After months of creating new cost models and reaching out to business units, EMC IT introduced financial transparency for IT services we had launched early this year. Each business unit is issued quarterly invoices for the IT services they consume, spelling out their usage and associated costs.
This new approach, part of our transition to an IT-as-a-Service model, is supposed to give our internal IT customers more say in how they consume IT. (Read our Financial Transparency white paper.) It is supposed to help create a more open and communicative relationship between IT and its users, as well as help both parties in setting more efficient spending priorities. Although we are still in the middle of our transformation journey, I’m glad to say, the financial transparency transition seems to be working well.
Not surprisingly, when business units got a look at what they were spending (from their allocated portion of what was previously a centralized lump-sum IT budget), just about all of them came back to IT Finance with a common question: How can we lower our IT costs?
There’s no easy answer to this question. Much of the IT services the business consumes are fixed infrastructure services. There’s not much they can do to reduce the cost of things like email, telecom, network or help desk services. However, business feedback on these basic services can help IT lower costs by changing priorities in future negotiations with external service providers.
We are also working to find ways to give users levers on some of the supporting components to the fixed services – offering them some options to reduce their charges. For example, while email is a fixed charge per user, we hope to break out a separate charge for related storage consumption, allowing users to choose how much storage they want to pay for.
But there are other IT services which business units can make more immediate choices on. And we were concerned that users would simply choose to make wholesale cuts to such discretionary services to lower their overall IT costs.
At least in the early reaction from the business, what we’re finding is pretty encouraging. Some business units are already using this new cost transparency information about their IT expenditures to size up how their spending and consumption meet their business priorities. Rather than just cutting back on IT in response to their invoices, they are exploring options such as shifting resources from less crucial areas to more effective ones.
We are already having some very meaningful conversations with business units and fielding requests for deep dives on the services we provide to help them hone their spending strategies.
In fact, one business unit is using the new financial transparency insights to reallocate its IT investment towards more strategic business priorities. This BU had individual departments identify continuous improvement enhancements. After working with IT to scrutinize the services it uses, the BU decided it wanted to change that policy by establishing a consolidated review and prioritization process to make spending on such requests more selective. It is planning to use the IT dollars freed up by the new process to fund previously unfunded IT projects.
EMC IT is currently doing a pilot project for the group to create the review system and shift resources to other IT buckets.
It’s not that we haven’t worked with the business to prioritize their IT service resources prior to financial transparency. We have always done that to a degree. In the past, however, such efforts were much more of a black-box process and now business units can use actual cost and usage breakdown information to make smart decisions.
This is an early example of how financial transparency can increase efficiency of IT spending and resource allocation by putting more decision-making power into the hands of the business. (Read “The End of Flat Tax Funded IT.”) We expect to have many more conversations with the business about helping them analyze and optimize their IT investment to better meet their priorities.
In the meantime, we are working with end user services to provide new cost breakdowns for fixed services and outline them in even greater detail for next year. Any feedback the business can provide on the new cost transparency data will help us improve our strategy going forward.