German
IT budgets are currently only moving in one direction – upwards. IT is now one of the most relevant cost factors and has long since become the focus of top-level decision-makers.
Digitalization requires major investments in future technologies such as artificial intelligence, big data, or the Internet of Things, while at the same time increasingly complex infrastructures are leading to rising costs for the operation of existing IT services.
IT cost transparency is therefore the order of the day to get the growing costs back under control. When companies are thinking about introducing specialized ITFM tools, it is usually with the ambitious goal of being able to realize initial savings potential in IT within the first few months.
However, the desired effects often fail to materialize. Even after successful introduction of an ITFM tool, many IT organizations find it difficult to identify cost-savings potential and derive concrete measures. What is the problem? How can potential savings not only be identified at an early stage, but also ensure that companies actually leverage this potential?
IT Financial Management Should Be a Top Priority
The way ITFM projects are set up holds the first pitfall. IT controlling is usually in the driver's seat here. They expect the introduction of an ITFM tool to bring operational improvements, for example by automating data procurement, replacing complex spreadsheets, or making selected reports available at the touch of a button. All of these are valuable process improvements, but they should only be a positive side effect of an ITFM project and do not justify investing in an appropriate tool per se. After all, IT financial management is primarily a strategic issue. An overly operational focus prevents the necessary framework for a value-adding ITFM from being created.
At the beginning, it is necessary to discuss fundamental questions, such as how IT should be controlled in the future and which analysis and reporting use cases are necessary for this. Questions that are often only discussed in passing since IT controllers are often not authorized to give suitable answers on behalf of the entire IT organization.
IT management, which should provide the answers and initiate any necessary change processes, is often not directly involved in the conception of the ITFM solution. Yet they are the ones who are ultimately responsible for making the right commercial decisions and therefore benefit most from an ITFM tool and actual cost transparency. IT decision-makers should therefore not delegate an ITFM project away but set their own impulses in the conception phase and ensure their own decision-making ability for the future.
What does it take to make IT management capable of making decisions? ITFM frameworks such as FinOps, TBM or Serviceware’s Digital Value Model® provide answers to these questions. The common denominator of all these approaches is the idea of value-driven IT management: costs need to offset concrete benefits for the business. What does my IT service cost me today, what does the business get in return? Is there an adequate ratio of costs and benefits? What investments do we need to make in IT service in order to increase value for the business?
IT management should be enabled to make differentiated decisions while weighing up costs and benefits. The IT cost model can be used to provide the decision-relevant data basis for these and similar questions.
Realistically, however, data is rarely fully available from day one and in such a way that allows valid decisions to be made. Data in the ITFM tool is typically built up step by step, considering current issues and objectives. That is why we like to talk about the ITFM journey that our customers embark on. The value of an ITFM tool increases over time.
But what can an ideal ITFM journey look like that establishes sustainable value-driven IT management and ensures the realization of actual cost savings?
As Serviceware/Strategic Service Consulting, we recommend a four-step approach to our customers.
Step 1:
Getting rid of legacy issues: Full speed ahead towards transparency and value contribution
So where should ITFM projects start? The core of any state-of-the-art ITFM tool is typically the IT cost model, which provides information about the costs of individual IT services. In practice, however, we often see attempts to convert an existing model into an ITFM tool – even or especially when the existing cost model follows more political and less logical considerations.
IT cost models are often designed with the aim of charging service costs “fairly”. The focus is on the question of what price is appropriate for a service and whether the business is likely to accept it. The consequences are typically complex, multi-level and difficult to understand IT cost models, which usually have high data requirements. Actual cost transparency is not created in this way and there is no real steering effect. This is because the politically selected allocation metrics are often not directly related to the actual costs incurred.
You may want to consider the introduction of an ITFM tool as an opportunity to fundamentally redesign the IT cost model. The starting point should be simple and pragmatic cost models, which can then be further detailed and developed for specific use cases. So if a company wants to realize cost savings as quickly as possible, we recommend that the initial focus is on the implementation of use case benchmarking.
With the “smart start” to the Digital Value Model®, Serviceware outside-in provides a pragmatic model that enables initial top-level benchmarks along standardized cost categories and service definitions in just a few weeks, allowing initial hypotheses for cost savings potentials to be derived. As a result, cost flows in service domains that show conspicuous deviations from the benchmark can be modeled in detail and used for more in-depth analyses. The increased complexity of the IT cost model is thus justified by the assumption of a concrete potential.
Customers also benefit from the ITFM solution "Serviceware Financial", as it can be implemented in just a few weeks and is consistently based on a standard.
Step 2:
Further develop the IT cost model to validate potentials
As already mentioned, an IT cost model should be further developed in a targeted manner based on defined hypotheses. If, for example, the benchmarking analysis implies that our storage costs are too high overall, it makes sense to break down the "storage" service domain into individual storage types (e.g. file storage, archive storage, VM storage, etc.), allocate costs in detail and according to cause and to systematically record storage quantities. This way, actual cost drivers can be identified and different scenarios for cost reduction can be derived (e.g. how will costs change if I use cheaper archive storage for a certain data cluster in the future).
The result of this second step is concrete initiatives and a corresponding approach. If the right organizational framework is created at the same time, the realization of the potentials can be ensured in practice. Responsible service owners assume not only technical but also commercial responsibility for their IT service and link target and incentive systems to the realization of identified potentials.
Step 3:
Potentials raised? Ensure realization!
A study conducted by the Genpact Research Institute in 2012 was able to show that only 43% of the theoretical potential of IT projects is usually realized. One reason for this is that there is often no consistent tracking of potential realization, especially since the continuous collection of necessary data can quickly become very time-consuming.
We therefore recommend creating the technical basis for this in a third step. Which KPIs and data can actually be used to measure potential realization is the first question to be answered. Internally, any affected IT processes must then be expanded so that the corresponding data can be generated in the required quality.
Externally, such as in the implementation of outsourcing deals or cloud migrations, it should be determined at an early stage (and possibly at the contractual level) which financial, quantity and/or performance data is to be provided by the service provider.
Step 4:
Establish value-driven IT management holistically
In the final step, a value-driven IT management approach is to be established holistically. While steps one to three focused on leveraging initially determined, primarily IT-internal potential, the business side must also be taken into account in the last step.
To this end, the benefits for the business must be made measurable and set in relation to IT costs. In the case of IT-internal cost-saving initiatives, a benefit analysis usually plays only a subordinate role, as effects for the business are only noticeable in the form of lower service prices.
However, in the case of IT projects that are motivated by the business (for example, the introduction of a new specialist application), the topic is highly relevant; on the one hand, to select the right projects for implementation and, on the other hand, to validate the success of IT projects that have already been implemented.
The typical challenge here is that the technical benefit of an IT service is often difficult to determine and usually only indirectly. In addition, the data required for this cannot be found within IT but must be requested either from IT systems of the relevant department or from corporate controlling.
For example, the theoretical potential of process automation should be reflected in reduced process throughput times in the medium term and in lower personnel costs of a department in the long term. However, such data is typically not available to IT immediately. Close cooperation between business and IT is required.
From an organizational point of view, key user concepts have proven successful for this, which entail a closer coupling of IT know-how and expertise and enable value-driven discussions and exchange between IT and business.
In our view, the focus on ITFM often remains too operational within IT controlling. To truly steer IT in a value-driven direction, it is essential to engage with the IT decision-makers for strategic direction and decision-making.
A use case-based implementation approach for an ITFM tool –as proposed by Serviceware – can help to show IT decision-makers the first potentials after just a few weeks. Together, we then further develop the ITFM tool in a targeted manner to validate suspected potentials, derive them proactively and track their actual realization. In this way, we are creating a blueprint for real value-driven IT management.
Contact us, we will be happy to accompany you on your individual ITFM journey.
