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Service Management In The Executive Suite – Part 5

Author by Randy Steinberg

This is part 5 of a running series on how to pull together key service management activities to support executive business decision making. Part 1 provided an overview of a 5-Step approach for pulling together actions and data for executive decisions. Part 2 addressed how to identify company services. Part 3 looked at how to apply service discovery and mapping, or “bill of materials” that support each of those services. In Part 4, we saw how to translate all this into service costs and unit costs. Here in Part 5 we’ll take a look at what to do with the information gleaned in the first 4 parts to develop a target IT strategy.

A quick recap of the 5-Step approach is below:

Step

Action

Outcome

1

Identify the portfolio of IT services

IT can communicate the services they provide to the business in business terms and what consumes those services

2

Map the IT infrastructure to that portfolio (Service Mapping)

IT can now relate the IT assets and infrastructure as a “bill of materials” for each service

3

Develop the service cost models by rolling up asset costs to each service

IT can now communicate the costs for each service

4

Assess the service delivery capabilities

IT has a solid handle around what service delivery capabilities they have and any significant gaps in those capabilities

5

Develop strategies to optimize service delivery and costs

Executives now have a strategy and business plan to optimize costs and improve service quality that is aligned and presented in business terms

The outcome of this 5th step will be to identify the desired service and cost improvements using the service and cost information built in the previous steps. This can be done by applying a technique called Lens Analysis to look for improvement areas. Identified improvement tasks will then be grouped into an inventory of desired improvement projects.

Developing the Business Case For Executives

Recognize that at the executive level, focus should be placed on outcomes not the means to those outcomes. If executives agree to those outcomes, then the service improvement projects become the vehicles by which they will be achieved. The outcomes in most cases will center on cost initiatives and concerns, sometimes risk, very rarely quality by itself. Although people talk a good game about quality and certainly everyone nods their head about it, rarely are checks written for quality by itself unless it leads to lower operating costs or risks.

Another area IT frequently misses the mark on with executives is focusing on IT total costs versus IT unit costs.  With this mistake, IT keeps focus on the total cost of computing (i.e. the IT expense last year was $400M) which management may view as too expensive totally missing the fact that the services and volumes that IT handles may have grown because of business events. Worse yet, this focus keeps IT viewed as an overhead in the eyes of executives. It’s quite possible (and highly likely) that ITSM can reduce unit costs, thereby allowing the business to do more at lower unit costs even though the total computing cost may be higher.

Selection of a return on investment strategy (ROI) to take with executives will be critical. Below is a table that identifies several strategies that can be taken as you develop your business case:

ROI Strategies

ROI Strategy

Outcome

 Examples

Cost Cutting

Eliminate and reduce IT costs for hard dollar savings

  • Unplanned labor costs for time spent on incidents, fixing bad changes, dealing with bad releases, etc.
  • Unplanned expenses such as those incurred for capacity shortfalls, staffing shortages to meet demand
  • Services being provided whose costs exceed their value i.e. delivering email at $3,000 per employee per year
  • Assets that lie unused or underused such as unused storage, servers with low utilization, unused data center space or low virtualization of hardware
  • Bad outsourcing deals, wasteful licensing arrangements, inefficient sourcing decisions

Cost Avoidance

Implement improvements that will result in lower delivery costs in the future than those that  would be incurred if not done

  • IT unit costs to deliver service XYZ are $3,000 per employee for 1,000 employees at a total cost of $3M
  • Headcount will grow to 2,000 employees by next year increasing our total service cost to $6M
  • Improvements will be used to lower our unit cost to $1,500 per employee – therefore the total service costs next year will be $3M for a savings of $3M

Cost Shifting

Shift costs from non-productive investments to productive ones

  • 87% of IS budget is typically funded for maintenance and support activities – if we improve our process efficiencies, and eliminate low value services we can reduce that to 65% and shift those savings into new projects or offer better services

Risk Mitigation

Mitigate operating risks that could lead to fines, penalties, bad publicity, loss of business, or customers choosing other providers

  • Use improvements as a means to implement a service “shield” or “buffer” between the complexities of IT service delivery and what the customers see and experience
  • Use improvements to meet regulatory requirements such as COBIT, HIPPA or SOX or to avoid penalties
  • Use improvements to reduce outages or improve the customer experience to avoid loss of those customers who may seek to get their services elsewhere

Piggyback

Find a major project or business initiative that is already funded that could use Service Management to guarantee success

  • Use improvements to support a major business acquisition
  • Cloud computing initiatives cannot succeed without some form of Service Management
  • Data Center move or consolidations
  • Large application development effort such as a new ERP system

Market Capture

Implement operating improvements to compete in the market place

  • Use Service Management to gain a competitive edge
  • Prove compliance to win a large contract or attract new customers – customers may specifically ask for Service Management practices on service bids and proposals

 

Pulling The Executive Business Case Together

Here are a series of steps that can be taken to pull your strategy and executive business case together:

  1. Gather desired business goals and priorities. These will be used as input and benchmarks for identifying and prioritizing improvement areas. It is not enough for IT to simply identify an area that could be improved. There needs to be a match against what the business is really looking for. Without this, IT will be funding efforts and projects that may not be aligned with business goals and priorities. Key inputs for identifying business goals and targets may come from items such as:
  • Published business goals
  • Business scorecards with targets
  • Prioritized project portfolios
  • Service agreements
  • Business Continuity Plans (for vital business functions)
  • IT goals and strategies already agreed to by the business
  1. Rank each service in your Service Portfolio to make sure that both IT and the business fully understand how services are positioned from a value perspective. This will be important when trying to select service strategies. One approach for doing this might be to put services into a quadrant like that below:

IT Service Ranking Example

Each service has been placed into a quadrant that distinguishes the value and contribution of that service to the overall business. The upper right quadrant shows services that may be directly bringing in revenue to the business organization. These services may imply a prioritized investment strategy. The upper left of the quadrant shows services that are not strategic but must be delivered to keep the business running. These services may imply a cost reduction and optimization strategy. Those services in the lower left of the quadrant may represent opportunities for cost reduction since they provide no value or are not needed. The bottom right of the quadrant identifies services that may be coming up in the future. These may represent early indicators of funding actions that may need to be considered for the future.

  1. Identify what improvements need to be made to services by using the output of the assessment findings and recommendations. A technique called Lens Analysis can be applied to identify what improvements may need to be made. This technique looks at each service with different views. These are:

Lens Analysis Categories

Lens Type

Description

Frustration

Service has low customer satisfaction levels with many complaints.

Labor

Service consumes an inordinate amount of manual labor to produce.

Speed/Time

Service operates slowly or is operating with a large backlog of work that is not acceptable to the business.

Cost

Service costs are unacceptable when compared with service revenue

Responsibility

Service may have multiple owners or providers that are hindering service quality.

Sourcing

There may be a desire to determine if the service is worth keeping in-house versus outsourcing to a 3rd party.

Accountability

Service may have multiple owners or providers that are hindering service quality.

Variation

Providers of the service are inconsistent in how they deliver or support the service. Variation typically leads to errors and has higher risks for outages, wasted labor and poor service quality.

Output Quality

Service may be producing output that is of poor or unacceptable quality. An example might be a trading system that continuously posts stock prices that are inaccurate.

 

Each service can be analyzed using the above lenses. The purpose of using the lens approach is to ensure that a broad mindset is taken as improvement actions are reviewed and finalized. It is not unusual to find multiple lens areas that may be uncovered when analyzing each service. As improvement opportunities are identified, they should be listed in an inventory.

  1. Prioritize the inventory of service and cost improvements that have been identified. It is highly likely that more improvement actions may be identified than can be acted upon by the IT organization. Therefore, a scoring approach should be used to prioritize which activities may yield the best benefits. An example of a scoring approach might look like the following:

Example of Scoring Approach

Area

Scoring Criteria

Points

Benefit

Will provide significant benefits or major risks exist if project not done

9

Will provide some benefits or moderate risk if project not done

3

Will provide little or few benefits and little risk exists if the project is not done

1

Cost

Carries low project costs e.g. < $50K

9

Carries moderate project costs e.g. $50-150K

3

Carries high project costs e.g. > $150K

1

Effort

Project can be completed in less than 3 months

9

Project can be completed in 3-6 months

3

Project may exceed 9 months in duration

1

Risk

Project has few or no risks in the way of success

9

Project carries moderate levels of risk for success

3

Project carries high levels of risk for success

1

For each project, determine a score (1, 3 or 9) for each criteria type (benefit, cost, effort and risk). As an example, in the Costs category, if project costs are low, score as a 9. If they are high, score as a 1. The 1, 3, and 9 ratings are a general example, but you can use something else if you desire. Next, sum the four values to get a total project score. Using this score, improvement projects can now be ranked by importance, value and contribution to the business.

  1. Ranking the Improvement Projects. Using the scores derived above, improvement projects can now be ranked by importance and contribution to the business. Scores can also be weighted by the importance of the contribution that the impacted service makes to the business.

Once the scores are ranked, they can be placed onto an overall portfolio chart that lists each project sorted by those that will provide the greatest value. This could look like the following:

Project Ranking Example

 

Executive management can now sort through these projects and make decisions on which ones they plan to execute at any point in time. Selected improvement projects can be laid out on an overall planning grid that could look like the following example:

Service Improvement Project Planning Grid Example

  1. Group efforts into strategic projects summarizing the prioritized inventory of service improvements. A high-level project charter and description of each project along with its estimated costs should be developed.
  2. Summarize the project information into an overall service improvement strategy roadmap. This should be reviewed and approved by the IT executive management.

Conclusion

A business organization must embrace the services it needs to provide and apply business practices to those services it delivers. Key benefits from applying the 5-Steps approach to developing strategy can be viewed as follows:

  • Cost transparency for services and optimization initiatives is visible to the business
  • Cost reductions can be determined that are in line with business goals and objectives
  • Investments can be determined that may improve IT service quality or help grow the business
  • The business can accurately guide IT priorities and investment decisions versus placing IT in the uncomfortable position of doing this and hoping the right decisions were made
  • IT projects and services are clearly linked to the business priorities and contribution areas which they support

Today’s challenges demand a service business approach towards managing IT. The 5-Step approach delivers a quick tactical means in providing cost transparency for IT to the business and in positioning senior IT leadership so they can articulate their services, costs and demand for how those services are being used.  It moves the IT-business discussion beyond ITIL processes towards service value and hard dollar savings using a technology neutral strategy and strongly serves as a starting point for any service management program.

Past use of the 5-Step approach has met with high satisfaction levels from Senior Leadership once they see the results. With this, they can see IT as a series of investments in valued IT Services. Their decision making is how to best manage and balance this portfolio, where to prioritize service investments and predict how business decisions can impact the IT spend.

 

Author

Randy Steinberg

ITSM Process Architect