Technology Business Management
This management summary condenses the firs...
Technology Business Management
Consider a simplistic value chain for a technology-enabled
business process, as shown in th...
Technology Business Management
TBM is equally applicable to the business driver model,
even though it falls outside the do...
Technology Business Management
We recommend a qualitative approach, in which your services
fall into one of three business...
Technology Business Management
help identify those services that are consuming large
investments yet are failing to delive...
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Technology Business Management: Build Your Foundation Based on Value


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Technology Business Management: Build Your Foundation Based on Value

  1. 1. Technology Business Management TECHNOLOGY BUSINESS MANAGEMENT EXECUTIVE SUMMARY This management summary condenses the first 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 examines how the implementation of TBM often accompanies a broader transformation of an IT organization, positioning it to be a better business partner. This requires the organization to define a unique value proposition, deliver services aligned to that value proposition, and manage those services as an investment portfolio. Build Your Foundation Based on Value 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. Relying on transparency in cost, quality, and demand for technology services, the TBM Framework enables key stakeholders to “speak the same language” in determining the tradeoffs needed to optimize run-the-business spending and change-the-business investments. The TBM Framework is built on a foundation that defines our technology business model, the services we provide, and the roles and responsibilities essential to optimizing value. But to define any of these, we must first define our value proposition. This is essential because the value we promise to deliver drives our technology business model and how we define our services, refines what we should expect from our TBM-related decision making, and determines what constitutes success or failure for our technology organizations. Many technology leaders, corporate leaders, and business partners mistakenly assume that their technology organization’s value proposition should mirror their corporate strategy. Such thinking stems from failing to understand or communicate how technology will help the business succeed. Instead, your value proposition must clearly articulate how you will enable your business to execute on its corporate strategy. Your value proposition must also be truly unique. You may possess strengths in safeguarding customer data, be in a position to deliver end-to-end services needed by the business, or be able to deliver custom business applications based on an intimate knowledge of your business and customers. If you have such advantages, you should use them to define your unique value proposition. Asking your business partners the following questions can provide additional insights: • Why do you source services from my organization and not a third party? Why not build or source your own technology-enabled services and applications? • What do we provide that you cannot get elsewhere? What is unique about the services we deliver? • How do we help you execute on your corporate strategy? Do you consider us a business partner or a service provider? Your Technology Business Model Depends on Your Value Chain TBM identifies four technology business model archetypes based on organizational focus and business value. These elements are highly correlated: an internal focus with an emphasis on assets and costs creates little unique business value, whereas an external focus with an emphasis on delivering business services and capabilities creates substantial unique business value. APPTIO | 1 Build Your Foundation Based on Value management summary
  2. 2. Technology Business Management Consider a simplistic value chain for a technology-enabled business process, as shown in the center of Figure 1. In this value chain, business value is created in four layers: • We start with resources that we procure, such as hardware, software, labor, and facilities. • We deliver technology services by using our expertise to combine and deliver these resources. • We deliver business services by adding value to these technology services through consulting, training, custom development, and so on. • Finally, we deliver business capabilities by using these business services to generate revenue, reduce costs, increase productivity, or otherwise improve corporate performance. Along the left side of the graphic, you’ll find the corresponding technology business model archetypes: • ExpenseCenter.Thismodelischaracterizedbyafocus on cost containment and a lack of service orientation. It is the least connected to business demand and is usually funded as a percentage of revenues, based on headcount, or through a baseline budget adjustment. • Service Provider. This model is characterized by the introduction of a services portfolio and is well suited for shared services organizations that must serve the needs of multiple business constituencies. Service providers are often funded through chargebacks for services (or centralized budgets) that are based on the amounts and qualities consumed by business partners. • Value Partner. This model is characterized by an external focus. It requires becoming a trusted business partner, which can be achieved by establishing a governance program that enables alignment of your IT investment portfolio to business goals; conducting regular reviews that differentiate your services and articulate their unique value; delivering complementary services (such as business process analysis) that demonstrate your organization knows the business and not just its technology; and meeting agreed-upon service levels and other core requirements. • Business Driver. This model could be considered the one that is not IT. Instead, these organizations truly are the business—that is, the products or services delivered to external customers are largely based on business technologies (think Facebook, Google, and Which Model Is Right for You? The expense center model is from an era when technology was less crucial to corporate strategy, and is inappropriate for any organization that desires to be a valued part of the business. For leaders of such organizations, the service provider model is an excellent start toward the delivery of greater value. However, this may only be a step in the right direction, as service providers are increasingly at risk of being replaced in whole or in part by external providers. Value partner is the least dispensable model for a traditional IT organization. At this level, you have earned a seat at the table alongside your business partners by demonstrating customer intimacy and business acumen that, in turn, enable you to deliver substantial unique business value. APPTIO | 2 Build Your Foundation Based on Value Figure 1. Simplistic value chain for a technology-enabled business process.
  3. 3. Technology Business Management TBM is equally applicable to the business driver model, even though it falls outside the domain of traditional IT organizations. Many TBM Council members represent such organizations, which still provide excellent examples of practices that should be applied by more traditional IT organizations, such as a services orientation and a clearly defined unique value proposition. The TBM eBook provides an interactive tool to help you decide which technology business model applies to your organization, along with the ability to compare your answers to those of your industry peers. It can also help identify potential issues that may prevent you from being effective in your chosen model. Maximize Business Value with Your Services All of the “appropriate” technology business models— service provider, value partner, and business driver—dictate a services-based approach, which begins with carefully defining a portfolio of services. This is important because the services we provide and the way we deliver and support them determine our value to the business, drive our resource and skillset requirements, and dictate our cost structure. Does this mean that Technology Business Management relies on defining our services? Not entirely. The disciplines of TBM, such as understanding and managing true cost and quality, have been adopted by organizations that have not developed a service catalog. However, it is often difficult to link those technology decisions to business outcomes without a services orientation. Defining Your Services In our simplistic value chain, we differentiate technology services from business services. But what’s the difference? Delivering a business service is characterized by collaborating with business partners to improve a business process. It depends on a degree of business intimacy that is not required for delivering technology services. Delivery of a business application is a good example. Almost any technology provider, with little or no knowledge of our business processes, can deliver and support a business application as a technology service. However, by collaborating with business partners to understand their processes and drive continuous improvement as an integral part of delivering and supporting the application, we can deliver a higher-value business service. Regardless of whether a service falls into one category or the other, we can add value to it in several ways: • Designing and packaging the service, including negotiating and documenting service levels. • Sourcing the required resources in a manner that balances cost, quality, and sourcing-related risks. • Costing and pricing the service, which enables you to optimize unit costs and advertise your rates to your business partners to influence demand. • Assessing demand by collaborating with business partners to translate business plans into resource requirements. • Supporting and monitoring the service to ensure that business partners and end users receive the agreed- upon value and thus remain satisfied. • Billing or charging for the service based upon negotiated rates, consumption, or other factors. The TBM eBook provides an interactive tool to help you clarify which services your organization provides and the activities you perform to add value for each service. You can use the tool to evaluate how your services map to your technology business model, identify discrepancies that may inhibit value delivery, and compare your answers to those of your industry peers. Assessing Service Value Based on Business Strategy After you’ve defined your services, you should assess them based on their value—that is, based on how well they help your business partners execute on their business strategies. APPTIO | 3 Build Your Foundation Based on Value
  4. 4. Technology Business Management We recommend a qualitative approach, in which your services fall into one of three business value categories: • Differentiator.Theservicesupportsbusinesscapabilities that significantly contribute to a competitive advantage. The service itself is unique and is difficult for competitors or external service providers to replicate. • Advantageous. The service supports business capabilities that provide a competitive advantage, but the service itself is not unique or difficult for others to replicate. • Essential. The service supports needed business capabilities that do not provide a competitive advantage. Managing Investments in Services as a Portfolio Investing in services based on their contribution to business strategy means that we must manage them as a portfolio— much in the same manner as an investment portfolio. The goal is to maximize the collective benefits provided by your portfolio investments while managing risk through diversification and tradeoffs. This requires deciding how to invest and how much to invest in each service, which is accomplished by working with business partners and other stakeholders to ask the following questions: • What business value do we expect from each service? How does each service fulfill our unique value proposition and contribute to our corporate strategy? • For differentiator services, what are the goals of our continued investments? Should we increase or decrease our investments in each of them? • Are our services cost-effective? What changes can we make to improve the economics of delivering services? Should we outsource certain services or certain parts of a service? • Should we rationalize essential services to free up investments for new services, improve other services, or lower the cost of the portfolio? • What services are needed to satisfy new business requirements? TBM uses a service portfolio investment matrix (Figure 2) to help quickly assess a portfolio, communicate with business partners, and drive investment decisions. By plotting each service on the matrix according to its business value and financial performance, we can place each service into one of four primary categories: divestment candidates, subsidizers, loss leaders, and top performers. (Financial performance can be assessed by using techniques such as activity- based costing, unit cost benchmarking, cost recovery, and comparing costs to similar services from external providers.) The matrix also captures two additional attributes for each service: demand profile and life-cycle stage. Growing or declining demand for a service indicates business adoption and has capacity implications. Similarly, by showing whether a service is in the process of being developed or is being retired, the matrix indicates potential changes in available funds. By providing this information, the service portfolio investment matrix intuitively facilitates planning and decision making. For example, when used during value- based conversations with business partners, it can APPTIO | 4 Build Your Foundation Based on Value Figure 2. TBM service portfolio investment matrix.
  5. 5. Technology Business Management help identify those services that are consuming large investments yet are failing to deliver unique business value. The matrix can also be used to help decide whether to move services up and to the right in the matrix, reduce investments in those that cannot be moved, and retire services that are not driving value. The service portfolio investment matrix is an important tool. However, its impact on business value depends on our ability to make and execute the decisions it helps facilitate. In other words, properly managing our services portfolio depends on our people—a subject we’ll cover in our next management summary. Next Steps Using the tools provided in the TBM eBook, work to create or clarify your unique value proposition and devise a plan to deliver the right services. Meanwhile, bear in mind that TBM applies to three of the four technology business models. The essential ingredient is your services. If you currently operate as a service provider or are working to become one, TBM can help you define or refine your services and deliver greater unique business value. 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 or sending an email to 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 Build Your Foundation Based on Value