The TBM Book

    « Chapter 1
Chapter 3 is coming soon!

Chapter 2
Position Your Organization to Manage Your Supply and Demand

Executive Summary

Implementing Technology Business Management (TBM) often accompanies a broader transformation of an IT organization. For many, this transformation positions the IT organization to be a better service provider and business partner. In contrast to many cost-centric IT organizations, these organizations build foundations on a unique value proposition, services aligned to that value proposition, and clear roles and responsibilities for optimizing their services portfolio by balancing supply with demand.

In this chapter, we will discuss how to position your organization to manage the supply and demand for your services. We will focus on several core components of your TBM foundation, including your technology business model, how to define services and assess their unique business value, and the key roles your people must play to manage your services as a portfolio.

Build Your Foundation Based on Value

"In today’s media industry, we create unique business value for our agencies by giving them real-time analytics to optimize their media purchasing decisions. We exploit our data advantage and determine buyer behaviors and intentions, helping our customers optimize the return on their media investments. This goes beyond simply delivering services to our agencies; the capabilities we deliver are core to their value proposition in the marketplace."

John Donnarumma, Global CIO, GroupM

John Donnarumma
Global CIO, GroupM

The Technology Business Management framework is built on a foundation that positions our technology organizations to manage supply and demand. This foundation defines our technology business model, the services we provide, and the roles and responsibilities that are essential to optimizing value. But to define any of these, we must carefully define our value proposition.

Many technology leaders, corporate leaders and business partners mistakenly assume their technology organization’s value proposition should mirror their corporate strategy. For example, many assume that if the corporate strategy is cost leadership, then technology should be delivered cheaply; or, conversely, a product leadership strategy justifies enormous investments in highly custom technologies and services. This line of thinking is overly simplistic, imperils corporate strategyi, and stems from failing to understand or communicate how technology will help the business succeed.

Diagram 2.1 The Foundation of TBM Positions to Manage Supply and Demand

Instead, our value proposition must clearly articulate how we will enable our business to execute on its corporate strategy. Value proposition and corporate strategy are linked; but they are not the same. Best price (corporate strategy) does not mean cheapest IT. Best product does not mean custom applications. In other words, our technology is a means to an outcome, not the outcome itself.

To better understand the connection between corporate strategy and value proposition, we share examples throughout this chapter from DIRECTV (see example at right), Xerox, The Clorox Company, and Inteva Products.

Why is our value proposition so important to our Technology Business Management foundation? Because the value we promise to deliver drives both our technology business model and how we define our services. It refines what we expect from our TBM-related decision making and defines what constitutes success or failure for our technology organizations.

Create a Unique and Compelling Value Proposition

There is hardly anything more important for the success of any enterprise than its unique value proposition. More than mere messaging, our value proposition answers important questions about why we exist and the services we deliver, such as:

  • Why should my business partners source services from me as opposed to doing it themselves or buying from an external service provider?
  • What must I keep in-house as opposed to sourcing externally? (Or, what is core and what is context?)
  • What value should our services reinforce? What will make them unique and compelling?
  • How should I communicate the value our services deliver?
Creating a unique value proposition (or unique selling proposition) has been described extensively in business literature, especially for marketing professionals. The details for creating one are beyond the scope of this chapter. However, there are some important differences between creating a unique value proposition for a company as opposed to one for an IT organization. To understand these differences, let’s begin by considering a simplistic value chain (Diagram 2.2) for a technology-enabled business process.

Diagram 2.2 Technology Business Model Archetypes

In our value chain, business value is built in four layers. We start with resources we procure and provide, such as hardware, software, and facilities. We deliver technology services by adding value through expertise and labor. We deliver business services by packaging, delivering and supporting business applications and offering additional value through consulting, training, application development and so on. Finally, we deliver business capabilities that generate revenue, reduce costs, increase productivity or otherwise improve corporate performance.

Of course, not all of us execute all four layers of this value chain; our business partners often deliver parts of it. However, the value chains for technology-enabled business processes create or enable revenue and if done efficiently, help deliver a profit.

Now consider the services you deliver. Where do they fall in this value chain? If you’re like many business technology providers, you probably offer services that fall into several segments. This is what makes it so difficult to define your unique value proposition. The simplest way to start is to focus on the segment where you have the best opportunity to deliver the highest value to your business. This will help you define your unique value proposition.

Many IT leaders fail to deliver unique value – or if they do, they fail to accentuate and articulate this uniqueness. For example, it’s not enough to deliver technology services cost effectively; many cloud and other external service providers are equally cost-effective (or perceived as such). Your value proposition must be truly unique.

Being part of (i.e., internal to) your business provides an advantage for delivering value. You may possess real or perceived strengths in safeguarding your customer data. You may be in a position to deliver the end-to-end services your business needs. You may be able to build and support differentiated business applications based on a more intimate knowledge of your business and customers. If you have these advantages, you should use them to define your unique value proposition.

Ask your business partners these questions to reveal a little bit about your value proposition:

  • Why do you source services from my organization and not a third party?
  • Why not build or source your own technology-enabled services and applications?
  • What do we provide that you cannot get elsewhere? What is unique about the services we deliver?
  • How do we help you execute on your corporate strategy?
  • Do you consider us a business partner or a service provider?

If your business partners struggle to answer these questions, or if they believe they are forced to rely on your organization, spend the time to develop or refine your unique value proposition. Need help? You probably have an expert business partner with a vested interest in you getting it right: your chief marketing officer (CMO) can help you better define your unique value propositionii. We provide recommended resources below.

Your Technology Business Model Depends on Your Value Chain

"We must engage our business partners to implement a technology business management model that meets their demands. The challenge for many companies, particularly within an environment of disruptive change, is that parts of the business rely on you as a provider of technology services while in other ways you are a business driver, thereby creating divergent sources of value. Navigating the technology business model to deliver enterprise-wide business value is crucial to success as a CIO."

Joe Rafter, VP, Strategic Global Transformation, hibu

Joe Rafter
VP, Strategic Global Transformation, hibu

In looking at our own business technology organizations and those of other companies, we’ve identified business models that vary based on business value and organizational focus. Indeed, these two elements are highly correlated: a mostly internal focus of a technology organization results in an emphasis on managing assets and cost and creates little unique business value; a more external focus (even to the point of external customers of the business) stems from delivering business services and capabilities and therefore greater unique value.

To illustrate, refer to Interactive 2.1. At the top you’ll find a business model archetype based on delivering the complete value chain described above. This archetype, what we call Business Driver, is often beyond the scope of a traditional business technology organization (i.e., an IT department). Exceptions include technology product and service providers where the technology function is integral to the customer service organization; think Facebook, Google, Yahoo!, and Salesforce.com.

As we move down, we encounter archetypes that conform to more traditional organizations. Since our models are based on their value chains, the other models comprise various parts of the Business Driver value chain. Let’s discuss each of these, starting with the Expense Center.

Expense Center

The Expense Center archetype is characterized by a lack of service orientation, as the move to defining and delivering services accompanies greater customer focus. The expense center IT organization is the least connected to business demand and is usually funded as a percentage of revenues, based on headcount, or through a baseline budget adjustment. These approaches poorly reflect business needs. The expense center model for IT is inappropriate for any corporate strategy. It is the vestige of an era when technology was less crucial to corporate strategy.

Interactive 2.1 Technology Business Model Archetypes
Touch the archetype labels on the left to see the differences between each business model.

As its name implies, an expense center IT organization is focused on cost containment. This leads many to assume it is the right model for a company with an operational excellence (or price leadership) corporate strategy. After all, cost leadership is tantamount to market leadership for these companies. However, investing more in technology solutions often helps reduce the cost of products and services due to productivity gains.

Take cost leader Wal-Mart. This retailer’s technology business model is best described as a value partner. For this retail giant, cost leadership often results from outspending competitors on business technology. For example, Wal-Mart was the first retailer to build its own satellite network, at the time (1987) the largest private satellite communication system in the world, giving the retailer a distinct advantage in managing its inventory and supply chain. The retailer continues to make dramatic investments in IT to support its “every day low cost” strategy. It is this strategy, and the linkage of services to unique business value, that justifies Wal-Mart’s investments and drives its technology business model. Wal-Mart clearly demonstrates that an expense center model is inappropriate for a cost leadership corporate strategy.

Gartner’s research shows the fallacy of an expense center orientation that seeks to reduce “cost per” relationships (above). Gartner shows that instead of setting IT spending as a percentage of revenues or dollars per employee, business technology leaders must educate their business partners by defining “IT services explicitly in business terms. Executives can then make informed decisions about the right level of spending based on the cost of these business services and the value they deliver.” This aligning of spending to services is only possible when adopting a services orientation at some point in your value chain.

Service Provider

The Service Provider archetype is characterized by the introduction of the service portfolio and creation or assignment of service owners and business relationship managers, all of which we will explore later in this chapter. Service providers often focus on the maturity of service management processes (e.g., ITIL) in order to define and deliver services efficiently and at the promised level of quality.

Despite rhetoric to the contrary, service providers often operate at arm’s length from their business partners, relying on the business relationship manager to understand the business partner and their required outcomes. This orientation can operate like a vendor-customer relationship. Service owners define and deliver services and business relationship managers sell them, negotiate service levels and set expectations, review performance on a regular basis and make adjustments as needed.

The service provider model is well-suited for most shared services organizations. Since they must serve the needs of multiple business constituencies, the service provider model works well to deliver standardized services at the right (and clearly specified) levels of quality and cost. Indeed, businesses that choose a shared services approach generally do so to improve operations, something the service provider model supports.

In the service provider model, projects and other change-the-business investments are often restricted to technology services, such as new applications, which may be driven by transformational or other high-value business initiatives. However, the role of the business technology organization is often limited to the technical aspects of those projects or investments. Delivering greater value only comes from greater customer intimacy — by shifting your organizational focus more externally to your business.

Value Partner

The Value Partner archetype is characterized by a change in the service owner and business relationship management roles that reflect a more external focus of your organization. The shift to value partner depends on earning the credibility of a trusted business partner. In this model, the term “business partner” is more than semantics; it is based on a partner-oriented relationship. In our experience, credibility is earned through the following:

In our experience, credibility is earned through the following:

  • Creating a governance program that enables you, your line of business leaders and your corporate leadership to review, discuss and manage the IT investment portfolio alignment to business goals and/or capabilities.
  • Clearly differentiating your technology services and articulating their value and business performance through a regular review process involving your business relationship managers.
  • Delivering professional services such as application development, information security reviews, business application design (planning), business process analysis, enterprise architecture and others. These demonstrate that your organization knows your business and not just its technology.
  • Meeting other core requirements such as minimum performance levels, competitive unit costs, and expedient problem resolution.

Video 2.1 Xerox IT Transforms from Service Partner to Value Provider

In other words, making the shift to value partner depends on delivering elements that are largely in your control as a business technology leader. In delivering these well — and demonstrating your unique value proposition when doing so — you will earn the credibility to deliver other business services and to help drive and fund business innovation.

Business Driver

The Business Driver archetype could be considered the one that is not IT. These organizations truly are the business. This model is only possible when the products or services delivered to customers are largely based on your business technologies. If your company provides software, platform or infrastructure as a service in order to generate revenue, you are operating in this business model. If your business unit provides technology-based services to your external customers, you are a business driver.

It is very unusual to see a traditional brick-and-mortar institution with the majority of their business technology delivered under this business model. However, it is not uncommon to find business units within brick-and-mortar companies that are business drivers. For example, the online store of a brick-and-mortar retailer represents a business driver. Even an investment bank whose services rely heavily on technology may fit this model. The business unit of an aircraft manufacturer that provides online flight scheduling services is a business driver. In these cases, the services of these technology organizations demand such an intimate relationship between business process owners and technology decision makers (e.g., service owners) that their organizations may be indistinguishable.

For our discussion, we will refer to five types of technology and business services, as shown and defined in Interactive 2.3. You may have other types of services defined for your own organization. Most business driver technology organizations started out that way. They were created in-house and are led by a CTOv, not a CIO. These CTOs often have much greater technology budgets than their CIO counterparts. However, with the emergence of the cloud we have begun to see CIOs be given responsibility for their company’s external “technology-as-a-service” business. This only occurs when the CIO has proven his or her ability to run IT like the business.

The business driver model is included here because Technology Business Management is equally applicable to business driver organizations. There are many CTOs on the TBM Council representing organizations that are not considered IT. Moreover, they often provide excellent examples of practices that should be, but often are not, applied by more traditional IT organizations. Their services-orientation and clearly defined unique value propositions are good examples.

Which Model is Right for You?

From what you’ve read, you might assume that the best model for you is the business driver or the value partner model. We will avoid labeling these as better or best and instead focus on the ramifications of each model.

As we stated above, the expense center model is inappropriate for any organization that wants to be a valued part of the business. Time and time again, expense centers are forced to evolve or they are replaced. This trend started with outsourcing and has accelerated with the cloud. The competitive intensity in our markets means our investments in technology must distinctly help us execute our business strategies. Expense center providers rarely do this.

For expense center CIOs or VPs of IT, the service provider business model is an excellent start for delivering greater value. By adopting a services strategy, developing a service portfolio and a unique value proposition, and creating roles for service owners and business relationship managers, your organization will become less dispensable. However, this may only be one step in the right direction. Service providers are increasingly at risk of being replaced in whole or in part by external providers.

There is an exception where technology organizations are built for the purpose of delivering technology services. Common with large organizations, especially global banks, CTO-led technology organizations often provide hosting services and shared applications to their lines of business. Their business value stems from being more cost-effective than external service providers while delivering high-performance and specialized (e.g., via security, privacy) technology services. These organizations often operate like a cloud provider, even billing the lines of business based on actual or planned consumption of shared technology services. Sometimes they deliver services to third-party customersvi.

Value partner is the least dispensable model for a traditional IT organization. At this level you are demonstrating customer intimacy and business acumen that, in turn, create unique value. Value partner CIOs have earned a seat at the table with their business partners. They have also demonstrated they can run other shared services, beyond those that are considered technology-driven, such as procurement, human resource management, and even legal services.

"My team is responsible for a technology, data, and insights product portfolio that powers everything we do, so we’re very integrated with our lines of business as well as our customers and the consumers we serve. We don’t simply deliver services, we partner with business and product owners to collaborate on, define and deliver innovative digital media solutions that exploit our assets — our business partnerships, content, data, and proprietary platforms. Our role as a value partner is a core enabler for our business."

John Miles, CTO, Catalina

John Miles
CTO, Catalina

Many businesses rely on providers that operate in more than one business model archetype. For example, lines of business with the global banks often maintain their own CIO-led IT organizations that build and support their own applications, hosting them on infrastructure provided by their CTO-led technology services organizations. This provides the advantages of economies of scale and specialized services with the business knowledge needed to support business processes. Some of these organizations also provide technology-enabled customer services, characteristic of a business driver archetype.

Does this mean we can adopt a hybrid model, with one business technology organization adopting two or three business models? Yes, but examples of this are uncommon. Value partners often outsource many of their technology services — or create a separate organizational unit — so they can focus on the customer intimacy that distinguishes the value they provide. Business drivers rarely take on the business services that are characteristic of the value partners. Even when CIOs are handed the cloud business of their brick-and-mortar businesses they often maintain largely separate organizations for business service delivery and the execution of business processes.

Which business model archetype applies to your organization? Interactive 2.2 will help you decide. For each row, select the box that best describes your organization. As part of the TBM Index, this infographic gives you the opportunity to compare your selections to those of your industry peers.

Interactive 2.2 The Service Portfolio Activity Map
For each row, select the attribute that best describes your own organization.

To interpret your selection of these five characteristics, look for misalignment. If your organization is a service provider, for example, your unique value proposition, service portfolio, organizational alignment, transparency processes and funding model should align to the characteristics shown in the service provider column. If they do not align, seek to understand why, as variances may prevent you from being effective in your chosen business model.

Maximize Business Value wiht the Services You Deliver

"We often must abstract the complexity of the services we provide to our businesses. However, we must always understand the relationship between our services and our underlying technologies and resources. These drive our expenditures. That way, we know how much we are spending on each service and we can manage them as a portfolio of investments."

Chris Furst, CIO, Univision Communications

Chris Furst
CIO, Univision Communications

As with competitive vendors in the marketplace, we must carefully define our portfolio of offerings, i.e., our services. The services we choose to provide and the way we deliver and support them determine our value to the business. Moreover, they drive our resource and skillset requirements and, in turn, our cost structure. A poor choice regarding one service affects our capacity to deliver others.

Many business technology leaders struggle to define their services. Perhaps this should be expected when so many are evolving from an expense center model focused on technologies. Sometimes the struggle stems from a failure to grasp the basic concepts of IT service managementvii. At other times, technology leaders think bottom-up (i.e., starting with the assets or resources you own) as opposed to top-down (i.e., starting with your business capabilities).

Does TBM rely on you having defined your services? Not entirely. The disciplines of TBM, such as understanding and managing true cost and performance or providing transparency to change business behavior, have been adopted by organizations that have not developed a service catalog. These organizations often manage their investments by dimensions other than services and business capabilities such as:

  • business applications, which approximate business services;
  • core infrastructure and technologies, such as servers, storage, networks and data centers; and
  • projects, such as software development and other capital improvements.
Many of the decisions to optimize costs, rationalize portfolios, innovate and improve agility apply well to these types of objects. However, it is often difficult to link those decisions to business outcomes without a services orientation.

This taxonomy raises a couple of important questions. First, how do we distinguish business process automation from delivering business applications? Business process automation — and business services in general — are characterized by improving a business process. Simply delivering and supporting a business application fails to accomplish this goal. Indeed, almost any technology provider, with little or no knowledge of our business processes, can deliver and support an application.

Instead, consulting with our business partners, understanding their processes, and driving continuous improvement provide business value. When continuous improvement is delivered as an integral part of delivering and supporting a business application, we have business process automationviii.

Second, what’s the difference between a technology (resource) and a technology service? A resource is a procurable, such as a technology, an application, a third-party service, or labor. Resources provide value and can be delivered as a service or as part of a service by adding value through the following activities:

  • Designing and Packaging the service, including service composition and negotiating and documenting service levels with your business partners or other consumers;
  • Sourcing the service and/or components in a way that strikes the proper balance of cost, quality and sourcing-related risks;
  • Costing and Pricing the service so you can optimize unit costs and advertise your rates to your business partners to influence their demandix;
  • Assessing Demand for the service by collaborating with business partners and translating business plans into resource requirementsx;
  • Supporting and Monitoring the service to ensure your business partners and end users receive the agreed-upon value and remain satisfied; and
  • Billing or Charging for your services based upon the negotiated prices (rates) and the levels of consumption or other factors.
Use the service portfolio activity map (Interactive 2.3) to clarify which types of services your organization provides and how you provide them. For each box, tap to select between “not performed”, or “performed”.

Using the infographic, evaluate your services using the technology-enabled value chain. Here, a value partner will show proficiency at all levels and across all activities while a service provider will show less proficiency across business services. You should easily spot discrepancies — potential issues that inhibit value delivery.

Using the infographic, evaluate how your services map to the value chain that matches your technology business model. For example, a value partner should demonstrate proficiency at all levels of this model and across all activities while a service provider would show less proficiency across business services. You should instantly spot discrepancies in the activities being performed across your service portfolio — potential issues that inhibit value delivery.

Interactive 2.3 Service Portfolio Map
For each type of service (row), select whether or not your organization performs the activity listed at the bottom. Descriptions for service type and activities are shown by touching each item.

Assess Service Value based on Your Corporate Strategy

As noted in the first chapter, the MIT Center for Information Systems Research defines value as “delivering performance on a dimension that stakeholders find importantxi. Considering what we’ve discussed previously, the performance dimension your stakeholders find most important is helping the business execute on its strategy. Begin by assessing your services based on that dimension.

In order to keep things simple, we recommend a qualitative approach to business value assessment of services. In our approach, your services fall into one of three unique business value categories — differentiator, advantageous and essential — which are defined in Interactive 2.4. We’ve assumed that you do not provide unessential services, or that they are a very small part of your portfolio.

Most organizations offer services of each category. It is unrealistic to think we can deliver only differentiators, as many of our companies’ competitive advantages are not a product of our technology-enabled services. Sometimes they have more to do with the design and quality of products (e.g., Apple), the strength of the brand (e.g., The Coca-Cola Company), the efficacy of the supply chain (e.g., Wal-Mart) or the skills and knowledge of employees (e.g., KPMG). Our services may be essential to exploiting these advantages, but they may not be unique by themselves. This is to be expected.

Furthermore, our business partners are bound to request services that do not support the competitive advantage of our business. For example, a collaboration service may not directly support a competitive advantage, but our business partners may insist that we provide such a service.

It is paramount that we must invest in each of our services based on contribution to our corporate strategies. For this, we must manage our services as an investment portfolio.

Manage Investments in Services as a Portfolio

The discipline and techniques of portfolio management have been applied to many kinds of investment portfolios, including those of financial instruments (e.g., stocks, bonds, and options), a firm’s products and brands, and a company’s vendors and suppliers. The goal of a portfolio manager is to maximize the collective benefits of our investments while managing risk through diversification. For example, financial portfolio managers purchase a variety of investments to yield a certain return at a certain level of risk; product portfolio managers invest across mature but lower growth markets and less mature but higher growth markets to balance profitability and growth; and vendor management chooses vendors and suppliers to optimize economies of scale while minimizing supplier and supply chain-related risks (e.g., supplier bankruptcies, geo-political issues, etc.).

If we view and manage our services as an investment portfolio, what trade-offs are we trying to manage? After all, many of the services we deliver are dictated by the needs of our business. We do not have the option of not providing or not investing in many of our services. In this way, service portfolio management is very different from a stock portfolio: a hedge fund manager chooses his or her investments without regard to delivering services as part of a greater value chain.

In contrast, the IT service portfolio manager creates a model for deciding how to invest in each service. Using such a model, he or she asks the following questions about the portfolio of services:

  • What business value do we expect from each service? How does each service fulfill our unique value proposition and contribute to our corporate strategy?
  • For differentiator services, what are the goals of our continued investments? Should we increase or decrease our investments in each of them?
  • Are our services cost-effective? What changes can we make to improve the economics of delivering services?
  • Should we rationalize essential services to free up investments for new services or improve others (or lower the cost of the portfolio)?
  • Should we outsource certain services or certain parts of our service?
Furthermore, the portfolio manager works with our business partners, process owners and/or business relationship managers to identify services that are needed to satisfy new business requirements.

The service portfolio investment matrix (Interactive 2.4) helps to quickly assess a portfolio, communicate with business partners, and drive investment decisions. With this approach, services are rated according to their unique business value, as discussed above, and their financial performance. This categorizes services into one of four primary investment categories (divestment candidates, subsidizers, loss leaders and top performers), each with a different implication for future investments.

Interactive 2.4 The Service Portfolio Investment Matrix
Touch each quadrant of the investment matrix to
learn about the types of services that fall into them.

Once completed, the matrix intuitively facilitates investment planning. When used during value-based conversations with our business partners, such as through a governance body, it helps identify services that are consuming large investments but are failing to deliver unique business value. Service portfolio managers can use the matrix to define investment goals. In general, we make decisions to move services up and to the right in the matrix, shrink the size (investment level) of those that cannot be moved, manage demand for unessential services and retire services that are not driving value.

The service portfolio matrix also facilitates more strategic decision making. In evaluating new reference architectures, for example, the matrix illustrates its impact on services in the portfolio. A modernization effort should lead to more cost-effective service delivery and potentially business value improvement. Furthermore, long-term initiatives can be broken down into phases to show their impact on a year-by-year basis.

As we discussed earlier, classifying services according to unique business value is largely qualitative. Financial performance, on the other hand, is more-or-less quantifiable, depending on the TBM tools employed. For example, the following tools help us manage the financial performance of our services:

  • Activity-based costing of our services to understand their unit costs and degree of efficiency (e.g., return on assets)
  • Unit cost benchmarking internally over time and/or against industry peers.
  • Comparing the cost of services to similar ones provided by external service providers.
  • Comparing cost recovery (e.g., chargeback or showback) against service total cost of ownership (TCO).

To use the matrix, two additional attributes are needed for each service: their demand profile and their lifecycle stage. Growing or declining business demand is indicative of business adoption and also has implications for capacity requirements. It is also important to identify services that are in the pipeline (in the process of being developed or deployed) and those that are being retired, as these indicate potential changes in available funds.

Interactive 2.5 The Service Portfolio Investment Matrix
Touch each service on the investment matrix to learn about the types of decisions recommended for each.

The tools employed to understand financial performance depend, in large part, on the decisions we make regarding our business model, our approach to transparency and planning, and other aspects of TBM. We will discuss these tools and techniques for demand management in subsequent chapters, along with a more robust discussion of portfolio management in the chapters on the decision-making capabilities of the TBM framework.

The service portfolio investment matrix is an important tool. However, its impact on business value depends on our ability to make and execute the decisions it facilitates. In other words, managing our investment portfolio depends on our people.

Optimize Your Team to Manage Supply and Demand

"Moving to a shared services model, or any model that is more business centric, means you have to think about your organization more like a business. In particular, you must manage the business performance of your services, as product managers do for their product lines. You need to manage the relationships with your business partners, as account managers do with their clients. In a product-oriented organization, these roles exist naturally; in a traditional IT organization, they often have to be created."

Greg Morrison, CIO, Cox Enterprises

Greg Morrison
CIO, Cox Enterprises

Defining a compelling and unique value proposition for our organization, choosing the right technology business model, and establishing a model for managing our service portfolio is up to us and our executive team. These things must be driven from the top down, but they depend on distinct roles in our organization that may not exist if we haven’t already made the transition to service provider or value partner. We will discuss the most important roles here.

Manage Your Supply with Service Owners and Service Portfolio Management

Our service ownersxii are like the product managers of a software companyxiii. They are accountable for the success of their services, beholden to key performance indicators set by the IT service portfolio manager and our executive management team. Good service owners deliver successful services by:

  • Understanding their markets — i.e., their customers and their potential customers;
  • Creating clear value propositions for their services;
  • Monitoring their service alternatives, what might be considered their competition but must also be considered potential sources of service for the business;
  • Rationalizing the technologies, such as applications, used to deliver their services;
  • Building different service level packages, or tiers of service, to cost-effectively meet the distinct needs of our business partners;
  • Managing the costs, budgets and financial performance for our services and service level packages; and
  • Setting prices or rates that are communicated to service consumers.

Diagram 2.3 Service Owners Improve Financial Performance

Service owners are responsible for the entire lifecycle of the service. Without a lifecycle perspective, service owners will struggle to apply the portfolio management discipline, especially when it comes to making or recommending investments in new services, introducing new service packages, and retiring services.

Generally, service owners are not service managers. They are not responsible for the day-to-day operation and support of our services. They work with service managers, application owners, tower owners and others to ensure their services are performing according to expectations and commitments. Furthermore, service owners are responsible for improving the financial performance of their services, in essence moving services to the right in the service portfolio matrix. They are also responsible for right-sizing our investments in those services (i.e., changing the size of the bubble).

Service portfolio managers work with service owners and business relationship managers to manage the service portfolio. Together, they set the services strategy to deliver on the organization’s unique value proposition and support the company’s strategy. Our service portfolio managers must also define the key performance indicators (see following table) by which we measure service performance in order to manage our portfolios.

Table 2.1: Types of Key Performance Indicators for Service Owners and Service Portfolio Managers Source: Apptio, Inc. Used with permission.

Key Performance Indicator Description
Service Level Achievement Performance against service-level agreements that have been negotiated with business partners. These often include service availability, incident response times, bug fixes and enhancements, security and compliance, etc.
End User Satisfaction Percent of end users reporting satisfaction with the service. This is often measured through periodic end-user surveys.
Unit Cost Reduction Reducing the per-unit costs of providing the same (or essentially the same) service over time. Unit costs should be reduced due to improved efficiencies, economies of scale and other factors. Major enhancements may require a new baseline for unit cost reduction.
Management of Service Budget Delivering service at a total cost within the quarterly and annual budget for the service. This requires that the budget be set or translated into a service-oriented budget, which is often different than the budget managed in the general ledgerxiv.
Service-Level “P&L” The difference between the cost of providing a service and the amount recovered from the business or when compared against third-party benchmarks such as external service providers or industry peers. This can be applied when both charging back for service delivery and when performing showback.
Investment Portfolio Alignment The ratios of spending in services according to business-aligned classifications. This requires classifications of services and other investments (e.g., projects) according to your global business capabilities, business strategies and/or other targets.

Manage Your Demand with Business Relationship Managers and Business Process Owners

Once services are defined and owned, there is nothing more important to linking the supply of those services with business demand than the role of the business relationship manager. While service owners and service portfolio managers are accountable for the success of what we deliver, business relationship managers help make our business partners successful and satisfied with our services. They fulfill this role by:

  • Liaising with business partners to understand their needs and their business plans;
  • Working with service owners, enterprise architects, business process owners and others to define and propose solutions to new business problems;
  • Communicating the business value and the cost of services in the portfolio (or, more specifically, catalog);
  • Assessing and negotiating the business demand for our services; and
  • Identifying and addressing service-related issues by working with service owners, service managers , enterprise architects and others.

Video 2.2 The Proper Role of Business Relationship Managers

Business relationship managers are like the account managers of a services vendor (and are sometimes called account managers or client relationship managers): they listen to their customers (our business partners), understand their business plans and pains, and propose solutions. They also wield the service catalog and identify the need for new services in the pipeline. In this regard, they influence our supply.

They are also authorities on demand patterns. They serve a critical demand management function by prioritizing what is most important from our business partners, communicating the cost of service choices, and helping close or defer low value requests from the business. They operate with their IT hats on by being mindful of supply-side constraints, and with the goal of ensuring customer success.

Business process owners also play a key role in demand management. They are a different kind of business partner than those who own a line of business. They often reside in a shared services organization and are responsible for the design, implementation and improvement of common enterprise processes and are accountable for achieving promised benefits.

Diagram 2.4 Business Relationship Managers and Business Process Owners Manage Business Value

Our service ownersxii are like the product managers of a software companyxiii. They are accountable for the success of their services, beholden to key performance indicators set by the IT service portfolio manager and our executive management team. Good service owners deliver successful services by:

Together, our business relationship managers and business process owners define business value and manage demand. They are best positioned to understand business plans and pains and position the right solutions. It may be counterintuitive to make these roles responsible for defining value, but value is a function of business need. These roles form the bridge between business processes and our services, and are essential to delivering value. In this way, they are responsible for the business value and demand dimensions of our service portfolio matrix.

Since their processes are usually high-value and differentiated, business process owners should be paired with the owners of services that support their processes. In many cases, this is a one-to-one pairing of the two. In this case, service owners may interact little with business relationship managers. Thus, pairing your service owners with process owners may provide the needed supply-and-demand linkage between your services and the business.

Table 2.2: Key Performance Indicators for Business Relationship Managers and Business Process Owners Source: Apptio, Inc. Used with permission.

Key Performance Indicator Description
Service Level Achievement Performance against service-level agreements for all services provided to a business partner.
Business Partner Satisfaction Percent of services for which the business partner’s end users are reporting satisfaction.
Business Planning Percent of services provided to a business partner for which there is a documented business plan, including demand estimate.
Business Partner-Level “P&L” The difference between the cost of providing services to and the amount recovered from a business partner. This can be applied when both charging back for service delivery and when performing showback.
Project Performance Execution of projects against project plans for the business partner. This includes projects that are delivered under agreements with the business partner, such as those included in professional services offerings.
Economic Value Added (EVA) Total profitability from the operations of a business unit from the perspective of the shareholder. Can be employed only if EVA measurements are supported by corporate finance.

IT Finance Must Facilitate Business Decisions

Many organizations have an IT finance role. Traditionally, this role creates and manages the IT budget within the parameters set forth by corporate finance. This role may also own the IT asset management and procurement functions, responsible for approving purchases and recording new assets, dispositions or changes. For many organizations, this role has mostly been a controller function.

To enable more meaningful decision making, the IT organization needs a CFO of IT — a true financial advisor for business decision making. IT leaders and our business partners need financial analysis in order to optimize our investments. For many organizations, this will require upgrading skillsets and tools. We must employ many of the same techniques that CFOs employ — activity-based modeling, business intelligence, portfolio analysis, cost restructuring and opportunity cost management. Indeed, these techniques are essential to Technology Business Management. We will begin to discuss them in the next chapter.

In this way, the role of IT finance is evolving by providing more value-added analysis. This does not mean everyone will have a finance function within their IT organizations. Many will rely on corporate finance for this function. Regardless of our organizational model, corporate finance and IT must align, work from the same source data, and employ consistent approaches to making financial decisions.

Other Supply Side Roles Are Evolving

Service owners and business relationship managers are essential roles for managing the supply and demand for our services. We focused our discussion on these, as they often do not exist in organizations that have not made the shift to delivering services. However, we see other supply-side roles evolving with the shift to Technology Business Management.

Take technology procurement. In the shift to delivering IT and business services, a category management approach for sourcing from third parties is often more effective. With category management, the procurement function pivots its focus from vendors to the needs of the internal service providers. Its goal is to maximize the value of a product or service category to the organization by managing total cost of ownership (TCO), risk, operational performance and so on, not just the purchase cost and quality of a technology. The shift to category management often occurs with better insight into the downstream impacts of sourcing decisions on the services being provided. For example, when the true TCO of a category of hardware is known, decisions must often be made that span suppliers and contracts. Category planning and execution becomes essential to service performance.

We also see capacity management evolving. This occurs because once services are defined and their bills of materials (BOMs) are well known, business plans can be translated much more accurately into capacity plans. As the costs of capacity-related decisions (e.g., excess capacity) become clear, service owners can work more closely with capacity planners to more cost-effectively balance capacity-related risks with capacity-related costs. As a result, capacity planners will become more service centric.

Finally, enterprise architecture is becoming much more TCO-aware. Once they have the tools for understanding the TCO-related impact of their standards, along with service owners holding them accountable, enterprise architects will alter their decision-making approach. As trade-offs between the benefits of proposed architecture standards and their costs become clear, architects and their constituents are able to understand not only the impact on the enterprise but the impacts to individual services. This, combined with better demand planning, helps the organization measure the real benefit of architecture changes.

Build the TBM Disciplines and Capabilities on Our Foundation

"As with any business framework, Technology Business Management depends on having a solid foundation. But I don’t have the luxury of building a perfect foundation first. I have to work on every element, including the disciplines and capabilities defined by the TBM framework, in parallel while improving my foundation. Our business cannot wait for me to take a linear approach."

Diane McKenzie, CIO, Amgen

Diane McKenzie
CIO, Amgen

This chapter has focused on the foundation of the Technology Business Management framework. We’ve discussed our unique value propositions, technology business models, services and service portfolios, and foundational roles and responsibilities, all of which are essential to TBM. These elements of our foundation enable us to practice the disciplines of the framework: understanding and benchmarking true costs and performance, delivering transparency to change behavior, and planning with greater confidence.

Diagram 2.5 Our Foundational Roles Enable our RtB/CtB Optimizations
The foundation we’ve described also directly relates to the decision-making capabilities of the TBM framework. You should be able to see how service owners and service portfolio managers help optimize run-the-business investments by optimizing the financial performance and levels of investment in our services. These decisions help optimize cost-for-performance and rationalize to sustain value creation.

You should also understand now how our business relationship managers and business process owners help drive change-the-business investments. In managing the business value dimension of our service portfolio matrix along with our service demand profiles, these roles help innovation to grow, compete, and transform by enabling agility.

Taking the Next Step

"With the spinoff and launch of our business in 2008, our first step in IT was to think outside of the box of who we once were and define what our business needed us to be. We had the challenge — and the unique opportunity — to select the right model for our technology organization and to rebuild accordingly. No easy task, but carefully defining our value proposition made success possible."

Dennis Hodges, CIO, Inteva Products

Dennis Hodges
CIO, Inteva Products

With the tools provided in this chapter, spend some time to create or clarify your unique value proposition and create a plan to deliver the right services; it takes time to get them right. In fact, our value propositions and our services will continue to evolve; there is no final version.

Meanwhile, bear in mind that TBM applies to three of the four technology business models. The essential ingredient is your services. If you currently operate as a service provider, or are working on becoming one, TBM will provide essential tools for defining or refining your services and pave the way for delivering greater value.

If you run a value partner organization, evaluate the alignment and clarity of your roles and responsibilities. Do your service owners understand their role in optimizing the financial performance of their services? Have your service portfolio managers created an effective model for making investment decisions? Have you paired your service owners and business process owners so they decide on trade-offs that optimize their business processes?

If you’re a leader in a business driver organization, assess the ability of your product managers (i.e., service owners) to optimize financial performance. In many cases, product managers are bound to revenue goals but lack the accountability and tools for managing TCO. By optimizing transactional costs and the consumption of shared resources, your service owners can often help avoid or delay major fixed investments, such as data center expansions.

Ultimately, the ability to drive the right decisions depends on our decision-making tools. Our next three chapters will describe in detail how to adopt the TBM disciplines that provide these tools.

Chapter 3 is coming soon! Return to Chapter 1: The New Business Model of IT and the Forces Shaping It.

Credits

We are greatly appreciative to all those who generously provided their time and input into creating this book.  Special thanks to these contributors who made this publication possible:

The TBM Board of Directors

Mike Benson, CIO, DIRECTV
Tim Campos, CIO, Facebook
Don Duet, Global Co-COO, Technology Division, Goldman Sachs
Chris Furst, CIO, Univision
Larry Godec, CIO, First American
Sunny Gupta, CEO, Apptio
Rebecca Jacoby, CIO, Cisco
Greg Morrison, CIO, Cox Enterprises
Tom Murphy, CIO, DaVita
Jim Scholefield, CTO, The Coca Cola Company
Tony Scott, CIO, Microsoft
Robert Webb, *CIO, Hilton
Erez Yarkoni, *CIO, T-Mobile
Carol Zierhoffer, CIO, Xerox

TBM Principal Members

Tony Bishop, *MD, Global head of Datacenter Ops, Morgan Stanley
Susan Blew, Senior Business Leader, IT Portfolio Mgmt & Gov., Visa
Larry Bonfante, CIO, United States Tennis Association
Mike Brady, SVP Infrastructure, Kaiser Permanente
John Donnarumma, CIO, GroupM
Tony Farah, *CTO, Price Chopper
Julie Flaschenriem, CIO, Park Nicollet Health
Diane Gelman, Chief IT Bus. Manager, TIAA-CREF
Chris Gibbons, VP, Head of Tech & Ops, Prudential Financial
Jerry Hermes, CIO, Navy Federal Credit Union
Dennis Hodges, CIO, Inteva Products
Simon Hudson, CIO, Indwe Broker Holdings
Jeffrey Hurley, CIO, Canadian Pension Plan Investment Board
Majid Iqbal, Founder, Design#code LLC
Matthew Kellerhals, GM/CFO of IT, Microsoft
Chris Levitt, CFO of IT, Con-way
Joel Manfredo, *CTO, County of Orange
Diana McKenzie, CIO, Amgen
Robert Meilen, CIO, Hunter Douglas
John Miles, CTO, Catalina
Randall Pfeifer, VP, US Bank
Kenneth Piddington, CIO, Global Partners
Joe Rafter, VP, Global Transformation, hibu
Paul Rein, CFO, HCA Information Technology & Services
Paul Rockefeller, VP of IT Finance, Xerox
Richard Spalding, Corporate CFO, Nomura
Joshua Sparaga, VP, Technical Accounts, NBCUniversal
Carl Stumpf, MD & IT Controller,  Chicago Mercantile Exchange
Suzette Unger, CFO of IT, Goldman Sachs

Contributors

Christine O’Brien, CAO and Interim CTO, ACE Group
Robert Handfield, PhD, NC State University
Sean Worthington, VP of IT, Cisco
Glenn Siegmund, VP, IT Planning, Prudential Annuities

* former

Endnotes

  1. For our purposes, we will refer to three types of business strategies — product leadership, operational excellence (or cost leadership), and customer intimacy — as defined in the seminal work by Michael Treacy and Frederik Wiersema’s on corporate strategy: The Discipline of Market Leaders: Choose Your Customers, Narrow Your Focus, Dominate Your Market. Reading, MA: Addison-Wesley Pub., 1995. Print.

  2. Our recommendation to work with your chief marketing officer is a serious one. Not only can your CMO help you define a clear and unique value proposition for your organization, he or she should be intimately familiar with your company’s unique value proposition. Furthermore, your CMO is a big spender on IT. According to Gartner, CMOs may outspend CIOs (See: McLellan, Laura. "By 2017 the CMO Will Spend More on IT Than the CIO." Webinar. Gartner, 03 Jan. 2012. Web. 21 Aug. 2012. http://goo.gl/RFmaZ.)

  3. For a discussion of the VRIO framework by its creators, see: Barney, Jay B., and William S. Hesterly. Strategic Management and Competitive Advantage: Concepts. Upper Saddle River, NJ: Pearson Education, 2010. 68-86. Print. A more concise but still effective discussion of the VRIO framework can be found in: Sellani, Sandra. What's Your BQ?: Learn How 35 Companies Add Customers, Subtract Competitors, and Multiply Profits with Brand Quotient. El Monte, CA: W Business, 2007. 41-53. Print.

  4. Smith, Michael and Kurt Potter. “Determining the Right Level of IT Operational Spending” Rep. no. G00239147. Gartner, 1 Oct. 2012.

  5. The CTO of a business driver organization is different than a CTO of other organizations. With a business driver model, the CTO is responsible for delivering the technology-enabled business capabilities that drive revenue. In most others, the CTO is responsible for the technology services, the infrastructure and/or the technology standards.

  6. For example, the County of Orange (CA) IT Service Delivery organization delivers services to the county’s agencies as well as the City of Los Angeles, an independent entity, on a fee-for-services basis.

  7. We assume you are already familiar with IT service management frameworks such as IT Infrastructure Library or Microsoft Operations Framework.

  8. A distinguishing characteristic between professional services and business process automation is in who owns the technology asset (i.e., the application). When delivering professional services, such as application development, to our business partners, they often own the resulting business application. After all, they likely paid us for its development. However, when delivering business process automation, our technology organization likely owns the application and often funds enhancements as part of the overall price we charge (or show) to our business partners.

  9. Costing your services will be discussed in chapter 3, “Understanding and Benchmarking Your True Costs” and pricing your services will be covered in chapter 4, “Provide Transparency to Link Service Delivery with Business Outcomes.”

  10. Demand assessment and planning will be discussed in chapter 5, “Execute Demand-Based Planning to Gain Greater Efficiencies and Alignment.”

  11. As noted in the first chapter, the MIT Center for Information Systems Research defines value as “delivering performance on a dimension that stakeholders find important. (See: Westerman, George, 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.) The dimension that is most important.

  12. Service owner is sometimes called product manager or service manager. For example, the ITIL v3 Service Strategy book refers to this role as product manager, while other ITIL v3 books (e.g., Service Transition, Continual Service Improvement) refer to service owners. The terms can be used interchangeably, although there may be subtle differences in their definitions from source to source.

  13. For those interested in understanding what software product managers do, we recommend the Pragmatic Marketing framework (see: http://www.pragmaticmarketing.com/about-us/framework). The top half of the framework model is typically reserved for the product manager role, the bottom half for product marketing. While many activities in the framework are not applicable to an internal provider of technology services, it serves as a useful tool for understanding how the service owners of a Business Driver organization would work.

  14. Creating a service-oriented view of performance, costs, budget and other factors will be discussed in Chapter 3. Chargeback, showback and other methods of financial transparency will be discussed in Chapter 4.

  15. Business relationship managers do not circumvent our incident management and problem management processes or our service desks. Instead, they work within our service management framework but work at a more strategic level with our business partners.