Tuesday, March 03, 2015
PR 62 - How To Get The Money You Need For IT
Every Service Owner Is An Internal Entrepreneur
In this episode of Practitioner Radio, George Spalding and I are joined by our guest Dean Meyer, President of NDMA and the author of Internal Market Economics. During this podcast we discuss the criticality of understanding the principles of Service Costing and Investment Based Budgeting.
“To truly add value to the business – indeed, to survive – internal IT organizations need to be savvy about their financial and resource-governance processes. And to design effective processes, four distinct ITIL processes must be integrated. Here’s why….
The IT Industry is no stranger to change. Those changes typically come in the form of technology advancements, which prove “Moore’s Law” and revolutionize the technology landscape. Recently, many internal IT functions are facing a new type of pressure to change, one that has little to do with technology. With the rise of cloud computing and the growing sophistication and marketing prowess of the managed-services vendors, IT is competing to maintain its market share as business units shop IT services outside. To compete against the growing consumerization of IT services, internal IT departments need to move from a technology-centric focus to what is being called an “IT Services Organization.” The goal is not to establish IT as an arm’s-length business, but rather to move from simply a technology supplier to a strategic partner that understands business strategies and can communicate the strategic value of IT.
As a key part of this partnership, a competitive internal IT function must be able to demonstrate how business investments in IT are mapped to services and products which deliver business benefits and enable business objectives. Without this ability to map investment to outcomes, business clients see IT’s costs but may not appreciate its value, putting an internal IT function in an unfavourable light compared to external service providers. Essentially, this means running IT as a business within a business, with sound business practices like product marketing, account management, and financial management. The financial management of an IT Service Organization include practices such as publishing a catalog of services with costs, and negotiating a budget based on the costs of the services and products that IT is expected to deliver – an investment based budget. In short, IT must move beyond a discussion about what it does to what it sells.
To address these challenges, ITIL defines four process areas – demand forecasting, service portfolio management, service costing, and budgeting. In ITIL, these are four distinct processes. But to be effective, these four processes should be integrated in a single annual planning process.
- Introductions: Dean Meyer President NDMA and Author of Internal Market Economics
- Just back from Pink15
- The primary drivers for improving IT Financial practices especially costing and budgeting
- Investor’s need to be able to map their investment to outcomes otherwise you get resentment
- IT has a trust problem and we bring it on ourselves based on our budgeting practices
- Investment based budgeting: Budgeting based on outcomes rather than cost centers
- Many organizations use the bad process of “Rolling Budgets” - or + 10% of spend of last year
- Some organizations are moving to Service Based Costing but not Service Based Budgeting
- Key Book - Internal Market Economics
- For Key ITIL Processes (Demand Forecasting, Service Portfolio, Service Costing, Budgeting)
- Investement Based Budgeting: Service Portfolio -> Service Catalog -> Services Offerings ->Rates ->Budgets
- Demand Forecasting = Sales Forecasting
- Shadow IT = Loss of Internal IT market share due to trust and issues of perceived value
- To win back market share you need to become the vendor of choice
- Business Within A Business means running a Service Organization as vendor of choice
- Vendors of choice now what their services cost and price them according to value
- Shadow IT is a derogatory term based on competitor resentment
- Vendor of choice is impossible without understanding your costs and budgets
- Once we understand our costs we can create the financial governance processes required to run IT as a service organization
- Every manager in the IT Organization is an Entrepreneur (Service Owner) running a business within a business
- Service Demand comes from a variety of sources (business units, projects, corporate requirements, IT requirements, etc..)
- Service Structure: Prime’s and Sub’s - Example ERP Service supported by Network / Storage
- Internal Business Eco-system = Internal Market Economics
- How Money Flows (Wedding Cake) direct budgets, business unit bee for service, allocations
- No one gives you money to pay your costs, they give you money to buy services they value
- Internal Market Economics does not require charge back
- Internal Market Economics has two major sub-systems: Planning / Tracking
- IT must be seen as an investment not a cost
- Resources: www.fullcost.com
- Start with the planning process before you ever consider charging
George’s, Troy’s and Dean’s Thoughts What Are Yours?
“Beware of little expenses. A small leak will sink a great ship.” ~Benjamin Franklin
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Monday, December 29, 2014
PR 61 Optimizing Process Speed & Value Through Lean Value Stream Mapping
George Spalding and I discuss Lean Value Stream Mapping and how it applies to the adoption and adaption of best practice frameworks such as ITIL, COBIT, TOGAF.
When designing a new or improving an existing process, most people understand how to use standard tools such as process flows, a RACI Matrix and Swim Lane diagrams. However, this is not the final step in designing a process which is both predictable and optimized. The only way to understand how a process will perform and establish a baseline for predictability and speed of completion is to take it one step further to complete a Value Stream Analysis. In fact you can go as far as to say that without a Value Stream Analysis your process is at risk of being over engineered and bureaucratic. In this episode of PR Radio George and I go as far as to say that deploying a process without first doing a value and time analysis is irresponsible.
Join George and I as we discuss how it is critical to look at all process design through a Lean Fit For Purpose / Fit For Use Lens
George’s and Troy’s Thoughts What Are Yours?
For more information on Lean IT Education and Certification checkout Pink Elephant’s Lean IT Foundation Offering
“The most dangerous kind of waste is the waste we do not recognize.” ~Shigeo Shingo
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Sunday, September 07, 2014
PR 60 - The 3 Architectures of A Service Based Organization
Its Hard To Win When Playing With A Partial Deck
In episode 60 of Practitioner Radio George and I explore the reality that most technical focused IT organizations proactively govern and manage only 1 of 3 core architectures required to deliver, sustain and improve customer value. The predictable result of this scenario is that as an industry we struggle to deliver on our goals, suffer from poor customer satisfaction and are rapidly losing customer trust and market share.
The answer to this challenge is in part found in the realization that a Services / Outcome based Organization has to manage 3 Core Architectures to ensure that the services it provides are fit for use and fit for purpose now and in the future. Join George and I as we discuss what it really means to move from a Technology to a Service Based Organization mindset and competency.
- PinkFORUM14 Scottsdale Arizona
- Montelucia Resort
- PinkFORUM Leadership Focus - What does it mean to be a leader in a Service Based Organization?
- Topic: The 3 Architectures of a Service Based Organization
- Larger Principle of Architecture Governing, Managing Resources to achieve future state results
- Moving from a Technology based organization to a Service Based Organization
- What is a Service Based Organization?
- What is a Technology focused Organization? (Optimizing and Maximizing Technology Resources)
- A Services Based Organization is an organization that manages Services and their outcomes
- A Service Based Organization: An organization that defines themselves by the services they provide not the technologies they oversee
- Restaurant Analogy - Outcome Variations which define the consumer experience
- 3 - Architectures, (Technology, Service and Process)
- Process Architecture: Engagement, Strategy, Design/build, Run
- All 3 Architectures are already in place but a Technology Organization will not focus, govern, manage 2 out of the 3 architectures.
- Most organizations which adopt an Process framework never get much further than basic operations and move to production processes.
- What does “Were Doing ITIL Really Mean?”
- ITIL is simply a reference model against which we can assess and establish the potential for improvement
- ITIL typically comes in through the Operations side of the IT Function and It rarely moves further back into the lifecycle of Plan / Build due to limitations on Enterprise Governance
- The real constraint is politics and perception not that the process exists or not
- All organizations do all the processes in ITIL and beyond however the question is about their maturity and capability
- Process Architecture - Generic set of practices that any IT organization needs to gain and retain customers / marketshare
- Process Architecture is the set of generic practices which either differentiate me or preclude me from gaining future customers
- Restaurants which look great but have terrible service. No one wants to eat there!
- Tragedy: In design we plan / build with context and relationship. However, when we put it into production we let go of the knowledge of service architecture
- Any service organization has a process architecture (Engage, Requirements Generation, Plan, Build, Run)
- To not manage 2 out of 3 core architectures is trying to guess what my customers want on the menu
- Who owns this? (Super Chef vs Sou Chefs) - Accountabilities for each area
- Leadership - defining and driving accountabilities
- Gartner ISCO Services Organization
- B4B - Supplier Maturity Model
- All 3 architectures of potential for externalization
- The Big Switch - Nicholas Carr
- IT Service Outsourcing
- Just because I externalize a practice does not mean I relegate accountability
- We all have to have the same 3 sheet of music.
- What is not defined cannot be controlled
- What is not controlled cannot be measured
- What is not measured cannot be improved
- If we are blindly governing 2 out of 3 architectures we probably cannot expect to be in business much longer.
George and Troy’s Thoughts What Are Yours?
“Environment sets the context for everything else in terms of where you are playing.” ~Forbes
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