Question: When does the business actually see value from IT?
Answer: At the point that a service is actually delivered!
Yet many IT organizations build their portfolios around projects, products or new technologies. The portfolio becomes a laundry list of what IT will do for the coming year. The key problem is that the business really doesn’t care about what projects, products or new technologies IT intends to deploy – they want the services.
Modern IT Management practices shift the focus from managing IT as a pile of assets, projects and technologies to managing IT by the services the business actually consumes. With this, IT is actually managed as a portfolio of investments in services that are being delivered. Management of the portfolio looks at the investment in each service and balances that against the value received from each service. Is this service too expensive? Is that service bringing the value to the business that was planned for? In short, the portfolio is the IT strategy. It aligns with the business because the investments in each service are aligned to what the business is looking for.
The shift for many IT organizations may look like the following:
Portfolio projects, products and technologies now get bundled into services consumed by the business. Each service includes all aspects: people, technologies, projects and resources. The costs for these services is identified along with any projects associated with them. Think of projects as one-time investments to build, modify or take down a service that is being delivered to the business.
An approach to get started down this path might be as follows:
Identify what your IT services are.
Identify or estimate the annual costs for each service identified – the sum of these costs should equal the overall IT operating expense or budget for the year. Costs should include all people, technologies and any projects that are associated with them.
Categorize each service by the contribution it makes to the business. Some examples are:
Venture – services being invested in as an experiment for new business markets or products
Grow – services that actually bring in revenue, expand markets and grow the business
Discretionary – services that make needed improvements in business operations to reduce cost or create efficiencies
Non-discretionary – Services that are needed or else the business will not operate
Other – any service that does not fall into the above categories
For each service – identify the plan for how it will sit in the portfolio:
Retain – keep it as is
Replace – replace it with another service or means for delivering it
Rationalize – undertake effort/projects to operate the service at lower cost and higher efficiency
Retire – decommission the service
Identify how each service will be sourced for delivery:
In-House – operated and delivered by the IT staff in your organization
Outsource – operated and delivered by a 3rd party supplier
Cloud – whether the service is delivered via Cloud or on premise
Co-Source – whether the service is delivered through a combination of in-house IT staff and 3rd party suppliers
Partnering – whether a service is delivered as a joint agreement between the business organization and another business organization
Identify the investment strategy. A quadrant like that pictured below might be used:
With the above, the placement of each service defines the investment strategy that will take place. Services in the upper right bring in revenue, expand markets – therefore the investment strategy is to keep investing to give these services what they need. The upper left quadrant indicates services that are not strategic to the business yet everything falls apart if they don’t operate. For these, the investment strategy will be focused on running these at lower cost and investing in projects to lean out the services to make them operate more efficiently. The gold is to be found for any services in the lower left quadrant. These are services that are not strategic and not needed – so why does IT continue to pay for them? Services in the bottom right are not needed at this point in time but will be in the future. Therefore these are indicators to executives to get funding prepared for future IT investments.
IT organizations that have put portfolios with the above approach have seen immense benefits. The business sees great transparency in how their IT investment is being spent. It is not unusual to find many services that can be de-commissioned or operated at much lower cost. The recognition by the business of the value of IT is now out there for everyone to see. IT is no longer this mysterious overhead cost that must be dealt with.
So what’s in your portfolio?
Catch more of this at the upcoming CampIT conference in Chicago on June 24th.