Transforming IT Through Technology Business Management Date:   Thursday , March 31, 2011 If you spend enough time with CIOs from large enterprise organizations, you will hear the word “transformation” thrown around quite a bit. That’s due largely to the fact that CIOs are under increasing pressure to evolve IT from a department that “keeps the lights on” to one that can transform the business itself. So what strategies and best practices are these transformative CIOs putting in place to evolve their organization to become more business focused? This is what we set to find out when we convened our most recent “CIO Technology Business Management Council” meeting. More than 65 enterprise CIOs and IT leaders gather twice per year to discuss how they are applying transformational strategies in their organization via the emerging discipline of Technology Business Management, also known as TBM. The vision of TBM is to bridge the widening gap that exists between IT and the business units it serves. For too long now, these CIOs have had to combat the perception that “IT is too expensive” and demonstrate the business value that IT provides to the business. And with clouds quickly gathering on the technology horizon, it has become even more important for IT leaders to be able to clearly articulate the value of IT to the business in a language the business understands: finance. One way to think about the “New IT” is in the context of a classic supply chain. To truly understand your cost of goods sold (COGS), you need to also understand the fully burdened costs of all the raw materials that comprise the finished product. In the supply chain of IT, these raw materials consist of everything from data center facilities and labor costs all the way up through the server and application tier. Taken together, these components make up the IT services that the business units eventually consume. However, getting a handle on what these services actually cost to deliver and how they are being utilized — has up until now been more dark art than science. Could you imagine a manufacturing floor running at 10 percent utilization? IT should be no different. In order for CIOs to effectively run IT like a business, they require a new set of purpose-built tools that can unify financial metrics (i.e., GL, payroll, and more) with key utilization metrics (i.e., server usage, ticketing, and more). Just as a modern manufacturing enterprise could never imagine running their business without an ERP system in place, today’s CIOs are demanding new performance metrics that provide the same level of cost transparency and accountability from their organization. Among the three presenters at the last council was Rebecca Jacoby, CIO for Cisco who is currently in the midst of a multi-year services transformation initiative and Charlie McNerney, GM for Microsoft Global Foundation Services, which represents one of the world’s largest IT deployments. What follows are four best practices identified by our panelists: 1. CIOs require a “Purpose-Built” Management Suite - Whereas every other enterprise function relies on a business performance suite to run their operations (think CRM for sales or ERP for finance), IT is often reduced to spreadsheets and ad hoc tools to manage their own business. So when the CEO asks a seemingly simple question, such as “how much money will we save if we virtualize 15 percent more of our data center?” the CIO often gives estimates based on assumptions, not actual data. CIOs will not succeed in running the “business of IT” until they can employ the same scorecards and dashboards that their C-level peers have been using for years now. 2. Do not wait for 100 percent Clean Data: Many IT leaders are reluctant to kick off their transformation initiatives until they feel confident that their data is thoroughly clean and accurate. The rationale being that if you start with bad data you will end up with a faulty output (i.e., Garbage-In-Garbage-Out). However, as many companies who have embarked on their own transformation journey will attest, you are actually better off jumping in and letting the “data clean itself.” Rebecca, “When I worked in supply chain we had a similar issue. We were going with a new tool and had two plant managers. One said he wouldn’t use it until the data was 100 percent complete while the other guys said, ‘I get it, it is 90 percent accurate now.’ The one that was 90 percent accurate was actually 100 percent accurate within a month. The other one took a year. It’s amazing how accurate the data becomes once you start using it.” 3. Cost Accounting is the New IT Skill: Forget ITIL certifications. One of the most overlooked and essential skill for tomorrow’s IT manager is basic cost accounting. At Cisco, every single person in Rebecca’s organization is going to be required to take a basic web-based class on cost accounting. Without this foundational skill, IT managers are unable to provide meaningful cost analysis back to the business. For instance, while calculating unit cost information at the server level might be of interest, understanding and communicating the variance in cost is much more valuable to the business. As Charlie at Microsoft is fond of saying, “if you make the facts available, eventually rational minds will prevail.” 4. IT Transformation Starts with Culture –CIOs with IT transformation projects on their agenda must recognize that the cultural changes are just as important as the technology decisions that are ultimately made. Rebecca at Cisco has implemented strategies that address the cultural aspect of their services transformation. To ensure cross-functional support for their own services transformation initiative, Rebecca established management “cohorts” which are small groups (12-15 people per group) each with their own designated leader. These cohorts meet eight times per year for two hours per session with a goal of sharing leadership strategies and best practices. According to Rebecca, these cohorts have been “instrumental in terms of getting everyone to buy into the notion of transformation.” The bottom line is that transformation is a journey, not a sprint. There is a tendency for people to confuse ‘innovation’ and ‘transformation’ because they both imply the same thing: change. However, there is a subtle and important difference between the two: whereas innovation implies changing ‘what is’, transformation suggests creating ‘what’s new’. For today’s business oriented CIO, this is exactly what is needed — an entirely new methodology to quantify the cost, quality, and value of IT and be able to communicate it in a language the business understands.