Chris Pick (Global) - Increasing ROI by Effectively Managing the Business of IT

In part one of this two part special on the ROI of IT, Chris Pick from Apptio explains how to run IT like a business to get the best ROI from IT.

With more options than ever before for technology services, CIOs and IT leaders must prove their value to their corporation’s CEOs and finance teams.

These days, companies can outsource practically any IT function to any number of service providers. The adoption of cloud computing in which practically any IT resource such as software, servers, or even labor can be delivered by a third-party service provider is applying new pressure on IT leaders. When companies look to tighten their budget, tech outsourcing may seem an easy fix. For a company’s IT department to remain relevant, they must position themselves as competition to the ever expanding array of external third party options.

To prove the value of IT, today’s CIOs must demonstrate that they can provide significant return on their technology investment by delivering services cost effectively with quality and business value. They need a better way to make sense of all the data and create something meaningful out of it that the business can understand and act upon. They need to implement processes and technologies which enable tech leaders to track costs, predict future expenses, trim unnecessary spending, and provide financial transparency back to their business users. Only by running IT like a business will CIOs be able to effectively prove the value and ROI of IT.

What’s the Solution?

Most department heads are accustomed to receiving detailed analysis on their own division’s performance and results (for instance, sales has CRM, HR has HRM etc). Yet many IT divisions remain an anomaly by not setting up any concrete way of measuring return on technology investments. To take a step in the right direction and increase the ROI of their IT departments, CIOs and other IT leaders should review the following best practices and real-world examples of organizations who are effectively managing the business of IT:

1.    Save Time and Effort By Going From Manual to Automated

Begin to look past Excel and other spreadsheets solutions which require hours upon hours of work to manually create and maintain. Instead, choose an offering that provides an immediate time saving for IT department. For example, look for features which allow IT to automatically breakout cost data at a deeply granular layer, log historical data, and predict what IT spending will be in the future. IT leaders can then expose this cost data to better collaborate with their business peers.

For example, Volkswagen Credit – the financial arm of the German automobile company Volkswagen – had long been using unwieldy Excel spreadsheets to manage their IT budget. A typical budget cycle would take 16 people and 12 weeks to complete, and since they were entering information manually, it was easy to make mistakes. Volkswagen Credit spent far more time gathering and inputting data than analyzing it. The company also couldn’t easily alter the budget, as any significant changes required a major spreadsheet overhaul. Often, finance staff would simply wait until the following budget cycle to make tweaks rather than change something on-the-fly, as the editing process was so cumbersome.

By transitioning away from manual processes, Volkswagen Credit’s budgeting and forecasting process became vastly simplified. Right away, IT service managers could reduce the amount of time and effort they spent on budgeting. If the IT staff needed to make a small budget change or explain to someone how they arrived upon a number, they could do so with little time and effort. This automated functionality enabled budget makers to drill down to individual line items, so they could view expenditures by department costs, office location, or any number of different categories. In short, implementing an automated solution the manage the business of IT, the company transformed budgeting into a simpler and more fluid process, and Volkswagen Credit now spends 50 percent less on the annual budget process.

2.    Cost Transparency

In addition to saving IT staff hours of time, effectively managing the business of IT calls for a higher level of intricacy and accountability. IT must obtain detailed analytics to provide IT decision makers with deep visibility into their cost structure. Utilizing automated processes should allow a company to determine exactly how much of their budget is being funneled to a piece of equipment, a staff member, or an IT service.

Since costs can be allocated in a variety of ways, IT leaders should determine which allocation strategy is most appropriate. A company at the low end of the cost maturity spectrum might decide to simply spread IT costs equally between business units. However, as IT grows more sophisticated in how they provision services and allocate costs, they will invariably see the value in assigning percentages or weight to various units based on how much they actually utilize a service (also known as Activity Based Costing or “ABC” by which costs are allocated according to how much a given product or service is consumed).

Level 3 Communications, a Tier 1 provider of fiber-based communications services, struggled with a complicated  IT budget. The company spent more than $80 million a year on IT, regularly used nearly 800 applications, and spread its services out to 30 different company sites. Level 3 Communications needed to figure out how to break down expenses efficiently and effectively.

Within the first three months of their cost transparency initiative, Level 3 mapped more than 90 percent of its intricate IT spending to the corresponding business unit. The resulting intelligence enabled the company to see which sites and applications were utilized the most. For instance, by analyzing the data they were able to determine that the fully loaded cost of a dated CRM system that only a handful of people were using was costing them $1.2 million per year. Armed with this data, the CIO was able to make a compelling argument for retiring this costly application.

Stay tuned for Part II (now available here), where Chris Pick will explore additional strategies for effectively managing IT, which can reap immediate benefits for the rest of the business.

By Chris Pick, Chief Marketing Officer for Apptio.