The Right First Steps: Effectively Transforming the Traditional IT Department to a Services Provider Model

THE CHALLENGE BEFORE US.  Every year, healthy and visionary businesses use information technology (IT) as a strategic weapon. Historically, the language of IT management involved day-to-day operations and the moving parts of IT systems. Today, IT executives are increasingly expected to present their organizations in the context of the business—aligning IT initiatives to business priorities and strategies. Business leadership insists on ”hard-wiring” IT spend, performance, and future plans to business value. Fulfilling their request often exposes a significant gap between the understanding of the assets and personnel managed on a daily basis and the ability to express the value of these resources in terms relevant to the business. Addressing this gap is one of the many reasons why IT and business leadership are pursuing structured and data-rich IT Governance approaches.

A first step by many is to adopt a services-provider model to deliver services to the business that are understood and valued by management. The challenge then is how to transform an IT department operating under the traditional cost center model into an effective, valued service provider model.

WHY SERVICES NOW

Information Matters—Now More than Ever

Businesses depend on information and particularly IT more than ever. In many cases, production has been optimized as much as practically possible. Now, having superior IT and information than the competition is essential: Forward-thinking management asks:

• Who are our customers?…Where are tomorrow’s customers?…How do we keep today’s customers?…How do we get back yesterday’s customers?
• Are our prices too high?…Are they too low?
• Where are we spending?…Where should we be spending?…How do we spend less?

With the new importance of information comes a new expectation of IT by the business: IT must present itself to management as the business wants to see it.

The Bottom Line Is Still the Bottom Line

Enterprises binged on technology spending in the late 1990’s and are now pressing IT to reduce costs and operate in an increasingly lean fashion. Cost cutting is mandatory except where IT spend feeds business growth and/or business performance. Establishing a strong correlation between IT spend, top-line growth, and bottom-line performance is often the only acceptable path to relief from the pressure to cut costs. The bottom line is still the bottom line.

Do It Right, Do It Well, Do It Again

Repeatability—the organizational capability to determine, to offer and to deliver value to customers — in a repeatable fashion. Repeatability holds the promise of continual improvement in quality and efficiencies. Remembering the old adage, “pick one thing, do it well, do it better than anyone else, and you’ll be a success…” is to understand the heart of repeatability. By taking the time to identify the set of ‘one things’ the organization provides to customers again and again, the organization can apply laser focus to defining and improving its methods of delivery. Through this active emphasis comes improved quality as providers work closely with customers to increase the value received. Furthermore, as providers actively and deliberately deliver the same offering repeatedly, they are able to increase efficiencies and effectiveness. With today’s emphasis on customer-centric IT service and the continual pressure of cost improvement, repeatability is increasingly a priority for the forward-looking IT executive.

WHAT IT MEANS TO BE A SERVICES PROVIDER

In light of current conditions, many IT managers are turning to a services-provider model to better position their IT operations as solidly connected to the business. For example, an IT department performing as a services provider functions in a way that is customer-centric. Secondly, the efforts of IT distinctly support the efforts and priorities of its customer (the business), both indirectly and directly. The value and cost of these efforts are measured according to the quantifiable value received by the business. Also, the effectiveness of these efforts is measured according to the ability to meet the customer’s needs and expectations. In the end, the cost of these efforts is justified (or not) according to value and effectiveness in the eyes of the business.

In conclusion, the efforts and work output of IT are delivered through a portfolio of services provided to its customers. Services are (obviously) foundational elements of service delivery. To offer an example, a service is a basic calling plan; it is unlimited long distance; it is an advanced feature plan that accounts for call waiting, three party calling, caller-id, etc. A portfolio of services is the “Chinese menu” from which customers can choose according to their needs. The operations of the business of IT are fine-tuned according to its services:

• How many customers?
• How much growth?
• To what quality?
• At what cost?

HOW TO EFFECTIVELY TRANSITION TO A SERVICES-PROVIDER MODEL

The Right First Steps

Too often, organizations set out to transform from a cost center to a service provider only to fail in the initiative. Why? Too much ambition. Adopting a new paradigm requires organizational patience; as it depends on organizational change. A mature cost center is rarely prepared to behave like a mature service provider. The trick is to take the right first steps: define meaningful service offerings; measure success against simple, achievable goals; and establish an effective and accurate basic cost allocation.

Service Offerings—the Simple Foundation of the Services Portfolio

Service offerings are the basic building blocks of the services portfolio. The priority must be defining ‘bread and butter’ offerings first. Future iterations of portfolio definition will allow for the introduction of advanced, specialized or boutique service offerings to more completely meet customer needs. Initially though, the key is simplicity: defining a set of services that customers can understand and appreciate—a set of service offerings broad enough to meet needs but not so broad as to be incomprehensible. No service offering should be initially offered for which there is not an obvious, existing customer. The priority must be those service offerings for which there are currently a significant number of customers. Follow the 80/20 rule: seek to identify the 20% of the service offerings which meet 80% of customer needs. Those IT functions provided today that are not initially delivered through service offerings can still be provided as always—meet the remaining 20% of customer needs as before until a complete transformation to a services portfolio can be realized.

Practical Quality—The Heart of Customer Oriented Services Provision

To become an IT organization oriented to and accountable to the customer, the quality of any IT service provision must be both measurable and analyzable. The goal of measuring the quality of services provided is intended by many and realized by few. The principal reason is ineffective quality metrics. A quality metric is a characteristic of service provisioning that can be practically and quantitatively measured. Some organizations fail to define quality metrics that can be measured quantitatively. The majority of failures, though, are due to the definition of metrics that cannot be practically measured—supporting data is not available, available data cannot be aligned to service offerings, or the overhead of incorporating quality measurement overwhelms established operations. The key to defining metrics that can be used to measure the quality of service delivery is to restrict the number of metrics to those for which supporting information is directly accessible and to metrics that the services operations management can incorporate into day-to-day service provisioning. As quality measurement systems are improved and service operations become more efficient, additional metrics can be folded into the mix.

Cost Allocation—The Start of Effective Services Pricing

The nirvana of services provisioning IT operations involves three essential elements:

• A portfolio of service offerings that is increasingly relevant to customers.
• A provision of service offerings that meets and typically exceeds quality expectations of service customers.
• Service offerings that are priced at or below the value received by service customers. Furthermore, these services offerings must cost less to provide than the price charged.

The first step in realizing this third goal is services oriented cost allocation—that is, allocation of the costs of IT operations across service offerings. Cost allocation is not pricing. Effective cost allocation is a prerequisite for effective pricing. Until the IT organization can accurately account for fixed costs and align these costs to services provided, it cannot effectively price delivered services. Furthermore, it has no basis for managing and reducing costs of services provided.

CONCLUSION

Information technology executives are compelled every day to orient their IT departments more and more to their customer—the business. Increasing importance of information to the business, pressure to reduce costs and the promise of repeatability all serve as motives for IT management to realign IT planning and operations to the business. A services-provider model offers the promise of realizing such realignment. What is needed is a mechanism to achieve this promise. Responsible IT management meets this need by establishing an operational capability to define, deliver, measure, and improve service delivery.

by Chuck Keffer