday of this week.

Thanks for your patience!

Business Executive Series #1

Cost for Commodity IT Services

Representative goal statement – “I need to make sure that we have the lowest cost alternative for commodity services.”

As I wrote previously, the popularity of this theme somewhat surprised me. The support statement leads me to believe that the authoring business exec consumes a great deal of commodity IT services in their business, has IT cost information at a summary level (end user, data center/platform, network) only and little information from IT on the industry benchmark for that service (and what IT is doing on a continuous improvement basis).

Providing cost information at a meaningful level requires the services that IT provides be broken down in a fashion that allows IT services to be recognizable by the business. For example, assuming that the “Telecom” team provides all communication services, they would be tasked with defining their services from a business customer perspective.

Examples of the services offered by this group might look like:

• Video Conferencing Services
• Voice Communication Services
• Network Connectivity Services
• Call Center Services

Each of these would have a Service Description, Inclusions & Exclusions, and Options. An example for Video Conferencing is in the Library. It has additional information, but for the purpose of this discussion, that information is not needed.

Once this information is ready, the Finance organization is needed to help IT assemble the components of cost for each service. This includes depreciation on equipment, external service support contracts, cost for the staff supporting the service – whatever all the elements necessary to provide the service might be. Once this data is put together, unit costs may be calculated and cost reports generated for each discrete service.

Industry benchmark information for IT Services is generally available from several sources. I generally advise spending a few dollars with a consulting firm to get data specific to your industry and competitors. This will establish a relevant cost benchmark for your IT services.

Inevitably, there is a huge difference between your calculated service cost and the industry benchmark cost. IT generally explains this as a difference in the quality of the service and/or that there are more things “included” in your service. Both may be true and are irrelevant. Remember that by definition, these are commodity services. Therefore, any deviation from the service norm must raise the question of what the business value of a differentiated commodity is. Generally, this quickly leads to the realization that the primary dimension of value for the commodity service is cost and that the differentiated service should be brought in line with the norm to position the business to realize the cost benefit.

Now that the service has been adapted to the norm (same service quality and features), we can make a more accurate comparison of our cost vs. the industry benchmark and set our goal to deliver “Benchmark service at benchmark cost” for our commodity services to the business.

This then raises the question of who is going to deliver on that goal. Organizational questions around accountability and whether or not it is currently in anyone’s current job description will need to be raised. Unless some dimensions of a Managed Services model is already in place, all the elements of cost for the delivery of service will probably not be under a particular technology/manager and that the role of a Service Delivery Manager (the logical choice under Managed Services) may not exist in the organization. This will make assignment of accountability and subsequent ability to succeed more problematic.

In the short-term, it may be practical to make the group manager for each technology responsible for the goal. Chances are that they will have most of the factors of cost for each service somewhere within their domain and will have some ability to delegate the supporting work within their groups. This overlay technique is not the long-term solution because there is more work for each technology group to sustain it over time than in either their current operating model or a Managed Services model.

Part of the role of the person accountable would be to develop continuous improvement plans and offer options and tradeoffs for services to the business. The continuous improvement plans would initially be focused on what is being done to achieve the benchmark cost and service quality goals. The service options and tradeoffs may be in the context of cheaper technology to meet the demand of the customer (e.g. thin clients vs. standard desktops).

So far we have discussed a primarily supply-side approach to cost improvement (IT working to reduce unit cost for services). However, one of the most underused, yet high-value initiatives that can be undertaken by IT is working with the business on demand for commodity IT services. Once consumption information is available at a business unit/function level, IT can initiate conversations with business partners on how much of what they use and what cost reduction opportunities may exist via standardization of equipment and provisioning policies (i.e. “who gets what”).

Implementation of a full Managed Services model for IT will also enable an effective IT response to this business goal. It will provide the information necessary to for the cost information framework, benchmarking and accountability for results. Finally, it will also enable subsequent multi-sourcing efforts to further reduce unit cost.

And that is a longer story…

The Business Executive Series

Thanks to everyone who sent in a question or statement regarding the upcoming series of posts on business expectations of IT. Your input was very useful in understanding what goals and objectives IT is most frequently challenged to achieve by its business partners.

In the course of reviewing both the original challenges and emailed follow-on information, a few of things were very interesting to me.

First was the broad support for IT cost reduction as a key goal for IT. My own success in this area has caused me to take it for granted that everyone has already addressed it and that it was now a “given” for most organizations. Lesson learned.

The second was the frequent use of the “and” conjunction in the articulation of the goals by the business. The interesting part was that the business wasn’t setting another goal, but simply telling IT to accomplish the primary goal in a way that satisfies a desired constraint.

Third, and most encouraging, was the fact that IT was being asked to deliver on key business imperatives. This indicates that business execs thought of IT as a vital enabler and partner in the success of their business.

I’ve listed the major themes and the most representative statement from a business executive to illustrate it below. Naturally, there is some overlap between the themes and I’ll articulate the nuance in the IT response as appropriate.

The posts for this “Business Executive Series” will be made in the following order:

• Cost for Commodity IT Services
  “I need to make sure that we have the lowest cost alternative for commodity services.”

• Solution Delivery Responsiveness, Cost Reduction (IT Services)
  “I need IT to significantly increase IT performance (time-to-results) and reduce cost bases by at least 15%.”
   
• Operational Stability, Access to New Capabilities, Variable Cost for Services
  “I need IT to stabilize (IT) Operations and introduce leading edge IT capabilities on a pay-as-you-go basis.”

• Business Imperative, Corporate Alignment
  “I need IT to accelerate a strategic business initiative involving the new (core processing) system and align IT with our cultural values.”
   
• Business Imperative, Access to New Capabilities, Avoidance of IT Capital Expense
   “I need IT to enable short-term independence from (previous parent company); put in place a flexible mechanism to address future requirements and avoid competing for capital with critical business investments.”

• Business Imperative, Reassessment of Goals
  “I thought that we needed IT to do started off as (IT) cost savings, but that quickly changed to support for competitive business requirements.”

• IT Cost for Services, Solutions Delivery Focus
  “I want IT to have superior service/cost positioning on a long-term basis and focus critical domain knowledge and expertise on high value initiatives.”
   
• Business Imperative, New Investments
  “I need IT to merge 5 acquired companies into one, requiring all new, state-of-the-art IT systems across the board.”
   
• Shareholder Value
  “I want IT to increase shareholder value (share price as influenced by business growth and EPS growth).”
    

The series of posts will begin this Wednesday, 08/13, and continue on for the next three weeks. As always, your comments and feedback are appreciated.