How Transparent IT Financials Align Business and IT Goals

By Phil Gormley, CIO Office

“The true benefits of ITaaS come from better investment decisions, not demand management. While most CIOs plan to use IT service definitions to better manage investment priorities for business partners, they often find themselves trying to control demand. In fact, end-to-end IT services will not always reduce demand for IT offerings and may even increase it.”

–The Corporate Executive Board Company, July 2010

EMC IT—like many corporate IT operations— struggles with two conflicting client expectations. Year after year, the total cost of IT is held constant or reduced in the name of keeping overhead costs down. Meanwhile, business demands on IT keep growing and becoming more sophisticated.

For example, think about the tools available for collaboration today versus 10 years ago. With the evolution of multimedia conferencing, we can turn a telephone call into an interactive conference with tens, hundreds and even thousands of participants sharing ideas. And TelePresence lets colleagues around the world interact as if we are sitting at the same table without the time and cost of travel. These valuable, expensive new tools were in their infancy only 10 years ago.

While IT leaders near the breaking point from trying to do more with limited resources, the business units they serve have little recognition of the value of IT’s services. With no financial transparency, they only know a lump sum goes to undifferentiated IT. They don’t track the cost of the individual services they consume or even how much of each service they use.

What’s more, as the number of applications supported by EMC IT has continued to swell, business units have no incentive to kill applications they no longer need. It is actually cheaper for them not to invest the time because the cost of maintaining the outmoded application comes from corporate funding and not their own budgets. So even if a business unit only gets minimal value per month from an application that costs IT $10,000 to maintain, it isn’t worth spending the small amount of time required to discontinue that service.

At the same time, IT creates roadblocks for business units seeking new technologies that could truly help their operations in order to keep already overwhelming IT demands from getting worse. We give them cumbersome request processes and even impose an informal cooling off period for weeks up to a few months to see if they really want what they’ve requested.

Our struggle to live within perpetual budget constraints has obscured what should be a major goal of IT—enabling the use of the latest technology to bring the highest benefit to the company.

If you think about it, minimizing the total cost of IT doesn’t really make sense. What you want to ensure is that you’ve maximized the value you get from IT. The era of the ham-fisted approach of simply hammering down IT costs, however, is giving way to a more sensible strategy: IT as a Service.

With this new entrepreneurial approach to providing IT, services will coincide with business units’ needs and wants. The business will make the choices on how to invest in IT. EMC IT will respond to their “clients’” demands and even take on the growing outside competition for their business.

In a first step, EMC IT is in the process of defining the services it offers, their capabilities and what they cost. Later this year, IT will expand chargeback of service expenses to each business unit, linking their costs to actual IT consumption. In turn, users will be able to pick and choose the IT services they consume and pay for from a self-service catalog.

IT began showing back the expense of some services last fall to a handful of business units. It as been enlightening to take our invoices to business leaders and show them, for example, here is your list of applications and how much each one costs the corporation. Every one of them has been surprised and interested at just seeing the list of applications they own – not to mention the surprisingly high cost of maintaining some of them.

These initial invoices have sparked discussions about how business users consume IT and what value they are getting for the expense. Human nature being what it is, without the cost information they wouldn’t have been interested in such scrutiny. And I have a gut feeling when we start billing them for some of these, we will see them decide to kill a lot more applications.

ITaaS will also take pressure off IT resources by promoting more standardization of applications and services. In the past, businesses came to IT with a wide variety of needs. Each time we offered an environment, it was hand-crafted by artisans. With this new approach, we want to avoid such customization as much as possible. The goal is to adopt more of a factory approach where we define a limited set of standard bundles and offer those packages as ITaaS. Business units will have a strong incentive to select these standardized services not only because they are simple and quick but because they are much less expensive. In many cases, IT will be able to pre-build such environments.

There will still be some need for customization, particularly in areas such as software development, for which users will pay a premium. But I suspect that 80 to 90 percent of the services business units choose will be standard.

In any event, IT will take its cue from the business on which services will be funded and which will not. And if the business finds it can create more corporate value by consuming more IT, it will actually be a good thing if IT spend rises.

So, do you think understanding which applications you’re using; how much you’re consuming and what it costs, would enable you to make better IT decisions for your organization?

About the Author: Phil Gormley