Managing Business Demand Is The Keystone For Managing IT Cost

Recently, I’ve had a number of conversations with CIOs and senior IT staff on the pressures caused by business belt-tightening.

This, of course, has cascaded to IT in the form of the need to cut.  Favorite targets:  new investments, whether for business-sponsored projects or infrastructure, followed by ‘IT overhead’ – travel, training, IT improvement programs, followed by opportunistic cuts in the operations budget.  For most I’ve talked with, they have their budget for 2009, but are still watching for the request for further cuts. 

Now, the hard part has started for them.  As one said “having less to spend means I need to work harder to make sure it’s spent wisely’.  The problem isn’t just one of picking areas to spend on, but also in making sure that the business execs who are getting more involved in these decisions agree it’s being spent wisely.

Formula2 I constructed this formula to help the conversation.  It basically lays out what I call the IT’s ‘cost/capacity/demand’ challenge.  Perceived business value is business management’s belief that they are getting good value from overall IT spend.  It’s a function of aggregate business demand; not just projects but also tactical requests for application enhancements, or expectations for service quality - spread over available capacity; both staff, external services and infrastructure capacity - at a particular cost.  The cost is IT spend, and when spend goes down, capacity goes down. 

The challenge comes from three factors:

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Silver Linings and dark clouds of the current tight IT budget climate

Silverlining Last week I was at a dinner with IT execs from several firms.  Not surprisingly, we talked about the economy and what it means for their firms and for their IT organizations.  I asked them what the economic pressures meant to them, and they said “their business customers realize now that what they ask for has a cost”.  One PMO head said that her business partners used to ask for ‘the quickest solution regardless of cost’, and now they are asking ‘the best value solution’.  Others echoed this, saying that IT used to be looked at as a ‘magic cookie jar’ which should always have the resources a business area needed – but now business managers understand IT’s finite resources and the need for prioritization.

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How Does IT Develop 'Business Intimacy'?

IT organizations focus on the business needs they understand, not on the ones that matter to business.

                          Alexcullen        When we ask business execs and IT execs the same questions around the importance of technology to business goals, and how well IT does supporting those business goals, we get interesting results. First, business and IT see technology’s value differently: to business, the greatest value is in products and services, and in competitive differentiation, whereas to IT, the greatest value is in improving operational efficiency. But the second result is more interesting:  both business and IT believe IT doesn’t do well supporting the business goals around products and services, or differentiation – but IT believes they do much worse than business believes they do.

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Business Isn't Mature About Technology - What Are We Going To Do About It?

Alexcullen Business says it wants to be more involved with technology decision-making – taking a more leadership role especially when it comes to solutions with direct business benefit.  And if business acts on this desire by working with IT the way we’ve wanted, this is all to the good.  But we have to recognize that the more they care – for example if they are in product development or sales – the less likely they are going to want to work with us in the way we wanted – via steering committees, architecture review boards, and formalized project proposal processes.  To them, it might appear easier to use SAAS offerings, or contract for or develop their own solutions – and they may have a point.  Many of the efficiencies centralized IT can provide count less when using cloud-based services and newer, more end-user friendly tools.  And if IT won’t support them because they are off the ‘approved technology’ ranch – well, they have alternatives. 

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Be a Services Provider To Your Business To Boost Understanding

How do your business peers view IT? 

a) a black box of spending
b) a large bureaucracy which my function tries to work with
c) a collection of applications and projects
d) the help desk, and the relationship manager I work with
e) a set of business services supporting my department or function

Now, which of these is the most beneficial perspective — the one that leads to your firm getting the most bang for your technology spending?

The correct answer is e) a set of business services supporting my department or function. 

Why? – because the others eliminate any useful dialogue between you (the IT organization) and business execs (your customers).  By viewing IT as a set of business services, such as a ‘product engineering service’ or a ‘field sales support service’, IT spending is mapped to functions which business cares about. When the IT organization is aligned around these services, redundant applications, overlapping projects, and organizational silos are more easily exposed, and the business-IT discussion is re-focused on service levels, costs and capabilities. 

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