October 19, 2011

The Three Aspects of the Service Portfolio

Different people conjure up different images when they think about the Service Portfolio, causing a good deal of confusion in the industry about what a Service Portfolio really is:
  • For some, the Service Portfolio is basically a "shopping cart" for service requisition. It is an online application that contains a list of the services IT offers, allows users to request these services, has some features for approval and delegation of requests, and reports on the status of each request. This is the Service Request / Fulfillment point of view, and is perhaps the most common interpretation of a Service Portfolio.
  • For others, the Service Portfolio is a way to catalog information about service performance and service levels. It is a repository of SLAs and service level targets for each service, it keeps track of service performance against SLAs, it measures the business impact of noncompliance, and so on. This is the Service Level Management (SLM) point of view.
  • For still others, the Service Portfolio is a way to keep track of IT finances. It contains a detailed cost model for each service, keeps track of service consumption by customers, has some demand planning features, provides financial reporting, etc. This is the IT Financial Management (ITFM) point of view.
Notice that all of these interpretations fit into our Service Portfolio definition -- it's a compilation of services that IT offers to its customers -- yet all three are very different in terms of presentation, and in terms of what service attributes are included. So who is right?

Well, it turns out that all three points of view are correct, but incomplete. The service attributes we defined in the Service Design chapter as the ideal attributes that each service should possess include components of all three of these. From the running IT like a business point of view, as well as from the ITIL v3 point of view, a complete Service Portfolio should include all three of these aspects -- Request Management, SLM, and ITFM.
These differences in perception stem from the fact that different groups of people interact with the Service Portfolio very differently, and that mode of interaction is what determines how they think about the Service Portfolio. It is important to understand this, and the graphic above illustrates this point. There are three main groups of people that are interested in the Service Portfolio -- Service Managers, Business Customers, and End Users.
  • The End Users take the Request Management point of view. They don't really care about the technical details. They just want to know what services IT offers and to have the ability to request these services and keep track of those requests. So to them, a service catalog is essentially an online store, where you can pick and choose the services you want. Each service in this kind of catalog will include a brief description, a set of options (with prices where applicable), a well-defined approval workflow, and a set of contacts.
  • The Service Managers and other technical IT staff take the SLM point of view. They want to know how the service is performing relative to various metrics and targets. To them, a Service Portfolio contains detailed technical specifications and SLAs of each service, and various charts, graphs, and reports detailing how each service is performing. This kind of catalog will include SLAs, performance metrics, service level targets, and a list of components for all services.
  • The Business Customers, as well as IT Finance, take the ITFM point of view. They want to know the bottom line -- how much do these services cost, do they fit into the budget, how much demand there is for each service, and how service costs respond to fluctuations in demand. For them a Service Portfolio must contain detailed cost models, price methodologies, and demand history for each service.
It is important to understand this phenomenon -- the Service Portfolio is used by many different groups of people, with each group using the portfolio for a different purpose. A complete Service Portfolio must support all of these uses and meet the needs of all of these groups. It does so via the multiple aspects described above. The multiple aspects are essential for communicating service details to the appropriate parties, and for managing services throughout their lifecycle. They are the Service Portfolio presentation layer.


Posted by Boris Pevzner on October 19, 2011 | Permalink | Comments (0) | TrackBack (0)

September 20, 2011

The 4 Dimensions of Running IT Like A Business

Running_businessIT executives, particularly those at large Global 2000 IT organizations and large government entities, find themselves faced with a number of challenges and pressures, both internal and external, and these pressures are what has been driving the charge behind running IT like a business. Very broadly, all of these drivers really aim to improve the IT organization along one of four critical dimensions that every IT executive should be able to identify with to various degrees -- doing things cheaper, better, with less risk, and in a more strategic manner. It turns out that running IT like a business goes a long way toward improving the IT organization along all four of these dimensions.

  • Cheaper: "IT costs too much. How do we make it cheaper?" This is a question that executives at every IT organization struggle with, particularly in tough economic times, and there is no single right answer to this -- each organization is different. Our IT organization may do a great job with operational efficiency across the board, but have demand numbers that are spiraling out of control. Or maybe we are very efficient with data center services, but need some help with client services. Or perhaps our business customers are demanding higher service levels than they really need. Running IT like a business introduces the framework necessary to figure out where exactly our organization's inefficiencies and cost sinks lie, as well as the tools and organizational structure necessary to address these financial liabilities.
  • Better: "Business customers are not happy with the service delivered by IT. How do we make it better?" IT is often seen by the business customer as difficult to work with, unresponsive, inaccessible, and overpriced -- and with good reason. IT service delivery is often slow and error-prone, its support structure difficult to navigate, and its costs not tied to business value. As a result, many business customers view IT as part of the problem, not part of the solution. Running IT like a business makes sure that IT is better aligned with the business, its operations more streamlined and its costs better understood by introducing a customer-facing Service Catalog, a transparent cost model, a service-centric organizational structure, and a customer-first mindset. This addresses a lot of the quality and customer satisfaction issues plaguing IT organizations today.
  • Lower risk: "There are countless external and internal regulations that IT needs to comply with. How do we keep up?" IT executives are hit with regulations from all sides these days -- Sarbanes-Oxley, Basel II, FISMA, HIPAA, internal corporate rules, you name it. Most of these regulations are focused on financial accountability, data access control, and information security. In other words, the driving force behind the regulations is risk management -- IT is implicitly charged with managing the enterprise's risks associated with technology and data, and these regulations explicitly define what that means. The keys to complying with these regulations, making IT auditable against them, and managing these risks effectively lie in measurability (gathering relevant performance and financial metrics), process standardization (establishing repeatable, trackable ways of doing things), and financial transparency (making sure IT costs are linked to business value). Running IT like a business facilitates these three components by introducing standard services and processes, financial transparency, business-focused performance metrics, and benchmarkable financial metrics.
  • More strategic: "IT is constantly faced with integrating new technologies, accommodating fluctuations in demand, etc. How do we plan intelligently for these business scenarios?" How will switching from an internally hosted CRM application to a SaaS CRM application affect your bottom line and the per-user costs of CRM software? How much will IT save by introducing virtualization and cloud computing technologies? How will fluctuations in the demand for various client services affect overall IT spend? How much will a recent acquisition raise IT spend? IT executives are frequently faced with questions like these. Having a well-developed cost model, budgeting process, and demand management framework -- all of which are part of the running IT like a business paradigm -- makes it much easier to answer questions like these in an intelligent and structured way.

As we think about these four critical dimensions that IT executives have to address and the associated challenges, it becomes clear that these are fundamentally the same types of challenges that executives running any business face. These dimensions -- cost, quality, risk management, and business strategy -- are really fundamental business dimensions; they are not specific to IT. And if the challenges are the same then the response should be the same too -- namely, we must run IT like a business.


Posted by Boris Pevzner on September 20, 2011 | Permalink | Comments (0) | TrackBack (0)

March 24, 2010

Understanding value through cost modeling and data-driven analysis

Business growthIt's been a busy winter in the IT Financial Management world, and the spring is shaping up to be even busier. Companies are starting to awaken from the hibernation induced by the financial crisis, and are beginning to ramp up their IT spending -- rather than solely focusing on slashing costs, which has been the motto for the better part of the last two years.

During this forced hibernation period, many IT organizations lost considerable fat, and have emerged both leaner and hungrier. The "slash costs" mandate which has dominated the ITFM conversation for the last couple of years is changing to a new motto: "deliver measurable value."

This new perspective, which is becoming more and more prevalent, is a natural outgrowth of the lean years from which IT is emerging:

  • Many IT organizations slashed costs blindly across the board, only to find that key projects suffered, and the effectiveness of IT declined drastically. They want to avoid repeating these mistakes.
  • Many others were able to slash costs more successfully by doing it both at the project and operations level, and these organizations want to distill the positive lessons they learned into a more robust ITFM framework, and evaluate any new spending with those lessons in mind.

In either case, the ability to determine how much value each IT service or project is delivering, and to maximize that value, have become a primary focus. IT organizations are hungry for ways to show their business customers, in a tangible way, exactly how much value they deliver to the business.

So how do they accomplish this?

I am currently working on a project with a Fortune 500 multinational that finds itself in just this kind of situation. A recent Gartner benchmark showed that this firm's IT organization is quite lean, with most services delivered at costs that are below industry benchmarks. However:

  • their IT chargeback methodology does not reflect consumption, and some business segments end up subsidizing others;
  • there is no cost model tying service costs to a financial source, so the true unit cost of each service delivered by IT is not known;
  • the data sources are many, but they are scattered -- and there is no ITFM framework that unifies all this data from a cost management perspective.

What all this boils down to is -- there is no way to determine how value flows from IT to its customers.

We are in the process of organizing all of these existing data sources, developing a service-based cost model, and using this cost model to develop a meaningful consumption-based IT cost recovery methodology. This will result in an IT organization whose unit costs are well understood and transparent to the customer, which will in turn enable intelligent demand management and well-informed business decisions.

In going through this process there are three key insights to remember:Data-driven IT  

  1. To understand value, you must first understand cost. A brand new washing machine might be a great value at $200. It's not such a good value at $2000. Similarly, understanding how much it costs IT to deliver various services to the business is key to determining the value of IT to the enterprise. To be effective, any such cost model must be:
    • service-based, because IT is at its core a service organization;
    • consumption-driven, so that it reflects how customers actually use IT services;
    • and tied to a financial source like the GL or budget, to make sure it reflects reality.
  2. Be data-driven, not data-obsessed.Usage metrics and measurements, financial benchmarks, demand forecasts -- all these things are crucial to determining IT value. Reliable consumption-based metrics are key for developing a robust cost model, benchmarks are essential for understanding where improvement is needed, and demand forecasts are indispensable for effective planning. A data-driven IT organization is an effective one. That said, avoid taking this data obsession too far -- too much data, or the wrong kind of data, can lead your quest for IT value off track and cause more confusion than good. Be sure to keep the number of metrics in use relatively small, and focus on business-oriented metrics over technical metrics. The key here is to strike that delicate balance between simplicity and accuracy.
  3. Ultimately, an IT service is only as valuable as what its consumer does with it.When it's all said and done, IT is not an end in itself. It is a means toward enabling the company's core competency -- the widgets it sells or the services it provides. And this is exactly why cost transparency is so important. Once customers understand what exactly they are getting from IT and how much it is costing, they can evaluate their IT investments, and make informed business decisions on where to decrease their IT spend and where to increase it. In other words, they can manage their costs and maximize business value through intelligent demand management.

So if you want to gain some insight into the value that IT delivers to the business, make sure to build a service cost model, streamline your data sources, and work with your customers to develop demand management capabilities. This will put you well on your way toward a better relationship with the business, where customers view IT as a valued partner that enables the business.

Posted by Boris Pevzner on March 24, 2010 | Permalink | Comments (0) | TrackBack (0)

September 14, 2009

Service Costing Workshop at the itSMF Fusion Convention in Dallas

If it seems that this blog has been pretty quiet, there is a reason: the last couple of months I have been busy working on my book, Running IT Like A Business: An IT Executive's Guide to ITIL and IT Service Management. The manuscript is now in its finishing stages, and the book will be released early next year. But more on that later -- I am planning to do a series of blog posts on the book and some of the fascinating interviews and case studies we conducted for it.

But summer is over, and I am happy to be emerging from my brief hiatus to co-present a workshop at the itSMF USA Fusion Convention in Dallas with my colleague and good friend Ron Bradley. Ron has been in the IT Service Management business for 30+ years, and he is one of the foremost experts out there on service costing. Ron and I will talk about how to use the Service Portfolio in the service costing exercise and how to use the cost model to slash costs and improve customer satisfaction.

If any of you are in Dallas on Sunday, please stop by to say hello!

itSMF USA Fusion 09

Title: Service Costing: Determining True Unit Cost Per Service
Track: Pre-Convention Workshops & Forums
Date: September 20, 2009 12:30 PM - 02:30 PM

This hands-on workshop addresses the foundation of the ITFM Capability Model, Service Unit Cost Modeling. Workshop participants will learn about the drivers and benefits of IT service unit costing, steps for building the unit cost model, best practices for unit cost modeling, and enablers to sustaining fine-grained unit cost models. The workshop will also explore how to best leverage the Service Catalog in creating and maintaining your IT unit cost model, and how to use your service unit cost model to enable better budgeting and demand management. All material presented at the workshop will be accompanied by real-world examples and case studies.

I look forward to seeing many of you in Dallas!

Posted by Boris Pevzner on September 14, 2009 | Permalink | Comments (1) | TrackBack (0)

June 4, 2009

IT Management Plans and Priorities for 2009 and Beyond

By this time, many organizations are well underway with their 2009 IT projects and many are gearing up to begin their FY2010 IT planning. With this in mind, I thought it might be a good time to go over the "interests and priorities" of IT organizations that we uncovered in our recent 2009 ITSM and ITFM Industry Survey.

ITSM/ITFM Interests vs Priorities
According to our survey, the top 6 ITSM/ITFM priorities for IT organizations in 2009 were:
  • Cutting IT costs and managing IT spend (54%)
  • Making IT operations more streamlined and efficient (48%)
  • Aligning IT with the business (36%)
  • Achieving cost transparency in my IT organization (29%)
  • Implementing chargeback for IT products and services (28%)
  • Improving the satisfaction of my business customers with services offered by IT (28%)
These, for the most part, are no surprise and reflect today's challenging economic conditions. The surprise came when comparing these top priorities to the same respondents' ITSM/ITFM interests -- these are the topics that people were interested in learning more about in 2009 (see chart below).
You would expect "interests" and "priorities" to be fairly well aligned, and for the most part they are -- with two interesting exceptions:

Developing and using IT performance metrics. This was the number one interest among the respondents, but only came in at number 7 on the list of 2009 priorities. Evidently, with the down economy, IT organizations today have bigger fish to fry, so developing performance metrics is not an immediate priority. However, looking to the future, accurately measuring service performance is a key component of many IT managers' plans.

Implementing chargeback. This was fairly high on the list of priorities, yet on the list of interests it dropped all the way down to number 12. The idea of charging internally for IT services has been around for quite some time, but few have actually done it, because it involves so much change to how IT is run, and there are often organizational and cultural roadblocks to doing this. In today's down economy, however, many organizations are starting to come around on the idea of chargeback, and starting to recognize its cost-saving potential. It is unfortunate that it took an economic downturn to get to this point, but this is certainly an encouraging result.

Organizations Want To Run IT Like A Business
Running IT like a business has become quite a popular concept these days. I seem to hear about it everywhere I go: IT organizations all over the country aspire to run themselves in a more "businesslike" manner. And the results of this survey really confirmed that.

One of the questions we asked was something we like to call The Zeitgeist Question -- what phrase best captures your organization's ITSM/ITFM priorities for 2009? The choices consisted of phrases we have heard during our consulting engagements, and we invited respondents to write in their own Zeitgeist Phrases as well. The results are below.

Zeitgeist Question
A whopping 33% -- one third of all respondents! -- said that "Running IT Like A Business" was their organization's Zeitgeist Phrase. That's a lot of people! This really shows that running IT like a business and everything that goes with it (clearly defined service offerings, SLAs and OLAs, a robust cost model, demand management processes, etc.) is becoming the operative principle at many IT organizations out there, which is a very encouraging trend.

"Cutting Costs at All Costs" and "Efficiency, Efficiency, Efficiency" were pretty popular as well, and there were some interesting write-ins, which you can see above also.

Posted by Boris Pevzner on June 4, 2009 | Permalink | Comments (0) | TrackBack (0)

April 3, 2009

Breakthrough Finding: Service Management Maturity Is Highly Correlated with IT Success

We recently conducted an online 2009 ITSM and IT Financial Management (ITFM) Industry Survey, with the goal of eliciting some of the prevailing trends and attitudes among ITSM and ITFM professionals. Some of the results confirmed our read of the industry's pulse, while others caught us a little bit by surprise. I presented the results two days ago at the ITFM Association's conference in Atlanta. We are going to publish a white paper detailing the survey results shortly, but I wanted to give my blog readers a sneak peak at some of the most exciting findings.

Service Catalog / Costing / Demand Management Maturity vs IT Success
This was probably the most interesting set of results, that shows that the concepts we advocate really do pan out in practice. The idea here was to see if there is a correlation between an IT organization's ITSM/ITFM maturity, and its success. So we asked a number of questions (33 in total) about people's assessment of their organization's ITSM/ITFM maturity -- service catalog adoption, service costing and cost transparency, demand-driven budgeting and demand management, etc. -- and used these results to come up with a Maturity Score for each respondent. Then we asked another set of questions (14 altogether) measuring assessments of IT success -- customer satisfaction, perception of IT by business customers, operational efficiency, communication with customers, etc. -- and used these results to come up with a Success Score for each respondent. We then plotted these results on the scatter plot below. We expected some alignment -- but not the very strong correlation that we got!


Even without the best fit line, the trend is quite clear -- organizations with high ITSM/ITFM maturity scores are more successful.

The next thing we did was break down the maturity questions into three subsets -- 13 Service Catalog adoption questions, 10 service costing (ITFM) questions, and 10 demand management (ITDM) questions -- and calculate an individual maturity score based on each subset. Then we made a plot just like the above for each of these subsets. The results revealed a very interesting pattern that is very much in line with what we have been advocating for years.

Take a look at the graph below. The Success Trend is the slope of the best fit line for the corresponding plot. It turns out that the Success Trend is 0.38 for Service Catalog adoption maturity, 0.5 for ITFM maturity, and 0.71 for ITDM maturity. This is a very interesting result! It means that if you just have a Service Catalog but don't implement any costing, pricing, demand-driven budgeting, etc. around it -- your IT department will become more successful, but not by a whole lot. If you implement some cost management and service costing concepts on top of your catalog, the benefits are greater. And if you start using your Service Catalog and cost model to manage demand, the benefits are still greater. This is exactly what we have been telling our customers for years -- and now we have direct quantitative proof!


You can get the full report here.

Posted by Boris Pevzner on April 3, 2009 | Permalink | Comments (0) | TrackBack (0)

February 5, 2009

Consumption-Based Chargeback: Now More Than Ever!

MoneypieIn times of plenty, it is easy to gloss over the specifics of where your IT budget is going, but in leaner times these details become more significant. That's why the ideas of cost transparency and consumption-based chargeback have made such a comeback in recent months.

Even some organizations traditionally resistant to the idea of chargeback are starting to come around, because it makes so much business sense:

  • It highlights the value that IT brings to the business. Chargeback and cost transparency take the mystery out of IT costs, and really underscore the extent to which IT enables the business. This makes budget-related conversations with both the customer and the folks in the executive suite more constructive.
  • It ensures that the accountability for IT spend is shared between IT and the business customer. When business units are suddenly forced to pay for the IT services they consume, they put more thought into the services they buy -- maybe each employee does not need a top-of-the-line laptop and Blackberry? maybe not all hosted applications need <0.01% unscheduled downtime? etc.
  • It makes tough business decisions that define today's tough economic environment more intelligent. One important business decision that many are having to make today is how and where to cut IT costs. The way most businesses do this is by cutting specific projects, or cutting a percentage of costs across the board. These kinds of broad strokes often end up hurting the business more than they help it! Cost transparency and chargeback take the guesswork out of decisions like this, and enable a more intelligent conversation.
Equally important to the newly fashionable chargeback adoption is that the much-maligned "old chargeback" has evolved and matured into the business-friendly "new chargeback":

Old "Accountants First" Chargeback: The old idea of chargeback was a somewhat arbitrary allocation of IT costs to business units, based on coarse metrics like headcount. In this model, the business units had no clear understanding of what they were paying for. This often resulted in unfair distribution of IT costs, and a lot of gripes from customers -- and justifiably so. Why should R&D pay for some of the IT resources consumed by Manufacturing? This is not the kind of chargeback that puts customer first.

New "Customer First" Chargeback: For chargeback to really work, it needs to have a mature, accurate, service-based cost model behind it. This model must be able to compute unit costs for each IT service and assign costs based on consumption, and the costing methodology must be made transparent to the business customer. Having such a service-based cost model as a foundation ensures that IT costs are distributed fairly and alleviates a lot of the common gripes about chargeback, because it helps business customers understand what they are paying for.

The upshot of all this is that now is a really great time to implement IT service-based cost recovery principles at your organization. Whether you choose to do full-scale chargeback or "shadow invoicing," this is a worthwhile project that will lead to IT spend reduction and higher accountability both for IT and the customer, as well as position IT as a key contributor to the business.

Posted by Boris Pevzner on February 5, 2009 | Permalink | Comments (0) | TrackBack (0)

November 3, 2008

Using ITFM to Transform the ITIL Paper Tiger into a Cost Cutting Machine

CostCutting When ITIL v3 came out in May of 2007, it seemed that it would take the IT world by storm. Many CIOs bought into it, and IT organizations made significant investments to implement various ITIL processes and disciplines. However, today a lot of that enthusiasm is beginning to dry up...And it isn't because ITIL doesn't work -- on the contrary, most CIOs still believe in the ITIL way of doing things, and feel that their ITIL initiatives have been fruitful.

Why the loss of enthusiasm then, you ask? The answer, as is often the case, is money. While many IT organizations have used ITIL processes and concepts to streamline and improve their operations, few of them are able to quantify these gains. And without such quantification, a hefty ITIL investment is difficult to justify and sustain: what reasonable business executive will throw millions of dollars at a project with no clearly documented financial benefits -- especially in today's economy!? As a result, many execs have come to view ITIL as a paper tiger - a lot of bark, but no bite.PaperTiger

This is why IT Financial Management and Service Economics are such a critical part of any ITIL initiative. Implementing unit costing, chargeback, and demand management helps to lower the overall IT spend, and at the same time the cost transparency these disciplines enable allows for much easier quantification of the resulting savings. ITFM can help turn your paper tiger into a cost cutting machine.

Here is just one example that underscores the importance of ITFM and the hazards of undertaking an ITIL effort that is not centered around solid ITFM principles. A number of IT organizations have implemented requestable service catalogs, but our research has shown a remarkable difference between organizations that did so with and without service-based costing and pricing information. Customers who have implemented a service catalog with service-based costing and chargeback have seen:

  • 26% reduction in unit costs
  • 18% reduction in baseline business demand
  • 20% reduction in overall IT spend

Those are some serious numbers! On the flip side, customers who have implemented a service catalog without including service-based costing and chargeback have seen:

  • Significant increases in baseline demand and overall IT spend due partially to an increase in requests for premium services.
  • No change or increase of the value gap between what customers think it costs to provide services, and what it actually costs IT to provide them.

The other side of the equation is justifying the money spent on your ITIL effort, and that is actually covered in the example above as well, albeit indirectly. It's in the language. Note how the statistics I quoted above are phrased. The first set of stats is very exact and quantitative, while the second is more of a qualitative analysis, the kind that wouldn't fly in the board room. Why? Because in an IT organization without service-based costing and chargeback, it is next to impossible to collect the exact quantitative statistics that execs want to see. In contrast, when IT is built on a solid ITFM foundation, this kind of data is readily available.

This is why ITFM should be at the center of any ITIL initiative. It is not enough to develop a long term service strategy, design a best practice based service catalog, and streamline service operation and delivery. While all of these are positive things, to be sure, at the end of the day it comes down to money. The end result of an ITIL endeavor should be a reduction in IT spend, and you need to be able to illustrate that reduction with some hard facts. ITFM and properly implemented service economics can provide both.

So how do we lay this ITFM groundwork? Lontra SUCSESS™! This proven methodology can guide your IT organization from a reactive, specialized "job shop," to a "product house" that has full transparency around its products (the IT services) and their unit costs. It can take you beyond building a hierarchical service model, and to cost modeling, unit costing, and cost allocation, giving your ITIL effort a strong basis in Service Economics. This transformation will yield dramatic savings that you can show in stark terms to your executive board. I will explore some of these topics more in my upcoming webinar on November 5th.

Posted by Boris Pevzner on November 3, 2008 | Permalink | Comments (0) | TrackBack (0)

October 22, 2008

Slashing IT Spend with Service-Based Costing and Demand Management

Ever since the financial meltdown on Wall Street, corporations all around the country have been scrambling to cut costs, tighten their budget belts, and cut out inefficiencies from their various departments - and IT is no exception. Gartner painted a grim picture of the future of IT spend at its Symposium/ITxpo 2008 on October 13, telling IT execs to brace themselves for hiring freezes and layoffs. According to Peter Sondergaard, Gartner's global head of research, "The next big thing in IT is not a technology - it is cost reduction, risk management, and compliance."

So how do we achieve this cost reduction? The battle cry for reducing IT spend has traditionally been met with marching orders toward improving the IT organization's efficiencies. Common methods include outsourcing, virtualization, cutting out unnecessary expenses, and yes, job cuts. These are all sensible cost-cutting measures, but they only deal with one half of the IT business equation. It is important to remember that the responsibility for IT spend does not rest solely with the IT organization - the business customers who consume IT services bear a large chunk of this responsibility as well.

By focusing exclusively on wringing efficiencies from the supply side, many companies miss the low-hanging fruit on the demand side. Applying well-established service-based costing and demand management techniques can dramatically reduce an organization's IT spend by influencing IT customers' behavior and directing them toward IT service choices most appropriate for their needs and budget.

This is where Service Unit Cost Strategy for Enterprise Shared Services comes in (we call it Lontra SUCSESS™ methodology). This is a seven-phase process that can help a company take advantage of these low-hanging fruit on the demand side, while making the transition toward running IT like a customer-centric business with full transparency around IT offerings and their unit costs. We have recently applied this approach at three Fortune 500 companies with glowing success.

Phase 1. IT (Technical) Services Inventory. Catalog all technical services offered by your IT organization. These are the underlying services used to support IT's customer-facing offerings, such as application hosting, disk space, web analytics, etc.

Phase 2. Business Services Inventory. Catalog all business services consumed by your customers. These are IT's customer-facing offerings, which may include email access, use of various applications, Internet access, etc.

Phase 3. Hierarchical Service Model. Map all the business services from phase 2 to their underlying technical service components from phase 1. For instance, the business service providing access to a finance system may be built on top of several technical services, such as an Oracle database, a managed server, and a backup service. This will help you align your IT services with business needs.

Phase 4. Service Cost Modeling. Create a full cost model by mapping the service model from phase 3 to the appropriate general ledger (GL) cost centers, such that every IT cost element is appropriately assigned to business services depending on it. Identify consumption drivers for each business service.

Phase 5. Service Unit Costing. Identify the consumption volume for each business service, and calculate unit cost for each service using this consumption volume in conjunction with the service cost model from phase 4.

Phase 6. Shadow Invoicing. Begin generating monthly or quarterly "shadow invoices" for each organizational unit, based on the business services offered, their unit costs, and actual monthly/quarterly usage. This will give you insight into how much each business unit actually spends on IT services.

Phase 7. Demand-Driven Budgeting and Planning. Use the service hierarchy and cost model set up in the previous six phases to help IT's business customers plan their IT usage in terms of service units (and their associated unit costs), revise the IT budget appropriately, plan effectively for demand increases, etc. This is the phase where you can really cut down on some IT costs.

Once you have a fully developed service hierarchy and cost model, service costs become transparent to the business customers, which translates into an extremely powerful tool in your IT organization's cost-cutting effort. Here are just a few of the things that you can do using this framework:

  • Determine which services are driving up your IT costs, and do something about them. You can benchmark your unit costs against industry data to see if they measure up, and then focus your efforts on the services that lag behind industry standards.
  • Determine which business units consume more than their fair share of IT resources, and take measures to control their demand.
  • Influence customer behavior by driving them toward the most cost-effective solutions. This can be done by providing flexible service choices and different SLAs at different price points.

Applying the Lontra SUCSESS™ methodology will have a profound effect on your IT organization. It has the capacity to significantly reduce IT spend and reveal inefficiencies that you did not even know existed. In today's economy, this is not just a nice-to-have, it could be a matter of survival.

Posted by Boris Pevzner on October 22, 2008 | Permalink | Comments (0) | TrackBack (0)

August 13, 2008

Question to all CIOs: IT budgeting time is here – Are YOU ready?

For some, beads of perspiration may be forming at the very question. For a CIO, though the actual budget presentation may be short, it is a critical time to make their case for spending the following year, and more importantly, to introduce new initiatives that will strategically advance the company’s business objectives.

One of the barriers to this accomplishment is in the language we speak in IT: technical jargon and complex tables of IT spend not directly linked to the business value or actual line of business consumption – hardly a language that would resonate with your average executive board. Susan Cramm suggests in a CIO magazine article that “CIOs [should] present utility costs as if they were an outsourcer, on a per-department basis, whether it’s for email usage, help desk calls, or the network.”

The main takeaway there is that the conversation needs to happen in terms of customer-facing services, not processes or utilities. These services need to be transparent and understandable, in “business-speak,” to the lines of business, and accompanied by an accurate service-based unit price (rate).


My keyword in that last statement is accurate. If the CIO and IT organization as a whole is going to become a trusted, strategic partner within the business, then it needs to present the full cost of doing business with IT: by product, by service line, by line of business, by customer.

N. Dean Meyer published an article on the subject and laid out 6 Levels (0-5) for Full Cost Maturity, starting with Traditional Budgeting, then Fair Allocations, then Demand Management, then Accuracy, and finally “Rates - Costs are portrayed in total for products and services, and unit prices (rates) are extracted from the same data.”

Getting to this level of maturity from scratch would be daunting for almost anyone, and the horror stories of 30-40 connecting Excel Workbooks have definitely been told around the many IT Financial Management conferences I’ve frequented. Luckily, there are tools out here that automate the process (and, of course, I am biased toward those offered by my company, Lontra – particularly since it is offered with a 60-day service cost modeling and delivery guarantee).

Demand Management is also key – a topic I could write an entire blog about and probably will. Knowing the full cost of providing any given service enables IT to have conversations with LOB owners that allow you to predict and record trends in demand, and create rolling demand-driven forecasts that go 5 to 6 quarters out. It also allows your IT Financial Managers to compare your cost of delivery against benchmarks in the industry and make informed spending decisions.

If a CIO is armed with the ability to discuss services in business-speak, including accurate service-based costing, and with a more accurate picture of future demand, the answer to “Are you ready for budgeting time?” should be “Bring it on.”

Posted by Boris Pevzner on August 13, 2008 | Permalink | Comments (0) | TrackBack (0)

June 11, 2007

ITIL’s dressed for the corner office

Tie Boris

My colleague (and a fellow blogger) Troy DuMoulin of Pink Elephant steered me toward an article yesterday that really distilled the mojo of the new ITIL release and the buzz it’s been creating in Global 1000 corporations around the world. According to Linda Tucci of SearchCIO.com, with the release of version 3, “ITIL Dons a Suit and Tie.” – and of course, I just had to doodle up a picture for it! – enjoy:

This metaphor is as prescient as it is vivid: whereas previous releases of ITIL have been process focused, and in most cases taken on at one or two levels below IT executive management, ITIL v3, with its emphasis on being customer-centric and business-aligned, should at the top of a CIO’s agenda… indeed, according to ITIL v3 authors, the Service Strategy book is one that “every CIO should read.”

I would go one step further (brace yourselves everyone): ITIL v3 should be seriously considered by any CIO who would still like to be employed in 2010, when, according to Gartner, 60% of companies with over 1000 employees will have adopted ITIL. The capabilities discussed in the Service Strategy and Service Design books alone are enough to set an IT organization on the path of decreasing overall IT spend and increasing customer satisfaction significantly, and if you don’t have that knowledge, and the ability to implement those lessons learned – someone else will.

Posted by Boris Pevzner on June 11, 2007 | Permalink | Comments (0) | TrackBack (0)

June 4, 2007

ITIL v3 – Building a successful IT service delivery organization brick by brick, with the Service Portfolio as the cornerstone!

Boris By Boris Pevzner

In my earlier blog, and in those of my colleague, Molly Hollday, we have speculated about the evolution of ITIL into a service-focused, and ultimately customer-focused, service management framework. To us, this maturation of e ITIL framework was natural and inevitable for one simple reason: in order for any service business to be successful, it needs to be strategic about the services that it offers, and it needs to align them with the needs of the customers.

Good news, folks – with ITIL v3, we are getting what we asked for.

One of the main focal points of ITIL v3 is the Service Lifecycle – how services are conceptualized, defined, modeled, offered, accounted for, delivered, supported, and improved – and the Service Portfolio is the central management tool and “system of record” for the Service Lifecycle. As Troy DuMoulin of Pink Elephant mentions in his blog, this brings ITIL to the perspective of the CIO and executive management team and “is focused on the realization that IT Management is accountable for knowing how any given component or device supports a service which impacts or enables a business process and outcome.”

For this very reason, ITIL v3 positions the Service Portfolio as the cornerstone of IT Service Management and recommends it as the starting point for every ITIL implementation. ITIL v3 books on Service Strategy, Service Design and Continual Service Improvement lay out the best practices for building an effective Service Portfolio and its published orderable subset, the Service Catalog.

(For anyone interested, Troy and I will be covering these topics in a webcast called “ITIL v3: Strategies to Success” on June 5th. To register, click here. If the date has already passed, you can email us for materials from the event.)


In addition to focusing on the Service Lifecycle, v3’s Service Strategy book places quite a bit of emphasis on the often challenging issue of Service Economics, which includes Service Based Costing and Demand Management as core processes to ITSM. For my team at Lontra, this is the methodology we have been implementing at some of the largest corporations in the world for years, and we have the tools to make the process relatively quick and template-driven – but for those going about it on their own, it can be a daunting task, and ITIL v3 begins to scratch the surface of the critical issues at the heart of IT Financial Management.

In a nutshell, ITIL v3 provides the framework you need to align your IT Services with the demands of your business, and do that while decreasing costs and increasing service levels. If that sounds challenging to you, it’s because it is! – so you may want to consult the experts to get you started. You can read a little further here – or just send us an email and we’ll be happy to help with further education and advice.

Posted by Boris Pevzner on June 4, 2007 | Permalink | Comments (0) | TrackBack (0)

May 25, 2007

Save Your Failed Outsourcing Initiative (or make sure it’s not doomed from the start!)

Boris By Boris Pevzner

Over the last few years outsourcing has become a popular answer when the topic of IT cost cutting comes up (as it often does), but in my experience speaking with numerous CIOs in many of the world’s leading organizations, it is rarely ever as effective an answer as it may seem at first glance. In fact, according to a CIO magazine article, the failure rate is anywhere from 40%-70%.

Many outsourcing initiatives are destined to fail because the demand for IT services is not well controlled or accurately forecasted at the organizational level. Most outsourcing is structured so that all new (“out of scope”) services are charged on a “per drink” basis. This means that while the spend for “in scope” services may go down, the total IT costs go up over time because of the uncontrolled “out-of-scope” spend.

Knowing what we know now about why it fails, how do we then approach an outsourcing initiative without having to navigate all of the guesswork that comes along with it? And once an outsourcer is in place, how can you ensure seamless service delivery for your customers, and how do you make sure you’re getting what you paid for?

For many reasons, a comprehensive Service Portfolio, including integrated Financial Management and Demand Planning capabilities and a requestable, customer-facing Service Catalog, is the answer:

  • Financing Transparency and Benchmarking around Services: Makes it clear which service lines should be outsourced and which should be retained
  • Demand management: Publishing choices at different price points in your Service Catalog enables an organization to control business demand for IT services before it gets into the outsourcer’s work stream
  • Customer satisfaction: Provides a single place that communicates what services IT delivers to internal customers, regardless of which vendor is actually doing the work
  • Seamless Fulfillment: Allows coordination among multiple outsourcers participating in service fulfillment, which is particularly important in a multi-vendor outsourced environment
  • Vendor Management: Tracks SLAs associated with outsourcer contracts and reports back on when agreements weren’t met.

Simply put, before you approach any outsourcing initiative you should know what you need now, what you will need in the future, and how much it costs to deliver what you need internally. You are then empowered to either negotiate a contract with an outsourcer that will meet your needs (and make sure they deliver to it), or keep the service in house with the knowledge that you are able to provide the service better, faster, and cheaper.

So, if outsourcing is on the roadmap for your organization, take the guesswork out by getting help from industry experts like my team at Lontra in implementing a strategic Service Portfolio and be sure you’re not jumping in blind.

Posted by Boris Pevzner on May 25, 2007 | Permalink | Comments (0) | TrackBack (0)

May 1, 2007

ITFM’07 Conference Recap: Aligning IT and the Business… with Pixie Dust!

Boris By Boris Pevzner

Last week, I was in Orlando for the 5th Annual IT Financial Management Week 2007. I was the Chairperson for the event, so I got to meet a lot of the attendees and enjoyed many fascinating conversations.

The theme for this year’s event was aligning IT strategy with the demands of the business. This is a very broad topic, and it tops the priority list for many CIOs today. In my introduction, I compared it to that old EDS Superbowl commercial about building an airplane in the sky: we in IT are “servicing” our business customers, and helping them to achieve their business goals, even as the business is constantly changing, moving, and morphing. And that’s what the Business-IT alignment is all about.

One takeaway was that, while the speakers approached this topic from a variety of different angles, a consensus quickly emerged around one important thing: You cannot meaningfully talk about alignment without first having defined the IT Service Portfolio which is the common denominator between IT and its business customers – and thus the very thing in which the alignment is embodied.

Nowhere did this concept come through more clearly than in the CIO panel discussion, which I moderated.

  • Barry Carter, CIO of Alliance Data Systems, gave an insightful keynote on using demand management around a shared Service Catalog to achieve better communication between business and IT. Barry’s thesis was that, by defining service choices at different SLAs at different price points, IT can better communicate the value it is delivering to its business customers, drive them to service choices most appropriate for their business needs, and reduce IT costs in the balance.
  • Russ Finney, CIO of Tokyo Electron, linked the alignment theme to globalization. Over the last eight years, Tokyo Electron grew from a primarily Japanese company to a truly global one. Russ highlighted that this move from regional to global service provisioning would not have been possible without a great deal of service standardization and service-centric financial discipline.
  • Arvind Sabharwal, Technical Information Officer at GMAC Financial Services, focused on how defining IT infrastructure services was critical to the success of GMAC’s recent divestiture from General Motors. Pulling yourself away from one of the world’s largest companies is never an easy task (especially if the chunk being torn off is as massive as GMAC), but having well-defined IT services in the Service Portfolio helped Arvind immensely to achieve a relatively orderly and speedy separation.
  • Jeff Neville, CIO of Eastern Mountain Sports, had yet another kind of story to tell. His was a story of corporate turnaround, with IT-Business alignment being the cornerstone of success. It helps that Jeff’s job description includes not just the typical CIO responsibilities, but also the corporate strategy portfolio. What better way to achieve the alignment of IT strategy and business strategy than to give both jobs to the same guy… right?
  • Jeff Cooper, VP of Client Services & Technical Relationship Management at The Walt Disney Company focused his keynote on outlining how Disney manages service delivery in a multi-vendor outsourced environment. Given that different outsourcing vendors at Disney are responsible for different IT service lines, having a clear definition of IT services is paramount to success. Jeff also talked about the importance of establishing an internal IT brand, and of “marketing” IT services to internal customers through his Technical Relationship Management organization.

While each panelist approached the topic of IT-Business alignment from a different angle (globalization, demand management, outsourcing, corporate restructuring, M&A), they all agreed that a well-defined, actionable Service Portfolio is the cornerstone of any IT organizations that is striving to become aligned with the demands of the business. Service Portfolio is what all the critical interactions between IT and the business revolve around: IT financial management, demand management, service request management, and IT self-service.


From the audience’s questions I know that they enjoyed interacting with the CIO panel as much as I enjoyed moderating it. The last question really captured the spirit of the conference (especially given that we had a Disney executive on the panel!) – “If you could spray pixie dust and make your business-IT alignment challenges go away, would you do it?” While having business and IT magically and instantaneously aligned seems hard to resist at first blush, the panel CIOs were unanimous that they wouldn’t want to rob their teams of the experience of this journey, with all the learning and professional growth that it brings. Besides, who needs pixie dust when there are experts who can guide you on this journey and make it that much more fulfilling!

Posted by Boris Pevzner on May 1, 2007 | Permalink | Comments (0) | TrackBack (0)

April 23, 2007

ITIL v3: From Process to Strategy

Boris By Boris Pevzner

Most CIOs embrace ITIL as a natural best-practice framework for service management. However, few would say that it helps them show business stakeholders why investing in service management results in solid return on investment.

One of the driving factors behind this challenge is that ITIL has historically been process-oriented and directed towards a strictly IT audience. To prove ROI for any initiative, you need to have the customer in mind, and in order to serve that customer you need to take a strategic approach to the services you offer, and align the processes behind it in order to best deliver what the customer needs.

What is needed is a top-down view of IT Service Management – and when ITIL v3 on May 30th, 2007, I anticipate it will meet that need.

Sharon Taylor, ITIL’s chief architect, told Computerworld that, “one of the gaps that evolved was that the focus on service management became very operationally based’” says Taylor. “The big change that we’re introducing is to take a broader viewpoint of what service management encompasses, [including] strategic considerations, the design implications, the cultural and organizational change implications. So the major shift is to introduce service management from a life-cycle perspective, as opposed to just a process-based view.”

The new IT Infrastructure Library is aligned to the five phases of the service life cycle:

1. Service Strategy
2. Service Design
3. Service Transition
4. Service Operations
5. Continual Service Improvement


The Core Framework

The focus on Service Strategy means that the productization and alignment of IT Services to the needs of the business will be front and center in any ITIL Adoption initiative. What this means is that the definition of those services, along with demand planning in terms of services, and developing a service-based costing methodology, all through the Service Portfolio, has become the starting point to optimizing the way IT organizations do business.

In short, whereas existing ITIL standards are directed at a strictly IT audience, ITIL v3 makes sense to the business stakeholders, as well. For IT organizations just starting out in ITIL, now you know where to start. For organizations deep into their ITIL initiative, the time couldn’t be any better to take your ITIL initiative from process oriented to strategic in just 60 days!

Posted by Boris Pevzner on April 23, 2007 | Permalink | Comments (1) | TrackBack (0)

April 9, 2007

The Service Portfolio and the Service Catalog

Molly By Molly Holladay

Out of sheer curiosity, I searched Wikipedia today for information on Service Portfolios… and boy was I ever disappointed. No results for Service Portfolios, and the article on Service Catalogs is lacking to say the least.

I won’t argue that managing service requests is “a” benefit to having a service catalog, but how much do your executives really care about service requests? Are you talking to your CIO about how your service catalog has brought benefit to the organization through allowing your customers to make more well-defined requests of you? Probably not, or I submit you shouldn’t.

A Service Catalog and Service Portfolio are as much about managing service requests, as the CMDB is about storing inventory. There are a number of service catalogs on the web that you can look at… but what I'm rarely seeing is the ‘business perspective'… where are the examples and case studies of organizations using their service catalog to “Manage IT Like a Business”?

True, Service Catalogs are the perfect way to go about establishing standards amongst IT offerings, but even more importantly, the Portfolio takes that catalog to the next level by separating supply from demand and furthermore enables highly structured evaluation of:

  • IT Spend Data - Classifying and analyzing IT service costs facilitate highly focused cost improvement and reduction opportunities.
  • IT Budgeting Data - Understanding the cost drivers underlying the supply and demand of IT services allows us to get to the root of improving our cost structure.
  • Organizational Consumption Data - Providing discrete costs to the IT customer for each class of service consumed makes improvements to the IT cost structure possible by changing the demand side of IT.
  • Service Capacity - When IT is able to provide customers with real-time information on their consumption of services they’re able to more accurately charge for current usage as well as determine future service levels & costs to customers

In light of the need for visibility into these valuable metrics, I foresee the tactical, request-centric Service Catalog of the past being left behind by the strategic demand planning and financial management capabilities, among others, built into the Service Portfolio. Keep an eye out for more information on Service Portfolios and benefits from us and from ITIL v3 just one more month!

Posted by Boris Pevzner on April 9, 2007 | Permalink | Comments (1) | TrackBack (0)

March 5, 2007

IT Services: Who Pays for Them?

Boris By Boris Pevzner

I see this problem time and time again: the business does not value IT because IT can't show that the services they’re providing justify the amount the business customers are spending on IT. What to do?

The business relies on IT for so many services. For example, when your marketing team brings on a new team member, they likely look to IT to provide the workstation set-up, computer, phone, application access, and ongoing support. But who pays for this service? Is the customer directly responsible for the cost or is it included in a blanket allocation of IT costs that gets evenly spread out across the organization (even if some departments rarely use IT)? Many IT organizations fail to address these and other cost issues associated with the services they provide. This is a big mistake. If IT is to be perceived as valuable, it has to have a well-defined price.

There have recently been some notable posts on this in the blogosphere.

Dawn Mular makes an interesting point in her blog about how everything costs something—even when it appears to be free. For example, according to a recent Help Desk Institute best practices survey, more than half of all IT service centers surveyed did not know the average cost of a service request. Without a solid idea of how much things cost, these IT centers had implemented operational practices to manage the top three contributors to “incident” volume baselines to get at least some handle on the IT costs. Mular’s main takeaway is that everything costs something, and that an effective IT organization needs to consistently review performance, financial and service data to effectively deliver value for money.

Troy DuMoulin observes in his blog that IT departments tend to view themselves as a “cost center” and thus fail to charge for their services. He suggests that IT does this to avoid looking at IT costing in any significant detail. However, even though they are not billing their internal business clients, they still have to account for and report on the cost of delivering IT Services to the business. If they fail to do so, they can kiss their budget goodbye.

I have also blogged on this topic before, with particular emphasis on how service-based IT costing methodology can address two critical issues:

  • Lack of visibility into IT costs from the customer’s perspective
  • Misalignment between how IT is costed (in “IT Technical Speak”) and how services are delivered (in “Business Customer Speak”)


Usage-based cost transparency around IT services provides an excellent way to ensure that IT’s customers understand the value IT is providing in a language they can readily understand. Furthermore, as long as IT knows what its operating costs are, it can use pricing to improve alignment with the business by giving business leaders more control over IT resources. (You may want to check out this Service Catalog provide the basis for service-based costing. If IT uses a Service Catalog to determine all costs for a service, they can clearly show how and where the money was spent: i.e., which customers used which services and how much.

And implementations of service-based costing are becoming exceedingly streamlined these days: consider, for example, the QuickStart program from my company.


The bottom line is this: The issue of IT spending is gaining more and more attention, as companies increasingly focus on cost containment, outsourcing and financial governance. The business is now demanding that IT organizations track and account for all IT costs. So charging is no longer optional. If IT is to be perceived as valuable, it has to have a well-defined price, which needs to be communicated to IT’s customers in a language that they can easily understand. To do this, IT organizations at most large companies are now deploying Service Catalogs in conjunction with IT financial management and demand planning solutions.

Posted by Boris Pevzner on March 5, 2007 | Permalink | Comments (0) | TrackBack (0)

February 15, 2007

Top Priorities for CIOs in 2007 – Improve Customer Service, and Align IT with the Business Objectives… where do you start?

Boris By Boris Pevzner

CIO Insight published an article recently that included a survey of CIOs regarding The Future of IT in 2007.  It wasn’t a huge surprise that improving customer service came up as the top priority for IT organizations, or that aligning IT with business objectives was the top priority for IT management.

There’s a reason why these priorities rise to the top of the list year after year. IT organizations are focused on the day-to-day operations and are constantly in reactive mode to meet the increasing demands of their customers. It’s a challenge in itself just to maintain and keep the business critical applications up at all times.  Just imagine if your email system was down for a day!

ITIL (and particularly ITIL v3, for those of us lucky enough to have seen the working draft) tells us that in order to meet the goal of improving customer service and becoming more customer-centric, you need to define the services you provide to your business customers and make them available through a Service Catalog.  This may seem like a simple solution, but truly aligning yourself with business objectives and raising customer satisfaction requires much more than just publishing a menu of services to your customers.

So what do you need to make it a successful undertaking?  You need to prove your value and deliver value.  To do this, you need to think like a business, act like a business. 

Take my Customer-Centric Readiness Assessment by answering the following simple questions.  On a scale of 1 to 10 for each of the questions, how does your IT organization rate today? (1 = Not at All,   10 = Absolutely, Completely)

  • Do you know who your customers are?
  • Do you understand what your customers need?
  • Have you defined and published the services you offer your customers in terms that they understand (the proverbial “Business Speak,” not “IT Speak”)?
  • Are the services you offer aligned to what your customers need?
  • Do you offer service choices at different price points and clearly articulate what your customers get with each option?
  • Are you and your customers able to forecast demand for those services?
  • Do you provide the capability for your users to order the services they need online?
  • Do you provide a wizard to guide them to make the right choices?
  • Can you provide your customers a report to show consumption of services to assist them in forecasting cost and demand planning?
  • Do you survey your customers on how well you are performing?

If you scored 91-100, you’re IT organization is already executing like a business.  Other organizations could learn from you!

If you scored 81-90, you are obviously well under way to being a strategic partner to your business customers. Keep up the good work!

If you scored 60-80, you have embarked on the right path to achieving a customer centric IT organization. You could use further guidance from subject matter experts to take you to the next level.

If you scored below 60, you are so behind… Consider taking advantage of one of the Service Catalog QuickStart Programs available on the market.

Posted by Boris Pevzner on February 15, 2007 | Permalink | Comments (0) | TrackBack (1)

July 5, 2006

Service Catalog and IT Financial Management

Boris By Boris Pevzner

As IT Service Management discipline matures, it is fascinating to see how the IT Productization concepts that I’ve been covering in this blog get adopted across a variety of ITSM disciplines.

Take IT Financial Management.  Until recently, IT finances have been managed against cost centers and activity centers defined in General Ledger systems from Oracle, SAP, PeopleSoft.  But this year, the IT Financial Management Week conference in Miami Beach is full of presentations touting the benefits of service-based costing and demand management, where financial management of IT is done in terms of services.  Thus, IT Service Catalog is now rapidly becoming a key enabler for IT costing, budgeting, and demand planning.

To those of us who have been following the evolution of ITSM, this is no surprise.  Every IT executive needs to be able to answer the key questions that are critical for operating an IT organization:

  • Who is using what IT services and how much?
  • How does the performance of my IT organization compare to that of market benchmarks, industry peers, and outsourcing vendors?
  • How does the consumption of IT services vary by business unit or geographical location?
  • How does the actual IT service consumption compare against budget estimates?
  • What are the most optimal demand drivers that I can use to influence my customers’ behavior and to reduce the overall IT spend?

The answers to these questions need to be communicated proactively by the IT organization to its business customers to enable them to plan and manage their IT demand and expenses. 

The only way for an IT organization to achieve these goals is by defining and costing the services it supports in a way that the business customers can understand.  Which is where the Service Catalog comes in, particularly if it is tightly coupled with financial management and demand planning capabilities.

I will post more on this in the next few days. Greetings from Miami Beach!

Posted by Boris Pevzner on July 5, 2006 | Permalink | Comments (2) | TrackBack (0)

February 7, 2006

Service Catalogs and SOA

Boris By Boris Pevzner

Recently, I’ve been getting a lot of questions on how the IT Service Catalog relates to SOA… after all, “IT Service Management” and “Service Oriented Architecture” frameworks both talk about “services” – so they must be related, right?

Well, sort of.  Since SOA is a methodology that encourages software standardization and reuse, it is clearly aligned in spirit with “IT productization” and IT Service Management.  Thus it makes sense that both have “service catalogs” at the very core of their respective frameworks.  However, the current state of the art in the industry is that these two service catalog concepts are largely disjoint.  The following is a summary of the parallels and differences between them.

  • IT Service Catalog deals with business-facing IT services at the very top of the IT stack.
    • Key goal: Repeatable delivery of IT services to business users (captures process IP)
    • Example services: Onboarding and offboarding of employees, providing application hosting and managed storage services, providing managed access to key business critical applications, etc.
    • Metadata in the Catalog: The service description metadata for such services is mostly business-focused, with attributes such as service features, cost and price models, service level objectives, etc.
  • SOA Service Catalog (aka Service Registry), on the other hand, deals with application services (provided by reusable software components) that are typically found further down around the middle (though not at the bottom!) of the IT stack (example: updating a loan application is an SOA service, updating a record in a database isn’t).
    • Key goal: Reusability of the company's software assets (captures software IP)
    • Example services: Authentication, customer profile management, order fulfillment, and other pieces of functionality reusable across multiple business applications.  Generally, an SOA “service” is a function that is well-defined, self-contained, and does not depend on the context or state of other services.  The SOA Service Catalog is the registry of such reusable services.
    • Metadata in the Catalog: The service description metadata typically kept in the SOA Service Catalog contains elements needed to assemble these reusable components into business applications.

While what is contained inside the IT and SOA service catalogs is quite different, the processes for how they are managed have quite a bit on common:

  • In both cases, one needs to manage the entire lifecycle of the services, from their creation to change to retirement… this means that service versioning must be accommodated by the supporting service catalog management tools.
  • Since both service catalogs are hierarchical, the management tools need to support relationships to allow inheritance and bundling of lower-level component services into higher-level business services.
  • From the service design “best practices” point of view, in both cases, one really needs to start with the high-level definitions of what the services ought to be in order to satisfy the business need, before worrying about the implementation details.

Recently, I noticed that some of our larger and more mature clients (particularly in the Financial Services sector) have begun trying to bridge these two service catalog “domains” by developing comprehensive service hierarchies (and the associated metadata models) that span software component services, infrastructure services, and business services.  The main justification for this is the compliance requirements (such as SOX), which require the ability to perform accurate business impact analysis (“How will an incident or a change to the underlying software or infrastructure components affect the business service?”).

This convergence is still quite far away, however.  For now, IT Service Catalogs remain only tangentially related to SOA in most Global 1000 implementation.

Posted by Boris Pevzner on February 7, 2006 | Permalink | Comments (1) | TrackBack (2)