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Technology Business Management: Optimize Your Team to Manage Supply and Demand

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  • 1. Technology Business Management TECHNOLOGY BUSINESS MANAGEMENT EXECUTIVE SUMMARY This management summary condenses the second part of chapter two of Technology Business Management: How Innovative Technology Leaders Apply Business Acumen to Drive Value, an eBook published by the Technology Business Management (TBM) Council. It discusses the foundational roles and responsibilities required to optimize value creation and delivery under the services-based technology business models defined by TBM. These roles include service portfolio managers and service owners who help make our business partners successful and keep them satisfied with our services; business relationship managers and business process owners who define business value and manage demand; and IT finance professionals who provide financial analysis and advice to help optimize investments in our service portfolios. Optimize Your Team to Manage Supply and Demand Technology Business Management (TBM) is a practical, applied approach for maximizing the value received from every dollar invested in IT. At the core of TBM is the TBM Framework, a decision-making methodology that helps technology leaders and their business partners collaborate on optimizing how IT dollars are spent. The implementation of TBM often accompanies a broader transformation of an IT organization. As technology leaders, it is up to us to define a compelling and unique value proposition, determine the right technology business model, and establish an effective model for managing a service portfolio. However, although these objectives must be driven from the top down; they depend on distinct roles and responsibilities within an organization, which may not exist prior to making the transition to a services-oriented technology business model. In general, these roles fall into three categories • Supply-side roles such as service owners and service portfolio managers, who focus on optimizing the cost and quality of our services as a means of running the business more cost-effectively—core TBM disciplines discussed in the first management summary in this series. • Demand-side roles such as business relationship managers and business process owners, who focus on increasing the value of services to help grow and change the business through increased innovation and agility—also covered in the first management summary in this series. • IT finance professionals, who provide the financial expertise and analysis needed for informed decision making across both supply-side and demand-side roles. Other IT roles are also evolving to be more services- centric and value-aware, including those for technology procurement, capacity management, and enterprise architecture. Managing Supply: Service Owners and Service Portfolio Managers Service owners are similar to product managers at a software company. They are accountable for the success of their services, as defined by established key performance indicators (KPIs). Effective service owners: • Understand their markets, including customers and potential customers. • Create a clear value proposition for each service. • Monitor alternatives to existing services—both from a competitive perspective and as potential replacements for existing services. APPTIO | 1 Optimize Your Team to Manage Supply and Demand management summary
  • 2. Technology Business Management • Rationalize the resources (such as applications) that are used to deliver services. • Establish different service level packages (or tiers of service) to more cost-effectively meet the distinct needs of different business partners. • Manage the costs, budgets, and financial performance for services and service-level packages. • Set prices or rates for communication to service consumers (via chargeback or showback). Service owners own the entire life cycle of the service. Without this perspective, service owners will struggle to apply appropriate portfolio management discipline, especially with regard to making investments in new services and service packages and recommending that services be retired. Service owners also are responsible for improving the financial performance of their services, in effect moving them “to the right” in the service portfolio investment matrix (Figure 1). This includes right-sizing investments in each service. (Note: The service portfolio investment matrix is described in detail in the previous management summary in this series, entitled Technology Business Management: Build Your Foundation Based on Value.) In general, service owners are not responsible for the day-to-day operation and support of services. Instead, they work with other supply-side roles to ensure that services are performing according to expectations and commitments. Service portfolio managers work with service owners and business relationship managers (discussed next) to manage a service portfolio. Together, they set the strategy for delivering on the IT organization’s unique value proposition, which in turn should support the company’s business strategy. Service portfolio managers also define how service performance is measured and communicated, which may include the use of the following KPIs: • Service level achievement. This is defined as performance to service level agreements that have been negotiated with business partners. Components of such agreements can include service availability, incident response times, bug fixes and enhancements, measures of security and compliance, and so on. • Customer satisfaction. This is defined as the percentage of users who are satisfied with the service. This is often measured through periodic user surveys. • Unit cost reduction. This is defined as the decrease in per-unit costs for providing the same service (or essentially the same service) over time. Unit costs should decrease due to improved efficiencies, economies of scale, and other factors. Major enhancements may require a new baseline for unit cost reduction. • Service budget management. This is defined as whether the total costs for delivering the service remain within the quarterly and annual budgets for the service. This requires a services-oriented budget, which is often different than the budget managed in the general ledger. APPTIO | 2 Optimize Your Team to Manage Supply and Demand Figure 1. Service owners are responsible for improving the financial performance of their services.
  • 3. Technology Business Management • Service level “profit-and-loss”. This is defined as the difference between the cost of providing a service and the amount recovered from the business, or via comparison to third-party benchmarks such as external service providers or industry peers. • Investment portfolio alignment. This is defined as the ratio of spending in services according to overall investment goals, as determined through business- aligned classifications. This requires classifications of services, projects, and other investments according to global business capabilities, business strategies, and/ or other established targets. Managing Demand: Business Relationship Managers and Business Process Owners After services have been defined and their ownership established, the business relationship manager is responsible for linking the supply of those services with business demand. While service owners and service portfolio managers are accountable for the success of what we deliver, business relationship managers help make our business partners successful and keep them satisfied with our services by: • Liaising with business partners to understand their needs and business plans. • Working with service owners, enterprise architects, business process owners, and others to define and propose solutions to new business problems. • Communicating the business value and the cost of services in the service catalog. • Assessing and negotiating business demand for our services. • Identifying and addressing service-related issues by working with service owners, service managers, enterprise architects, and others. Business relationship managers are similar to the account managers of a services vendor. They listen to their customers (our business partners), understand their business plans and pains, and propose solutions. They also own the service catalog and identify the need for new services in the pipeline. In this regard, they also influence supply. Business relationship managers are authorities on demand patterns and trends. They serve a critical demand-management role by prioritizing what is most important for our business partners, communicating the cost of service choices, and helping close or defer low- value requests. Of course, they must remain mindful of technical and other supply-side constraints as they work to ensure customer success. Business process owners also play a key role in managing demand. They may reside in a shared services organization, where they are responsible for the design, implementation, continuous improvement, and promised benefits of their processes across the company. Because such processes are usually high-value and differentiated, business process owners should be paired one-to-one with service owners for the services that support their business processes. In such situations, service owners may not interact with business relationship managers, instead working directly with business process owners to provide the necessary linkage between the supply of services and the demand for those services by the business. Together, business relationship managers and business process owners are responsible for defining value and managing demand. At first, it may seem counterintuitive to make these roles responsible for defining value. However, value is a function of business need, and these roles are the essential bridge between our services and the business processes that they support. In this way, business process owners and business relationship managers are responsible for the business value and the demand dimensions of the service portfolio investment matrix—with the goal of moving investments to a position in the matrix that denotes the delivery of greater business value (Figure 2). APPTIO | 3 Optimize Your Team to Manage Supply and Demand
  • 4. Technology Business Management The following KPIs are applicable to business relationship managers and business process owners: • Service level achievement. This is defined as performance to service level agreements for all services provided to a business partner. • Business partner satisfaction. This is defined as the percentage of services for which the business partner’s end users are reporting satisfaction. • Business planning. This is defined as the percentage of services provided to a business partner for which a documented business plan and demand estimate exists. • Service budget management. This is defined as whether the total costs for delivering the service remain within the quarterly and annual budgets for the service. This requires a services-oriented budget, which is often different than the budget managed in the general ledger. • Business partner-level “profit-and-loss”. This is defined as the difference between the cost of providing services to the business partner and the amount recovered from that business partner. (This can be applied to both charging back for service delivery and performing showback.) • Project performance. This is defined as performance- to-plan for projects that are performed for the business partner. This should include projects that are delivered under agreements with the business partner, such as those included in professional services offerings. • Economic value added (EVA). This is defined as total profitability from the operations of a business unit from the perspective of the shareholder. (This KPI can be employed only if EVA measurements are supported by corporate finance.) IT Finance: Facilitating Business Decisions Traditionally, finance professionals within an IT organization have created and managed the IT budget within parameters set forth by corporate finance. They may also own IT asset management and procurement functions, including approval of purchases and tracking of assets. For many IT organizations, such responsibilities have been served by a controller-level function. To enable more meaningful decision making, an IT organization needs a CFO of IT—a true financial advisor for business decision making. This role must use many of the same techniques that corporate CFOs employ, such as activity-based modeling, business intelligence, portfolio analysis, cost restructuring, and opportunity cost management, all of which are essential to analyzing business value and thus to TBM. For many IT organizations, this will require upgrading tools and skillsets. This does not mean that every IT organization must have such expertise. Instead, many IT organizations will rely on corporate finance for this function. Regardless of specific organizational structure and roles, corporate finance and IT must align, work from the same source data, and employ consistent approaches to financial decision making. Other Roles Are Evolving We have focused our discussion so far on the roles that are deemed essential for managing supply and demand, which often do not exist in organizations that have not made the shift to a services-based model. However, other supply-side roles are evolving to become more services-centric and TBM- ready. These roles include: APPTIO | 4 Optimize Your Team to Manage Supply and Demand Figure 2. Business process owners and business relationship managers are responsible for maximizing the business value of services.
  • 5. Technology Business Management • Technologyprocurement. Intheshifttodeliveringservices, a category management approach for third-party sourcing is often more effective because it changes the focus from vendors to the needs of internal service providers. The goal of category management is to maximize the value of a product or service category by managing total costs, risk, operational performance, and so on—not just the purchase cost and quality of a technology. • Capacity management. After services are defined and their bills-of-materials are known, capacity management can be employed to accurately translate business plans to capacity requirements. As the costs associated with capacity-related decisions become more clear, service owners can work with capacity planners to more cost-effectively balance capacity- related risks with capacity-related costs. • Enterprise architecture. Enterprise architects also are becoming much more cost-aware now that service owners are holding them accountable for the costs associated with their architectural standards. As tradeoffs between the benefits of proposed architectural standards and the costs of adherence to those standards become more clear, enterprise architects can understand not only the impact on the enterprise, but also the impact to individual services. Combined with improved demand planning, this will help IT organizations to better measure the business value of proposed architectural changes. Next Steps So far, in this series of management summaries, we’ve discussedouruniquevaluepropositions,technologybusiness models,servicesandserviceportfolios,andfoundationalroles and responsibilities, all of which are essential to TBM. These foundational elements enable us to practice the disciplines of the TBM Framework: understanding and benchmarking true costs and performance, changing behavior through transparency, and planning with greater confidence. The roles and responsibilities we’ve described also directly relate to the decision-making capabilities of the TBM Framework in terms of optimizing both run-the-business and change-the- business investments. If you run a service provider or value partner organization, or if you’re working toward becoming one, evaluate the alignment and clarity of your roles and responsibilities. Do your service owners understand their role in optimizing financial performance? Have your service portfolio managers created an effective model for making investment decisions? Have you paired your service owners with business process owners to collaborate on optimizing their business processes? As Technical Advisor to the TBM Council, Apptio is committed to the continued development and adoption of TBM. Apptio has deployed its TBM software at more than 120 enterprises, including industry leaders such as Bank of America, Boeing, JPMorgan Chase, Microsoft, St. Luke’s Health System, and Swiss Re. If you’re interested in learning more about TBM or Apptio’s approach, Apptio can: • Introduce you to the TBM Council and/or connect you with TBM Council members. • Provide access to the TBM Index™, an interactive assessment for comparing your business practices to those recommended by the TBM Council. • Review your TBM Index baseline to help you create an accelerated TBM roadmap. • Show you how Apptio has helped innovative companies in your industry automate TBM to manage the cost, quality, and value of their IT services. To learn more, contact Apptio by visiting www.apptio.com/company/contact or sending an email to info@apptio.com. APPTIO | 5 Apptio is the leading independent provider of on-demand Technology Business Management (TBM) solutions for managing the business of IT. Apptio enables IT leaders to manage the cost, quality, and value of IT Services by providing deep visibility into the total cost of IT services, communicating the value of IT to the business, and strategically aligning the planning, budgeting, and forecasting processes. Apptio’s TBM solutions play a critical role in helping companies accelerate IT investment decisions, cloud initiatives, strategic sourcing improvements, and other key business initiatives. Global enterprise customers rely on Apptio® products and services to reduce costs and align IT with business priorities. For more information, visit the Apptio website or the Apptio blog at www.apptio.com. Optimize Your Team to Manage Supply and Demand