Technology Business Management: The New Business Model of IT and the Forces Shaping It

Technology Business Management

TECHNOLOGY BUSINESS MANAGEMENT

EXECUTIVE SUMMARYThis white paper summarizes chapter one of Technology Business Management: How Innovative Technology Leaders Apply Business Acumen to Drive Value, an e-book published by the Technology Business Management (TBM) Council. It examines how the value equation of business technology has changed due to economic, regulatory, and market forces beyond our control as technology leaders and the lessons that we (as TBM Council members) have learned by adapting to those forces.

In turn, these lessons have given rise to TBM, a practical, applied approach for maximizing the value received from every dollar invested in IT. At the core of TBM is the TBM Framework, a decision-making methodology that helps technology leaders and their business partners collaborate on optimizing how IT dollars are spent. Relying on transparency in cost, quality, and demand for technology services, the TBM Framework enables key stakeholders to “speak the same language” in determining the tradeoffs needed to optimize run-the-business spending and change-the-business investments.

ThE BUSInESS of EnTERpRISE TEChnologY hAS ChAngEdAs business technology leaders, many of us have found that traditional approaches to managing IT are no longer adequate. We struggle to collaborate with line-of-business leaders and other business partners to make fact-based decisions, to drive the right levels of investment in projects and services, and to maximize the business value received from every dollar invested in IT.

In 2007, we formed the Technology Business Management (TBM) Council to come together as IT executives to address these challenges. Our common issue, we realized, was that we spoke a different language than our business

partners. They talked about cost and quality, while we talked about technical constraints and service levels. When they attempted to justify investments to capitalize on new business opportunities, we often had to say “no” due to dysfunctional funding models. Clearly, we needed greater alignment between how they viewed and managed their lines of business and how we viewed and managed the business of enterprise technology.

Striking the Right Balance Between Running and Growing the Business Our business partners rely on us to do more than just help run the business: as technology leaders, we also need to help grow and transform it. In fact, we’re often judged by how well we’re able to deliver on these objectives and manage their competing investment portfolios. Investing poorly in any of them—or failing to strike the optimal balance between them—can reduce our ability to compete, alienate business partners, and limit our tenures and compensation. Unfortunately, economic, regulatory, and market forces—all beyond our control—are making it increasingly difficult to strike the right balance.

The Economic Crisis and Regulatory Expansion Constrain InnovationThe recent global recession has caused a decrease in IT budgets. Because run-the-business spending is often non-discretionary, these budget cuts usually hit change-the-business initiatives first. While we attempt to optimize run-the-business spending to find additional budget for strategic investments, this has become more difficult for several reasons:

• Over the years, we’ve become more efficient and productive, making it all that much harder to find additional optimizations. Put another way, we’ve already cut to the bone; there’s no more to give.

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The New Business Model of IT and the Forces Shaping It

management summary


• Many of us postponed run-the-business investments, such as routine hardware and software upgrades, to preserve cash. Now we’re catching up on these projects, which is reducing the funding left over to grow or transform the business.

• Ever-increasing regulatory and compliance mandates—including but not limited to additional reporting—are further increasing our run-the-business costs.

Cloud Computing and Consumerization of IT Are Loosening Our GripCloud computing has fundamentally altered the expectations of our business partners, who can readily obtain business applications delivered over the web with instant access and round-the-clock support. If we can’t meet these expectations, they’ll look to the cloud.

The trend toward embracing consumer technologies—often called the consumerization of IT—also has changed expectations. Our business partners often compare the functionality and purchase price of consumer-grade hardware and services to similar commercial-grade products and services that we provide, often without an appreciation of differences that will result in additional costs.

Public cloud services and consumer technologies are not inherently good or bad; however, adopting them without a clear understanding of total costs, limitations, security risks, and other factors can spell ruin for our budgets. Such shadow IT initiatives also can impair our ability to execute a cohesive technology strategy and enterprise architecture, thereby reducing business alignment and agility.

Business Growth and Competition Drive Demand Faster than Efficiency GainsThrough hardware refreshes and other routine IT initiatives, we’ve improved efficiency in many ways. New hardware

is generally less costly to purchase, run, and maintain than older hardware and delivers more bang-for-the-buck in terms of processing power. Server virtualization has also helped us keep run-the-business costs in check as demand for computing resources has continued to grow.

However, efficiency gains may no longer continue to offset growth in demand. Due to increased needs for far greater scale, performance, and security, demand for computing resources is outpacing efficiency gains as we work to protect existing revenue sources, tap into new ones, enter new markets, leverage new channels, and support new devices.

Increased demand is not just an issue of quantity. To innovate and compete, we often build or integrate new technologies that, by their very nature, are more complex. While such initiatives may be viewed as investments in business growth or transformation, they often affect run-the-business spending because they cost more to operate and support than commodity technology solutions.

Value Is in the Eye of the BeholderHow each of these forces affects the value we deliver depends on the expectations of our business partners. The MIT Center for Information Systems Research defines value as “delivering performance on a dimension that stakeholders find important.”1 Fortunately, we have a mechanism for handling the innate subjectivity of value: cost. By attaching a cost to our services, we can start to shape the conversation. Business partners can understand how the cost of technology services affects their cost of revenue, and they can use that insight to decide which services they need, how much of each service is required, and what attributes it must possess. We can use this information to provide an accurate total cost so that business partners can determine whether cost exceeds value.

This does not mean we must charge back for all services. However, we need to enable value-based conversations

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1 George Westerman, Saby Mitra, and Vallabh Sambamurthy. Taking Charge of the IT Value Conversation. Volume X, Number 2. MIT Sloan School of Management Center for Information Systems Research, 18 Feb. 2010.



with our business partners. And because value is subjective, we need to frame those discussions in quantitative terms that our business partners understand:

• Cost. In communicating cost, we need to present the total cost for a technology service, including all retained and “soft” costs.

• Quality. By quality, we mean all the attributes that contribute to the value delivered by the service, including functionality, performance, availability, and security.

After we communicate the cost and quality of our services, how do our business partners use that information to assess value? In general, they compare our costs and quality against three factors:

• The cost and quality of third-party alternatives, including consumer technologies and public cloud-based services.

• The cost and quality of internal alternatives, which may apply when business partners own and operate their own technologies, applications, and infrastructure.

• Thebusinessoutcomesenabledbyourservices, in that the business growth or transformation supported by those services must justify our investments in them.

As technology leaders, we manage the cost and quality of our services. Our business partners, on the other hand, are the best judge of business outcomes. What we need, then, is a decision-making framework for collaborating with business partners on cost, quality, and business outcomes.

TEChnologY BUSInESS MAnAgEMEnT: A fRAMEwoRk foR MAXIMIzIng VAlUETechnology Business Management (TBM) is a practical, applied approach for maximizing the business value received from every dollar invested in IT. At its core is the TBM Framework, a decision-making methodology to help technology leaders

and their business partners collaborate on optimizing how IT dollars are spent—for example, determining whether the benefits of supporting email services with Tier-1 storage instead of Tier-3 storage are worth the additional cost. Such tradeoffs are essential in finding ways to deliver greater value without additional time, money, or resources. Even if budgets grow, maximizing value through tradeoffs helps get the most out of every IT dollar spent and stay lean for tougher times.

Building the Foundation: Position to Manage Your Supply and DemandTBM starts with positioning our organizations—including roles, responsibilities, and processes—to more effectively manage the supply chain of IT. This does not mean we must all reorganize for TBM; instead, we must understand who plays the key roles in managing our supply and demand, and then prepare them to make informed decisions as they collaborate with stakeholders on supply and demand, and on cost and quality.

The Core DisciplinesBuilding upon this foundation of roles, responsibilities, and processes, TBM defines three core disciplines that give us the meaningful perspectives needed to make collaborative decisions with our business partners:

• Understand and benchmark your true cost andquality.Getting the right perspective begins with gaining an accurate picture of cost and quality as they relate to services, applications, projects, data centers, and suppliers. TBM helps achieve this through prescriptive guidance on transforming the data in financial, asset, and other systems. Similarly, TBM addresses how to define and communicate the elements of quality through tools such as functional specifications, service-level agreements, and security ratings.

• Change behavior with transparency. TBM builds on an understanding of true cost and quality to provide bidirectional transparency between us and our business partners, enabling everyone to “speak

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the same language” when collaborating on tradeoffs. On one hand, transparency of cost and quality shows our business partners how much they consume, at what levels of quality, and how much it costs. On the other hand, transparency of business demand enables us to plan more effectively and limit extra capacity.

• Planwithgreaterconfidence. TBM helps us collaborate with business partners to assess future demand for services and translate that demand into technology plans. TBM supports both baseline budgeting and zero-based budgeting, which, although more complex, is often more accurate because it reconsiders each line item based on the needs of the upcoming year. Finally, TBM helps us evaluate these alternatives along with other, more advanced approaches to demand planning, enabling us to select the approach that delivers the greatest value.

Decision-Making CapabilitiesBy establishing bidirectional transparency, we’re now in position to effectively collaborate with our business partners. The TBM Framework identifies four types of decision-making capabilities that help us maximize value through tradeoffs. Of these, the first two help to optimize the cost and quality of services so that we can run the business more cost-effectively:

• Optimizeourcostforquality.TBM helps us get the right quality for the best possible price by helping us balance these factors according to the needs of our business partners. Balance is the operative word, as minimizing cost is not always the goal; sometimes our business partners are willing to pay more for better quality. Similarly, although we can often reduce our costs by reducing the quality of services, such decisions are only appropriate when considered in the context of potential business outcomes. TBM addresses these issues to help optimize costs in the face of fluctuating business cycles, which demonstrates maturity and fosters trust.

• Rationalize to sustain value creation. Over time, our portfolios of services, applications, technologies, suppliers, and infrastructure become more complex, which increases costs and hinders agility. TBM helps to sustain our capacity to create value by enabling us to identify when, where, and how to simplify, modernize, or consolidate, appropriately trading diversity and complexity for cost reduction and simplicity.

Not only does running our business more cost-effectively increase what’s left over for change-the-business investments, but it also helps us demonstrate credibility—an element as essential to our success as the capacity to spend on innovation. The TBM Framework identifies two types of decisions that help us optimize such change-the-business investments:

• Innovatetogrowandcompete.Investments in business growth generally drive the projects we undertake. Unfortunately, we often make project decisions in silos, with limited visibility into how those decisions may affect total portfolio of technology investments. The TBM Framework helps us balance all technology investments across a portfolio governed collaboratively with our business partners, providing visibility into how change-the-business investments will affect long-term run-the-business spending so that we can make decisions based on a clear understanding of the tradeoffs that are involved.

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Figure 1. The TBM Framework.



• Transform our business by enabling agility.Transformational opportunities come along infrequently and unexpectedly, so we have to respond quickly to take full advantage of them. TBM enables us to make decisions quickly, backed by the facts, and enables our people and our business partners to do the same. Once again, tradeoffs are key, with agility derived from the speed and confidence of making those tradeoff decisions.

Continuous ImprovementOur ability to maximize that value depends on the degree to which we can act on the above decision-making capabilities. However, rarely do we possess all of the people, skills, data, tools, and processes to fully take advantage of TBM, especially in the beginning. To sustain and improve value creation, we must instill a performance-based culture. TBM addresses all necessary elements of such a culture, including governance, roadmaps, change management, training, marketing your IT services, the socialization of TBM, and the proper operational cadence for TBM decision making.

nEXT STEpSTechnology Business Management is built to be universal and has been tested and adapted by a variety of enterprises. Your organization is likely practicing many TBM principles today. For example, you may be providing cost transparency to business partners or using business demand models to build IT plans and budgets. But are your practices sufficient to optimize your investments and drive the innovation and growth your business needs?

As Technical Advisor to the TBM Council, Apptio is committed to the continued development and adoption of TBM. Apptio has deployed its TBM software at more than 120 enterprises, including industry leaders such as Bank of America, Boeing, JPMorgan Chase, Microsoft, St. Luke’s Health System, and Swiss Re. If you’re interested in learning more about TBM or Apptio’s approach, Apptio can:

• Introduce you to the TBM Council and/or connect you with TBM Council members.

• Provide access to the TBM Index™, an interactive assessment for comparing your business practices to those recommended by the TBM Council.

• Review your TBM Index baseline to help you create an accelerated TBM roadmap.

• Show you how Apptio has helped innovative companies in your industry automate TBM to manage the cost, quality, and value of their IT services.

To learn more, contact Apptio by visiting http://www.apptio.com/company/contact or sending an email to [email protected].

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Apptio is the leading independent provider of on-demand Technology Business Management (TBM) solutions for managing the business of IT. 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, and strategically aligning the planning, budgeting, and forecasting processes. Apptio’s TBM solutions play a critical role in helping companies accelerate IT investment decisions, cloud initiatives, strategic sourcing improvements, and other key business initiatives. Global enterprise customers rely on Apptio® products and services to reduce costs and align IT with business priorities. For more information, visit the Apptio website or the Apptio blog at www.apptio.com.


Technology Business Management: The New Business Model of IT and the Forces Shaping It

Technology

Transcript of Technology Business Management: The New Business Model of IT and the Forces Shaping It