How to Measure and Improve the Business Value of IT Service
Improving the value of services is all about understanding what the business is trying to accomplish and express it in business terms everyone can understand. It's not about the technology of the service, but the value the service provides the business.Rebecca Jacoby, CIO, CISCO1
Business unit executives cringe every month when they receive their monthly statement from the information technology (IT) organization, in the form of IT bill or chargeback, which identifies the information costs associated with their business unit. The statement usually arrives via email or in hard copy and consists of many pages of data, usually represented in columns and rows, using terms such as router costs, data center costs, server costs, maintenance costs, terabytes, virtual servers, all of which business people don't understand very well. It is difficult for business executives to align these cost items to the services they receive and business processes they perform, let alone the value they generate. Most executives recognize that IT is a necessary cost of business and just accept the charges without much fanfare. As one business unit vice president said to me, during one of my book interviews, "It's just not worth the time to discuss this. I'm going to get hit with this charge anyway."2
If your business peers view your IT organization as a techno-centric cost center, and not as the value based provider of services, you need to pay close attention to the rest of this article. This can really help you transform the way the business views IT. Communicating the value of IT services to business unit vice presidents is a key component for building a trust-based relationship with your business peers. Unless you can accomplish this, your IT organization will forever be viewed as the cost center where technical stuff happens versus a strategic partner where IT personnel partner in business teams to create significant and measurable business outcomes. If your IT organization enables business value and you cannot communicate in a way that business personnel understand the value, your IT organization will be misperceived as a cost center. The challenge is to communicate value in business terms. The objective of this article is to define a process you can use to communicate and improve the business value of the IT organization.
Many business units managers view IT organizations as cost centers and not the value generators, which they really are. This is the challenge for every CIO. One CIO from a Fortune 500 company said to me, "The business just doesn't understand that the information technology organization supports the business processes that drive the company. The business defines the business processes; IT enables the processes leveraging information technology."3 What is a CIO to do in order to change the misconception of the IT organization? The answer is simple. The objective is to change the perception of IT from a technology provider to that of a services-oriented organization that helps the business create sustainable value. The pathway to accomplish this is to clearly map the IT services, associated costs, and value derived by the business units in performing their activities, across the enterprise value chain.
The first step is to educate the business community about how IT supports the business. How does a CIO handle this challenge? During a quarterly update meeting with business unit executives, Tom Grooms, the CIO of Valspar, reviewed the quarterly IT activities and the goals and objectives for the remainder of the fiscal year. One of the first slides was on IT challenges. There was only one bulleted sentence. It read as follows:
- Educate the Business in How IT Services Provide Business Value
The next slide identifies the ways IT provides business value (See Figure 1). 4 As you read the slide, think about how generic the statements are and how you can use this to help communicate the various ways your IT organization provides value to the business.
Figure 1. How IT Services Provide Value.
Communicating the intent to help the business understand the value of the IT organization is a good beginning. Actually demonstrating how IT services provide value is an entirely different challenge.
Valspar, the global coatings company with 10,000 employees in 25 countries, hired Tom Grooms as the new CIO in January 2012. Grooms had a challenge. The business viewed IT services as a free service. IT costs were included in the coprorate cost pool that was allocated to the business. The business never thought about IT as a cost, but just a department ready to serve the needs of the business. IT received numerous requests, always exceeding the supply of resources to perform the work. The culture in the IT organization was to figure out a way to get it done. IT personnel would never say no. It was the rule for IT. Of course, other work had to shift, and the daily routine in IT was trying to figure out what to work on first, what to move into the future, and how to satisfy the increasing demands from the business.
Grooms changed all that. With a strong experience-based philosophy on collaborating with the business and providing value-based solutions, he embarked on a program to change the mindset of how the business viewed the IT organization. He realized that he needed to figure out a way for the business personnel to view IT as an enabler of business value and that the services IT provided to the business have to provide measurable value at a designated cost. In other words, just like any other business investment, IT expenditures require a business case. His objective was to help the business understand how the IT supports and enables the business processes that drive value to Valspar customers. In order to do that, Grooms, and his IT teams, continuously worked with the business to understand the business value of the requests for IT services. This meant developing a business case for each IT request. In addition, Grooms needed to make sure that business requests benefited the company as a whole and not just a single business unit. For example, a division manager requested an enhancement to a service used to support a process used by his plant in Chicago. The sister plant on the West Coast was fine with the current process. In the past, IT would approve the request from the Chicago plant. Grooms conducted some research and found that the enhancement would only benefit the Chicago plant, and not any of the other sister plants manufacturing the same products. So Grooms said no to the Chicago general manager, explaining that there was no overall Valspar value to the enhancement.
Slowly, the business began to understand that IT services link to the supported business process. Grooms started asking a set of questions when the business requested enhancements or new services: " Why is the investment necessary? How will this help Valspar? Are you committing to the savings/revenue projected in your business case?" These were all perfectly legitimate questions. Slowly, the business started to think differently about IT. They realized that these were legitimate business questions and that Grooms' organization was trying to help ensure that IT investments for services required by the business were viewed as any other corporate investment, thereby enhancing the process and business performance.4
Methodology Framework to Improve the Value of IT Services
Following is a framework you can use to develop a strategy to improve the value IT services delivered to the business. 5 The methodology consists of the following four phases. Each of the four phases are explained in more detail following the graphic depicted in Figure 2.
- Develop process/IT services alignment map
- Identify process KPI/key IT services metrics
- Assess process/IT services maturity
Figure 2. Improve the Business Value of IT ServicesA Strategic Framework.
Develop Process/IT Services Alignment Map
It is important to develop a portfolio of business services to deliver basic services exceptionally well. To help your business leaders understand the value of the IT services delivered to their business units, you need to map the IT services to the business processes their organization utilizes to perform their work activities. Following is a process you can apply and modify as appropriate.
The process is simple:
- Revisit the working documents you used during the process of developing IT services where you met with the business unit executives and their team.
- Schedule a follow-up meeting with each business unit team to review and identify the work activities, by major process, performed by the business unit.
- Review the list of business services provided to the business units and map the services to the business process. You can accomplish this in a working session with a whiteboard and flip charts.
- Document the working session results and send it to the business unit team to validate.
- Consolidate the mappings from each business unit team into an enterprise process/IT services map. Review for duplications and errors and modify accordingly.
- Meet with business leaders, and their teams, to review the consolidated mapping and modify as necessary.
Figure 3 is an example of a process/IT services alignment map.
Figure 3. Key Processes Aligned to Business ServicesExample.
Identify Process KPI/Key IT Services Metrics
How often have you heard the phrase, you cannot manage what you do not measure? How effective a process and a service perform is no exception. You cannot objectively evaluate the performance of a process or a service if you do not have any measurements goals. The measurements can be based upon the effectiveness (business value derived) or efficiency (How quickly the service is delivered). However, each provides a different dimension of performance. The performance of a business process is all about achieving a defined outcome. The performance of an IT service is how efficiently the service performs.
Key performance indicators (KPIs) are quantifiable measurements you can use to measure the performance of a business process. Service metrics measure the performance of the technology that supports the process. Let us look at a customer order process as an example (see Figure 4).
Figure 4. Key Processes and Associated KPITemplate.
The objective of a customer order process is to enable customers to order your company's products or services. Customer satisfaction, ease of use, and flexibility of entering orders are examples of business process outcomes. Number of incidents, downtime, problems, wait times, and mean time to repair are measures of how well the technology supports the process.
Metrics can measure time, quality, quantity, cost, and customer satisfaction. Following are a few simple guidelines to follow when choosing metrics:
- Choose metrics that make business sense.
- Don't choose a metric that you can't measure.
- Keep it simple.
- Develop metrics that follow the SMART principles (specific, measurable, actionable, relevant, and timely).
- Don't be a slave to the metric. That is, do not expend more effort to collect the metric than the value it provides.
Figure 5 (Monthly Financial Summary ReportData Center) is an example of a report that measures monthly performance metrics of the data center. The report shows, by month, the planned versus actual costs, consumption, unit cost, and variance. This is a summary report. Supplemental reports provide more detailed information about the business units usage history. These types of reports provide a basis for a business dialogue between IT and the business units as to the usage and value derived from the data center. A business service should have a financial profit and loss (P&L) statement. You need to measure the planned versus actual costs since IT costs are part of an overall budget.
Figure 5. Monthly Financial Summary ReportData Center.
There are many sources available to help identify the right metrics your organization should use. ITIL is a good place to begin. 6 There are also many websites that provide helpful information. 7
Assess Process/IT Service Maturity
Once you have identified the business processes and mapped them to their relevant services, you can assess the process and the service based upon the metrics identified. The process to accomplish this is simple (see Figure 6):
- Form a team comprised of IT and business unit personnel to develop an assessment instrument you can use to capture the objective data, as well as the subjective data from service stakeholders for each IT process as well as the IT services group that supports the process.
For each process you want to measure, develop a set of three to five questions that assess the effectiveness of the process. The scoring would be 1–5. A score of 5 reflects a high effectiveness in terms of KPI's being achieved and a score of 1 would reflect a process where the KPI's are on the low end of the scale. Similarly, you would develop a set of three to five questions to measure the efficiency of the process on a scale of 1–5. A score of 5 would indicate that the process is very efficient and a score of 1 would indicate that the process is very inefficient.
I would suggest that the assessment be performed by IT personnel as well as business personnel so you have a 360° view of the process. It will be interesting to see the disparity between how IT personnel rate the process and how business unit personnel rate the process.
- Use weighted algorithms to develop a score for each process questions as well as IT service questions.
- Plot the scores on the maturity grid.
Figure 6. Process/IT Services Maturity Grid.
Following is an example of results plotted on the maturity grid for a customer order process (see Figure 7):
- The total weighted average for the questions measuring the process is 2.8.
- The total weighted average score measuring the efficiency of the IT services is 0.9.
Figure 7. Process/IT Services Maturity GridExample.
As you can see from the scoring, the process scored fairly well but the IT service scored very poorly. The implication is that the customer order process works. The process exceeds the KPIs established. However, the delivery of the service is very inefficient, as indicated by the score of 0.9. The IT organization needs to meet with the business process owner to understand the issues that create the inefficiency. Perhaps the customer service screens are overly complicated, creating some confusion when servicing customers. Perhaps customer service representatives may be spending more time than necessary servicing a customer. Whatever the issues, it is important to understand them, analyze them, and improve them.
The maturity grid provides an initial indication of the process effectiveness and process efficiency. To truly understand the issues associated with the process and/or service performance, you need to peel back the onion and analyze the process and the service in more detail.
Saama Technologies is a services company headquartered in Campbell, CA, that provides data science solutions focused on solving the data management and advanced analytics challenges of the world's leading brands. For CIOs, they provide dashboard solutions using their opsSENSE solutions suite that portray data in meaningful ways. Figure 8 includes some examples of dashboards Saama has created. The data are for demonstration purposes and do not reflect any client confidential information. "CIO dashboards presented in a meaningful way can really influence business results," says Jitender Nankani, the principal for Solutions at Saama Technologies. 8
Figure 8. Saama Technoloiges CIO Dashboard Example.
One of their clients, a global e-commerce business, was challenged to reduce transaction costs and grow topline performance. To analyze their business required intense manual efforts to provide the visibility for executives into health initiatives, budget forecasts, project roadmaps, and other data to ensure an alignment with engineering operations. Many different data sources and systems required individual interfaces to retrieve raw data, which was subsequently massaged and aggregated manually. "There was no real-time analysis, historical reference checks, ease of use interface, or an integrated system to provide actionable insights," says Murali Krishnam, practice area leader for Big Data Solutions at Saama Technologies. 9
Saama implemented their opsSENSE solution framework to measure, monitor, manage, and optimize the clients' engineering operations. The goal was to enable decision makers at various levels, from knowledge workers to executives, to get the right visibility into dayto-day operations to drive, prioritize, and rationalize the strategic decisions toward improving the company level KPIs.
Saama cites impressive results that were achieved by the implementation of opsSENSE:
- Reduced run and managed cost of maintaining engineering operations analytics by 50%
- Increased speed of decision making by 33%
- Improved financial clarity by providing visibility from an initiative to project level
- Enabled confident decision making by leveraging a validated and trustable data set
- Faster time-to-value for operational excellence through automation
- Interfaced with nine different data sources, validated, integrated, and fed information into the leadership dashboard
Debra Martucci is the CIO and vice president of Information Technology for Synopsys, the two billion dollar plus company, located in Mountain View California. It is a market leader in electronic design automation (EDA), providing products and services that accelerate innovation in the global electronics market. Martucci spends a lot of time analyzing data and trends associated with financials, IT expenses, operations, staff projects, and security. "The data was all over the place. I needed a single source to capture pertinent data and display it in a way that provides trend analysis to highlight where I need to focus for any area that was out of acceptable range." 10 Martucci contracted with Saama Technologies to design and build a CIO dashboard."The 42-inch Monitor is prominently displayed on the wall outside Martucci's office for everyone to see," says Mark Sutherlin, the senior IT analyst involved in the project. 11 The digital dashboard displayed outside Martucci's office is a visible reminder for all personnel of the key IT metrics. Accessible online personnel from across the company can access the dashboard. "It's really helped us gain the trust of the business," says Sutherlin. (ibid) The dashboard includes six tabs for each of the key areas Martucci considers key to the success of IT. They are finance, IT expenses, operations, staff, projects, and security (see Figure 9).
Figure 9. Synopsys CIO DashboardExample (Data Sanitized).
Martucci attends an executive staff meeting every week. One of the documents she brings to the meeting is the weekly report of key data from the dashboard. At the meeting, she updates the key executives on the IT performance and the value provided to the business.The weekly report is also provided to IT management, who share it with their IT teams. Martucci is pleased with the dashboard approach to communicating IT value. "It helps me in three ways. First, it enables me to spot trends and areas I need to focus on immediately that otherwise would slip through the cracks. Second, it provides complete transparency of IT across the business. Third, it improves our relationship with the business in numerous ways through open communications. Our goal is to support the business and help business teams create products and services that innovates value for our customers."10
It is important to develop a process/service alignment mapping in order to measure the cost of IT services as they relate to the business processes they enable. One of the biggest challenges facing CIOs today is to measure the value of IT and communicate that value to business leaders in a language they understand. Most IT organizations measure the technical aspects of IT: servers, MIPS, data center costs, networks, etc. Financial reports capture these costs, which are then allocated to the business using a variety of methods. Unfortunately, business leaders don't understand these costs as they relate to the business units they manage. As a result, they reluctantly accept these charges and continue to ask, "What is the value of IT to my business unit?" The problem is that IT does not correlate these metrics into business language.
Simply stated, key business processes are the vehicle that provides business value. Information and technology enable these business processes to function properly. Order entry processes capture order data, logistics processes move materials throughout the value chain, customers use customer service processes to interact with the company representative, Internet and mobile processes communicate with customers, etc. Information and technology are the enablers of business processes, and a method to measure how information and technology provide value to the business is necessary in today's information-centric enterprise.
Up until a few years ago, there was no solution available on the market that IT could use to communicate the business value of IT from a services perspective. A few companies tried their hand in developing a solution for this issue. The one that seems to lead the pack now is Apptio.
Sunny Gupta and Paul Mclachlan cofounded Apptio in 2007. McLachlan, the CEO of Apptio, was named Ernst & Young Entrepreneur of the Year in 2012 and had 20 years of enterprise software experience with roles in general management, strategic marketing, product management, and business development. McLachlan, the CTO of Apptio, had 15 years of software architecture experience, prior to cofounding Apptio, and spent more than a decade building performance and troubleshooting tools for Java and .NET, first at Compuware and NuMega Technologies and more recently at Mercury Interactive and HP, where he was the chief architect of the Diagnostics Component of Business Availability Center and LoadRunner.
Apptio is the independent software-as-a-service leader in technology business management (TBM), a new category, and discipline backed by global IT leaders that helps clients understand the cost, quality, and value of the services they provide to the business users. Apptio created the category (TBM) and is the clear leader because of their comprehensive approach.
The Apptio TBM Suite provides an integrated set of cloud-based applications enabling IT leaders to run the business of IT. Clients who use Apptio TBM solutions achieve deep visibility into the total cost of IT services and can communicate the value of IT to the business through an interactive Bill of IT™, strategically aligning the planning, budgeting, and forecasting processes. Apptio's TBM solutions play a critical role in helping companies understand and drive chargeback, virtualization, cloud, and other key technology initiatives (see Figure 10).
Figure 10. Apptio TBM SolutionOverview.
Chris Pick is the chief marketing officer (CMO) for Apptio. He understands marketing, especially for software solutions. Prior to joining Apptio in 2009, he was an operating partner in Austin Ventures' CEO-in-residence program where he focused on identifying new growth strategies and defining disruptive business models. He was also the CMO and vice president of products at NetIQ for 8 years and ran Ernst & Young's Global security practice for 4 years.
Apptio walks the talk. With 175 customers served in the Fortune 1000 space, Apptio is well on its way to becoming the business management solution of choice among CIOs. Cisco, Bank of America, Conway Freight, Exxon, First American Financial, J.P. Morgan Chase, Farmers Insurance are just a few of the recognizable names Apptio has as clients. The following two client examples show how using Apptio TBM solutions provided clear measurable value in a few short months12:
Cisco's CIO, Rebecca Jacoby was having "…difficulty in categorizing associated with assembling technologies together to deliver a capability to the business" and also "…wanted to show how that cost related to the value we were delivering to the business. "By implementing one of Apptio's solutions Cisco's top 25 service owners prepare and present a balanced scorecard to the business users. As Jacoby describes it, "this has changed the value conversations regarding technology at Cisco. "
Larry Godec is Senior Vice President and CIO at First American Financial. Godec was aware that " …the firm's IT portfolio was beginning to swell with redundant systems, but he couldn't identify the specific unnecessary applications." Using Apptio's TBM solution enabled Godec and his team to have visibility into IT costs and performance. Now, Godec can communicate the value of First American's core title and escrow system that runs on a single database instance. Godec says, Apptio's TBM solution "helped me break down the cost by division and show them the value of the core system."
Meeting the needs of its customers is an important strategic objective. To achieve this goal, Apptio established a TBM council, with Pick as president, to ensure that CIOs have a voice in identifying requirements to run IT as a business. The council, created in 2012, includes 500+ members focused on creating the professional discipline, standards, and industry benchmarks required to run IT as a business. The council is documenting the discipline in a TBM book that will help facilitate benchmarking by business technology leaders against those practices.
Larry Godec, the CIO of First American Financial, summarizes the need to communicate the business value as follows: "Our business partners must understand what they are consuming, how much it costs, and what choices they have to better balance cost, performance, risk and other qualities?"
Improving the business value of IT services, and communicating its value to the business, is a critical component for a strategic CIO to succeed in gaining credibility with the business. In this article, we have:
- Identified a four-step framework for assessing, analyzing, measuring, and communicating the business value of IT services
- Reinforced the need to measure the maturity of your key business processes
- Discussed the use of an assessment framework to help you measure the effectiveness of business processes as well as the efficiency of how well IT delivers services to enable those processes
- Highlighted a CIO dashboard used by Synopsys as well as a solution from Apptio that addresses Technology Business Management (TBM), a new discipline created by Apptio
The key messages of this article are as follows:
- CIOs must communicate the business value IT services provide the business.
- CIOs need to assess how well IT services provide business value as well as measure how efficiently each IT services is executed.
- There is a process CIOs can use to measure the effectiveness and efficiency of IT services.
- Rebecca Jacoby, CIO Cisco/Phil Weinzimer Interview, December 7, 2012.
- Anonymous Business Unit VP/Phil Weinzimer Interview, December 14, 2013.
Anonymous CIO/Phil Weinzimer Interview, April 12, 2013.
- Tom Grooms, CIO-Valspar/Phil Weinzimer Telephone Interview, April 26, 2013/Modified slide from CIO presentation to business unit vice-presidents, quarterly update.
- Developed by Phil Weinzimer, Strategere Consulting; 2013.
- ITIL website; http://www.itil-officialsite.com.
Various websites where you can research various metrics your organization can use to effectively measure monthly performance. http://www.itil-officialsite.com/, http://www.on-demand-itsm.com/ITSM-Metrics-That-Matter_8-13-09_v2.pdf, http://simplicable.com/new/ITIL-guide (November 2012), http://www.prosci.com/metrics.htm, and
- Jitender Nankani, Director-Consulting, Saama/Phil Weinzimer Telephone Interview, February 28, 2013.
- Murali Krishnam, Practice Area Leader, SaamaTechnologies/Phil Weinzimer Interview, March 6, 2013.
- Debra Martucci, CIO Synopsys/Phil Weinzimer Interview, November 1, 2013.
- Mark Sutherlin-Senior IT Analyst, Synopsys/Phil Weinzimer Interview, November 4, 2013.
- Chris Pick-CMO, Apptio/Phil Weinzimer Interview, December 12, 2013.
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