Archive for the ‘Industry Thoughts’ Category

Technology is here to serve the business, not the other way around. Few would argue otherwise. So it only makes sense that when managing technology, we should focus on business objectives.

Of course, in Corporate reality, this all sound easier than it actually is. There’s definitely a disconnect between the “business” side and the “technology” side in many organization, not dissimilar to the disconnect between marketing and sales – a disconnect that happens because of lack of communication, and each side using a different vocabulary.

So the task is to bridge that gap. To have the technology people – the CIO and her team – sit with the business people – the CEO and the CFO, and talk. The conversation needs to take place in the same language though, and since the business outcome is what matters here, it is up to the technology people to learn how to speak the language of the business people – not the other way around.

The goal is to manage business and technology together, to achieve true alignment, and to bring technology to a place where it not only enables the execution of business strategy, but pushes the business forward, anticipating – even suggesting – possible business strategies and goals.

As I discussed before, getting into this mindset might be challenging for all parties involved including the CIO and her team, but it is very doable and is also very rewarding in terms of finally being where the interesting things happen, taking part in directing the company’s future.

In today’s super competitive business environment, technology is where more and more smart business leaders will turn to as a way to stay ahead of the competition. Any enterprise that attains true alignment between technology and business will be able to experience marked improvement in execution and profitability.

If economy experts are correct, and we’re facing a decade of great economic instability and constant changes, the only way to survive – and thrive – in this environment is to push forward and keep growing and innovating. There’s no better way to innovate than to allow technology to serve the business, making it an integral part of the business decision making process.

In the wake of a long recession that has prompted so many organizations to mercilessly slash their IT budgets, and with IT budgets finally relaxing and growing, IT budget planning is as hot a topic for CIOs – and for their entire organization – as it has ever been.

As a forward thinking Chief Innovation Officer, your goal is to defend your budget levels, and – hopefully- build the case for increased IT spending. But planning your IT budget is a stressful task. You’re expected to accurately forecast IT spending and budgeting needs for the coming year. There are important decisions to make: How much should you spend on infrastructure maintenance and how much on innovation? And speaking of innovation, what are the hot new technologies you should be spending on?

You already know how to budget within your own department. The challenge is to work that budget so that it aligns with your organization’s business goals. IT budgets should always meet the strategic demands of the business. Your best course of action is to work with the CFO and align your IT budget with the overall business strategy for the coming year.

But wait. What if a smaller IT budget serves the needs of your company better than a bigger budget? It CAN happen of course, though unlikely to after the deep budget cuts we’ve seen over the past three years. However, even if it does happen, there’s a silver lining: you should feel free to take the credit for shrinking that IT budget with your smart IT investments! After all, your goal is not necessarily a bigger IT budget. Your goal is smart, focused spending that brings real long-term value to the organization.

As for the IT budgeting process itself, whether your budget is going to grow or not, you should always look for places to trim waste, in order to open opportunities for new growth and for investing in new, disruptive technology. You want to minimize your investment in infrastructure maintenance and free up as much of the budget as possible for supporting major business goals.

In order to accurately plan your IT budget, you will need to create a budget based on actual current usage, combined with historic unit costs for all IT financial management services, while also taking into consideration current business demands AND future business goals. Just as important: once the budget is implemented, you should continually track actual usage vs. the planned budget, and to re-forecast as needed, as the business changes and evolves.

Needless to say, IT budget planning can be extremely time-consuming and error-prone, since there are so many moving parts to the equation, including business objectives, demand, cost drivers, allocation rules, and new technology.

While this causes some to claim that IT budget planning is “more art than science,” I think it can actually be more science than art. We talked in the past about how IT budgeting, while seemingly a daunting task, becomes quite doable when you use the right tools. Of course, it’s nearly impossible to create an accurate IT budget using manual methods or tools such as Excel and Access. But with the right IT Budget planning tools, it can be done, and the resulting budget can be extremely reliable and accurate.

Armed with an accurate IT budget, you will be well prepared to make the most out of it and prove, again, that smart investment in new technology is the best way to move the company forward and achieve its most important business goals.

Ann All’s March article opened with the sentence, ”It’s tough being a CIO.” Reading it, my first reaction, which I promptly tweeted, was “Sure, these days, being a CIO ain’t easy. But these are also exciting times to be a CIO, because you get an opportunity to make a real impact on the business.”

Ms. All responded that indeed, new opportunities exist, although it may not be easy to capitalize on some of them. I absolutely agree with this statement. Which brings us to the question, how does a CIO make the most of her new and exciting role within the company?

“Innovate” is a word we hear a lot in this respect, and for good reasons. The opportunity to innovate is exactly why being a CIO in 2011 is so exciting. The company expects you to innovate, to push the business forward, to find and bring in disruptive technology that would make a real impact on the bottom line.

This is what is often referred to as the CIO being a “Chief Innovation Officer,” focused on delivering innovation at a low cost.

The challenge? You need an excellent understanding of the business strategy that you are serving, AND you must maintain and expand your technical savvy. Of course, you also need the budget for this new technology. The reward if you pull it off? Becoming a business leader in your organization.

There are many examples of CIOs who have figured this out – Digital Fuel is delighted to have many of them among our customers. They have shifted their teams’ priorities and built a deep understanding of the business goals. They have successfully changed their focus from maintaining tech infrastructure, to being completely aware of the bigger picture – the organization’s business goals.

As for staying up to date on technology trends, many CIOs tell us that they do it by relying on a variety of trusted resources, including techie team members, vendors and service providers, reading technology publications and blogs, and regularly attending technology conferences.

The third challenge, of finding the budget to innovate, can be conquered by optimizing existing IT costs and freeing more of the budget to go towards innovation. Needless to say, any new technology purchase should also be checked to make sure it would bring you the most bang for your buck. So, you won’t jump into the cloud, or decide on a major virtualization project, without making sure these projects will deliver actual value in the long run.

It’s tough being a CIO? Absolutely. But you have to admit, it’s also very exciting.

Do I hear a collective sigh of relief? Finally, budgets are relaxing (just a little). Spending is back – but we are all still very careful. The long recession has left us with an important realization – long term, we just can’t spend money that we don’t have. This applies to government, to companies and to individuals.

But even if we can’t spend to our hearts’ content, even if we must cut, it doesn’t mean we should blindly cut across all areas of our budget. When you look at your personal budget, you probably keep “housing” and “food” as areas where you will keep spending – “education” too probably. But “travel” and “a shiny new car every 2 years” are likely areas where you can easily make cuts, without hurting your family’s well being.

The same is true for your company. There are areas where you WANT to keep spending. Any spending that will help grow the company and keep it ahead of its competitors is good spending. This is the spending that brings value. Then there are other areas where our spending doesn’t deliver much value. Now that we’re smarter, we know that these areas need to be changed.

Identifying areas where you can reduce waste without hurting your company’s growth – sure, it makes sense (how come we needed a recession to remind us to do that?), but if you try to do it manually, it’s easier said than done. It’s complicated enough to manage a household budget efficiently. To manage your corporate IT budget efficiently, you must be able to answer questions that are seemingly straightforward – but are in fact very complex.

How much are you spending on each IT service?

What are the cost drivers?

Are costs in-line with your industry peers?

What value do you get from your spend?

Your goal is to make sure every dollar you spend on IT brings value – significant value.

But is this goal achievable? I’m here to tell you it is, as long as you accept that IT cost optimization is not some special exercise you run once a year. It is an ongoing effort for your IT teams and business units to continuously identify opportunities to optimize IT costs.

Running a cost-effective IT organization isn’t easy. It requires ongoing tracking of detailed cost breakdowns against business services delivered. Automation makes it quite doable, by continually tracking costs against business goals and identifying potential areas for ongoing cost optimization.

Armed with this knowledge, you can make good business decisions about cutting IT spending that brings little value, while investing in IT services and activities that provide the greatest ongoing value as your business and technology evolves.

I enjoyed Mary Pratt’s recent ComputerWorld article on working with CFOs.

Her observation that “Most CFOs still see IT as a black box” and “have limited visibility into the value that IT creates for their organizations” rang true. It’s simply put, but is one of the reasons for the incredible growth of our IT Financial Management business. Our solutions are built to solve this exact problem, and as a side benefit it means we typically get CFO approvals very quickly.

Here are a few things we’ve learned while working with CFOs:

1. Expect skepticism. You don’t become a CFO by believing every ROI analysis that is presented to you. Every CFO has their story of being burnt by a major IT purchase that went very wrong. They’ve learned that it is their job to ask the difficult questions. Expect it and be ready to answer these questions with detailed information that shows your plan is based on facts and informed analysis. Which leads me to my next point…

2. Detail is good. Anyone with a financial background knows that you can hide big problems in summary statements. If you can’t produce detail, don’t expect to have your project approved. CFOs like access to details. They want to see that you know your stuff and have accounted for all costs. The most-used Digital Fuel feature is the dashboards that present summaries, but then let you immediately drill down to understand all underlying cost drivers. Just between us, many CFOs don’t personally look at every little detail, but having easy access to the information gives them confidence that the homework has been done.

3. Avoid technology jargon. While the CFO needs details about business value and ROI, she does not need to understand every feature and function of every product. “Increase number of transactions processed by leveraging the API” or “Capture all data into a central repository” doesn’t mean anything to a CFO. Take the language up a level and talk about “Sales agents can process twice as many orders per hour,” or “We get early visibility into changes in buying trends that allow us to take this action” instead.

By making a few simple changes to your pitches, and highlighting the business value that technology creates, you can get the CFO’s approval for more projects. If you can learn to communicate with the CFO in business terms with in-depth financial detail, you’ll be surprised at how easy it can be to get her approval.

This is a guest post by Blair DeSio, Senior Solution Consultant at Digital Fuel.

The demand to reduce cost within IT departments is a key driver to the expanding growth of outsourced services within organizations worldwide. Heck, we at Digital Fuel have seen some organizations reduce IT departments to a bare minimum and outsource almost everything. The potential for cost savings is real and many organizations are seeing this cost savings greatly impact the bottom line of the company.

Unfortunately, all too often the move to outsource does not provide the value or savings that were intended with one glaring root-cause; poor, ineffective or no governance of these outsource providers.

In an earlier post, I briefly wrote about the four governance disciplines (and their associated processes) as the key to effective governance. These disciplines are:
1. Performance – including the process that manages the contractual obligations (aka: service levels) expected from your outsource provider.
2. Financial – including the validation of invoices coming from your provider.
3. Relationship – such as the levels of satisfaction by you and your customer (the business).
4. Contract – including the management of contract changes and contract issues/disputes.

But don’t take my word for it… The leading outsource governance experts in the world (such as TPI) use these disciplines and processes to ensure that their clients get the value they are hoping to achieve from their outsource engagements.

The value and savings realized with an effective outsource governance practice more than make up for the costs associated.

Each governance discipline includes a set of processes intended to ensure the most successful outsourced relationship possible. While each process provides value, the best chance for success comes with the use of all twenty processes. However, in our experience most organizations start with a subset of these processes and see the value immediately. The most common processes are:

- Service Level Management (Performance) – Make sure you manage the business services that are being delivered to YOUR customer (the business), not just the underlying metrics. (See the earlier post covering this topic.)
- Invoice Validation (Financial) – Do the quantity and cost (and quality) of services match your expectations?
- Performance Credits, Earn-backs, etc. (Financial) – This is very much related to the two processes listed above. If a supplier misses on a commitment, how is the penalty assessed?
- Contract Change Management (Contract) – These contracts change over time, how are you tracking and managing this change?
- Customer Satisfaction (Relationship) – It is important to understand if the services provide meet the needs and expectations of the business.

Effectively deploying and managing these governance processes is critical to the success of your outsourced relationships. Poor governance can (and typically does) lead to value leakage and dis-satisfied customers. Effective governance can lead successful delivery of services and tremendous value to the organization… and the cost savings you intended to see.

I recently asked on LinkedIn: “What, in your opinion, is the single most important focus for today’s CIO?”

The responses I got were quite interesting. Here are just a few of them – there were many more.

Use IT To Increase Company Revenue

“The most important focus for today’s CIO is to find ways to use IT to increase company revenue. Cost cutting is fine, but if IT remains a cost center it will inevitable be outsourced entirely. Free market dynamics relentlessly push companies to focus on their core competencies – the value added things they do that their customers pay them for – and it pushes them to outsource support activities that are only cost centers.

Just about every product and service a company provides now has IT right down the middle of it. The successful CIO can find lots of ways to continually enhance existing products by wrapping them with a tailored blanket of information based value added services. And smart use of IT is also central to the design and roll out of new products. Business unit operations and products are so tightly intertwined with IT that there is hardly any meaningful distinction left between them.

CIOs have a whole host of new technologies to use in their quest to help increase revenue. Cloud computing, SaaS, social media and consumer IT can be combined with existing in-house systems to enable companies to add value to products, launch new products and connect with customers and suppliers in new ways. This is where CIOs needs to focus their attention.” (Michael Hugos)

Achieve Alignment with Business Strategy

“Above all, the single focus of the CIO needs to be alignment with the strategy of the business that they work for. Many CIOs have made the deadly error of assuming they had a better plan for their respective business and act independent of the other key functions, causing severe resentment and ultimately resulting in a bad conclusion.

On the other hand, over the past 3 decades, it has been evident the technology leaders must engage, not only as a partner; but as a vested owner with their peers. Understanding the power of IT, the CIO can bring case studies of uses in parallel circumstance, allying themselves with internal senior executives to gain consensus and support; while using metrics based logical presentation of facts – that create agreement. across the business. Only then, will the CIO be successful in bringing value and therefore succeeding in being considered part of the team.

Is the role of IT – growing revenue or cost cutting; the answer is yes; but only when aligned with the company’s direction – never attempting to force it.” (Steve Reiter)

It’s All About The Money

“What can the CIO do to make the company more profitable? Its all about the money – and that is very difficult for technically focused people to understand. Most seem to think that profits are more a worry for the sales director or the MD or even the finance director, but the reality is, everyone is responsible for the company profits.

Technical solutions can increase profits by saving staff time, or by reducing process times or even just by making the sales process more effective. However, the focus should always remain on creating provable, profitable results – gut feelings, following a trend or just renewing legacy solutions isn’t enough.” (Oli Rhys)

Develop Information Strategy

“The information required by the business is a product of business strategy. It is a top-table conversation. Most businesses do not develop an information strategy as part of their business strategy, and thus don’t have a systematic approach to determining what information the business needs. Given this the CIO can’t knowingly implement the right IT to deliver the required information – all they can do is guess and maybe follow some of the latest IT fashions – usually a waste of time & money.

So for me the job is at least 33% Information Strategy. Not IT, but much more simply “What information does the business need and how are we going to make it”, systematically determined as a part of developing the business strategy. Only when we actually know what information we want to manufacture and how can we really start to build the information manufacturing system with our IT.

And the most important questions in the information strategy are: What are we selling? Who to? How do we find them? Why will they buy it? When? Sounds simple, but the vast majority of CIOs and IT Directors don’t do it. If the CIO is not in the business of growing the business he might as well pack up and go home.” (Steve Burrows)

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If you had to pick the single most important focus for today’s CIO, what would it be?

After three long years of recession, the days of the wasteful IT budget are over. While no one would suggest cutting across all IT budget items, potentially hurting business goals, companies must pinpoint the areas where they are being wasteful, eliminate that waste, and reinvest the savings in IT applications that contribute to business growth and innovation.

Of course, this is a complex task. The cost of a particular IT service to a particular business unit across the lifecycle of the service isn’t something you can calculate manually. Excel spreadsheets are awesome, but this is one area where they simply won’t do, and this is especially true in today’s complex IT environments that typically include shared services, virtualized data centers, and cloud computing services.

To get true visibility into the cost of IT, each business unit needs to combine data of how much it spends on IT services on an ongoing basis (not just the purchase price, of course); how it utilizes those services; and whether there are any viable, more cost-effective alternatives. It needs the ability to “play” with the numbers, checking the impact of those alternatives. And it needs to do this continually, on a daily basis, not just once in a while!

Needless to say, this is too labor-intensive to be done manually. This is where IT Cost Management (LINK to homepage) solutions become crucial. They deliver the detailed information about IT services costs, utilization, alternatives and business priorities needed to optimize IT budgets and invest in IT services that provide the greatest business value.

Once you deploy your IT Cost Management (ITCM) system, and have full visibility into your IT costs, take these five steps to optimize your IT budget:

1. Application Rationalization

Identify the right candidates for rationalization among the many applications in your IT application portfolio. This can be done by identifying applications that have high ongoing costs and low usage as candidates for end-of-life; by analyzing lower-cost alternatives (including SaaS-based solutions and outsourcing) for applications with high costs and low business criticality; and by reducing support levels for applications with high support costs and low business criticality.

2. Identify Virtualization and Consolidation Candidates

Virtualization: The goal is to identify the servers and desktops that offer the greatest opportunities for cost savings through virtualization. You will want to identify areas where cost savings from virtualization are high and business risk is low; virtualize servers with high costs, low utilization, and no business-critical applications; and proactively identify desktops with high support costs as candidates for virtualization in the next hardware refresh cycle.

Consolidation: Once you have a good understanding of total cost of ownership and service level requirements and an ongoing visibility into complex cost drivers such as power and cooling requirements, support costs, security requirements, and administration costs, and can compare those against service level requirements and the application’s importance to the business, you can put together a smart consolidation strategy. Generally, you should look for servers and desktops with high cost/CPU that are approaching end-of-life and consolidate those first.

3. Defer Upgrades and Hardware Refresh

When business benefits do not significantly outweigh the costs, upgrades should be deferred. Use your ITCM system to identify upgrade candidates such as servers and applications with low total costs and low business criticality and defer upgrading those. In addition, check potential operating cost savings from replacing aging servers and storage systems instead of upgrading them.

When it comes to refreshing hardware components, find the systems that cost the most to operate and would benefit the most from a refresh. In addition, prioritize refreshes by investigating utilization patterns to determine high-use hardware with many different users and high business criticality.

4. Identify End-of-Life Candidates

With hundreds or thousands of applications running in the typical IT infrastructure, it is difficult for IT managers to notice when an application’s usage has declined. Identifying applications that are end-of-life candidates requires an understanding of the application’s value to the business, its usage patterns, and the cost of support and maintenance.

Use your ITCM system to identify applications that have high ongoing costs and low usage, or low business criticality. These are good candidates for end-of-life. You should also check alternatives to end-of-life, including SaaS-based solutions and outsourcing, or providing lower levels of service to end-users.

5. Reduce Service Levels

Often, IT services experience a reduction in demand as the application ages, even though they are still important to the business and are not good candidates for end-of-life. Scaling back service levels for these applications can result in significant savings.

Use your ITCM system to analyze “what-if“ scenarios to estimate savings from reductions in service levels. Then rank applications based on importance to the business and migrate low-criticality applications to lower support levels.

The tips outlined here for IT cost optimization are fairly straightforward. But without the deep visibility into your IT costs that an ITCM system allows, and the ability to analyze different “what-if“ scenarios, it’s nearly impossible to achieve the significant cost savings that can result from following them.

Virtualization offers organizations a great way to achieve operational efficiency and cost reduction, via improved utilization and reduced power consumption. Virtualization can significantly reduce data center power and cooling requirements, and in some cases can even allow organizations to avoid physical expansion or relocation.

Virtualization: Part of a Larger IT Cost Optimization Plan

However, it’s important to realize that there are many misconceptions around the actual cost benefits of virtualization. Before jumping into a virtualization initiative, you should create an overall cost reduction strategy that incorporates your company’s entire IT operation, and carefully calculate virtualization cost savings.

The goal is to identify the servers and desktops that offer the greatest opportunities for cost savings through virtualization. You will want to:
1. Identify areas where cost savings from virtualization are high and business risk is low.
2. Virtualize servers with high costs, low utilization, and no business-critical applications.
3. Proactively identify desktops with high support costs as candidates for virtualization in the next hardware refresh cycle.

Virtualization is just one part of an overall approach to IT cost optimization that includes many other considerations, including application rationalization, consolidation without virtualization, deferring upgrades and hardware refresh, identifying end-of-life candidates, and reducing service levels.

Hidden Costs of Virtualization

A common misconception is that server virtualization always saves money, by reducing the number of servers, and therefore reducing overall hardware and maintenance costs. But that’s not always the case.

Consolidation and virtualization could result in reducing the number of physical servers but increasing complexity and requiring process changes (since more of the company’s critical applications will be running on fewer servers), so the new environment could end up requiring the same – or even greater – levels of management than before.

In other words, virtualization in itself doesn’t always save money in the long run, due to increased management costs involved with running a virtual infrastructure.

In addition, since the entire purpose of server virtualization is to reduce the number of physical servers, this means that one outage will affect more applications and more users, and result in a greater cost to the organization. This is why it’s important to identify the best candidates for virtualization, and avoid “blindly” virtualizing across all servers.

Another hidden cost of virtualization is storage costs – many companies do not anticipate the impact storage would have on their server or desktop virtualization costs. This often results in businesses having to delay the rollout of their virtualization initiatives.

Virtualization Savings Achieved When Virtualization Is Part of a Larger Initiative

It’s not that virtualization never saves organizations money. It does. But real virtualization cost savings are often achieved not just from virtualizing, but when overall complexity and spending are reduced, via the steps mentioned above, including application rationalization, consolidation without virtualization, deferring upgrades and hardware refresh, identifying end-of-life candidates, and reducing service levels.

After virtualizing, it’s crucial to keep monitoring costs by measuring and managing the true total cost of virtual servers. You need full transparency into the total cost of physical and virtual desktops to both corporate IT and the business units that must pay for them. With detailed cost benefit information, teams can continuously optimize desktop virtualization and cost. Costs must be allocated as directly as possible, since a small number of servers is often responsible for a big part of total costs.

Don’t view virtualization as a one-time project with a surefire return in terms of cost savings. Rather, view it as part of your company’s overall cost saving strategy, and consider long-term implications prior to starting any virtualization initiative. Once you have virtualized, continue measuring and monitoring virtualization costs closely, to make sure they don’t spiral out of control.

As America slowly emerges from its second-worst recession ever, businesses are getting out of survival mode and are starting to actually make plans for the future. This provides the perfect opportunity for IT leaders to place IT right where it belongs – as a strategic partner to the business.

This is the time to finally turn IT from a bottomless cost center into an aligned business partner. But this will only happen for IT executives who realize that they must accept a completely new role within the company – the role of a sales person.

For most IT professionals, this is not an easy transition.

I was recently talking with an IT executive who clearly remembers the point when his job turned from being mostly about technology to being mostly “sales.” He now spends most of his time selling the benefits of technology internally. It’s a role this individual wasn’t ready for or expecting, and it took him a while to figure out how to do it. Fortunately he did figure it out and became a star “IT salesman” for his organization.

I see this happening everywhere. As IT starts to act less like a cost center and more like a well-run business, CIOs and their teams are forced to excel at business functions that were peripheral in the past. They must now engage in “internal sales” to facilitate the adoption of new technologies, in “internal marketing” to encourage organizational change and to demonstrate IT’s contribution to the business, and in “finance” to optimize IT spending.

IT is also adding new roles that didn’t even exist a few years ago, such as the new IT finance managers who were the first adopters of IT Financial Management Solutions .

It’s a difficult transition, because running IT like a business is new and unfamiliar territory, and because a real change in how IT operates can take years to accomplish. But despite the challenges and the difficulties, it’s important to realize that this is not a phase, nor is it a fad. Reconfiguring IT from a cost center to a well-managed, transparent business is a profound change in how IT is run, and it’s here to stay, because it makes business sense and improves business results for the entire organization.

My advice: Accept it. Better yet, embrace the role of a technology salesperson for your IT team. It is good for business outcomes and good for IT results.