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April 29, 2005

The Shortest Path to IT Productization

Last week, I was speaking at the Service Management IT Executive Roundtable in Minneapolis. I like these types of interactive events, as they let me get direct feedback from multiple IT executives, learning about their key IT strategic concerns and sharpening my own thoughts on IT service management. Some very intriguing questions around IT strategy, ITIL, and compliance were raised at the event, but the question we ended up spending the most time on was this: “How do we accelerate the transition to IT Productization?”

To set the stage, I used the McKinsey “IT complexity grid” to illustrate the pattern of how most IT organizations we are working with are reducing the complexity of their IT delivery environments (and driving the costs down) by implementing incremental standardization around the service catalog.

The drive toward increased standardization and service-oriented, customer-centric, “productized” model of IT delivery typically proceeds through three incremental steps:

1. Capturing Tactical Cost Reduction. Most Fortune 500 companies have gone through the first transition, from Specialist Job Shops (siloed IT shops associated with each business unit) to Generalist Job Shops (increasingly centralized IT shops, but still lacking operational discipline) in the late 1990’s / early 2000’s. This transition was precipitated by the emergence of new web-based application architectures, rapid introduction of new products and channels in the “new economy,” and tremendous pace of the M&A activity at the time. IT optimization initiatives that accompanied this transition included IT organizational centralization, “lift-and-shift” datacenter consolidation, server consolidation, and some process improvement programs (particularly around incident and problem management). The results, while not earth-shattering by any means, were certainly worth the trouble: on average, IT organizations have seen 10% run rate operational savings and as much as 25% reduction in Severity 1 outages.
2. Strategic Transformation to Productized IT. By early 2000’s, most IT organizations have run out of the tactical improvement levers. This, along with the increasing DR and business continuity expectations, the need to become more customer-centric, and increased pressure to consider outsourcing, drove the second, strategic transformation from a Generalist Job Shop to the customer-centric Product House. In this model, IT customers can select from a catalog of highly engineered, configurable, productized IT services, which the IT organization has developed a capability to deliver. Most of the Fortune 500 IT organizations are currently in the midst of making this transition, defining their service catalogs, and implementing service delivery management systems around them. However, the early results are already in: those who have “productized” their IT delivery have reported a step-function improvement – up to 30% reduction in operations costs, 83% reduction in delivery errors, and 35% improvement in IT service levels.
3. Future Evolution to On-Demand Utility. The much-touted “on-demand” IT delivery model is really nothing more but a natural evolution of the “Productized IT” paradigm. To succeed in this third transformation step, IT organizations will have to mature their service catalog modeling, demand planning, capacity planning, and automated fulfillment capabilities. There is little doubt that this will result in further operational efficiencies and service quality improvements.

One of the IT execs in the Minneapolis roundtable raised an interesting question: For an IT organization that is just going through the organizational and datacenter consolidation today, does it still make sense to complete the “lift-and-shift” consolidation first, before beginning to transform the operational model from the “Generalist Job Shop” (building custom one-offs) into a “Product House” (delivering standardized configurable service offerings)? In other words, is it possible to consolidate and productize at the same time?

Just a few years ago, my advice would have been “No, it’s too disruptive and risky to perform such two critical changes at once.” A large petrochemicals company we worked with agreed with us two years ago that technology was still too immature to drive productization at the same time as they were in the midst of a massive consolidation drive, merging almost 400 datacenter operations of all sizes into thee global “megacenters.” To better manage this risk, the company chose the “divide and conquer” approach of starting with a “lift and shift” consolidation that introduced minimal disruptions into the operational model, and following that up with a strategic shift of the IT delivery model toward “IT Productization” around the service catalog. (With organizational and datacenter consolidation behind them, they recently started a company-wide global IT Service Catalog project.)

However, for companies going through this decision process today, the answer may be different. With the Service Catalog technology having come a long way in the last few years, it now makes sense to adopt the “IT Productization” delivery model from the outset, and manage other transformational initiatives (such as organizational and datacenter consolidation, process improvement, ITIL implementation, etc.) under its umbrella. The result is that the step function improvements in IT delivery associated with this transformation can be achieved faster.

At the end of the day, all agree: The Shortest Path to IT Productization lies through the Service Catalog.

Posted on April 29, 2005 | Permalink

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