The global economic downturn has accelerated the need to reduce total IT cost through identification and elimination of wasteful operations and practices. At the same time, IT departments need to better define and implement streamlined processes for operations and also for proving how new projects begin and unfold.
Knowing the true cost and benefits of complex and often sprawling IT portfolios quickly helps improve the financial performance of how to quantify IT operations. Gaining real-time visibility into dynamic IT cost structures provides a powerful tool for reducing cost, while also maintaining and improving overall performance. Holistic visibility across an entire IT portfolio also develops the visual analytics that can help better probe for cost improvements and uncover waste.
Here to help us understand the relationship between IT, financial management, and doing more for less in tough times are two executives from HP. Please help me welcome Ken Cheney, director of product marketing for IT financial management at HP Software and Solutions. We’re also joined by John Wills. He’s a practice leader for the business intelligence solutions Group at HP Software and Solutions.
Listen to the podcast (36:11 minutes).
Dana Gardner: Ken, let’s start with you. We’ve heard for quite sometime that IT needs to run itself more like a business, to do more with less, and provide better visibility for the bean counters. But now that we’re in a tough economic climate, this is perhaps a more pressing concern. Give me a sense of what’s different about running IT as an organization and a business now versus two years ago.
Ken Cheney: Dana, the economy has definitely changed the game in terms of how IT executives are operating. I and the others within HP are hearing consistently from IT executives that cost-optimization, cost-containment, and cost-reduction initiatives are the top priority being driven from the business down to IT.
IT organizations, as such, have really shifted the focus from one of a lot of new initiatives that are driving innovation to one of dealing with situations such as how to manage merger and acquisition (M&A) processes, how to deleverage existing IT assets, and how to provide better decision-making capabilities in order to effectively control cost.
The landscape has changed in such a way that IT executives are being asked to be much more accountable about how they’re operating their business to drive down the cost of IT significantly. As such, they’re having to put in place new processes and tools in order to effectively make those types of decisions.
Gardner: Now, John, tell me about the need for better visibility. It seems that you can’t accomplish what Ken’s describing if you don’t know what you have.
John Wills: Right, Dana. That’s absolutely correct. If all of your information is scattered around the IT organization and IT functions, and it’s difficult to get your arms around, then you’re exactly right. You certainly can’t do a good job managing going forward.
A lot of that has to do with being able to look back and to have historical data. Historical data is a prerequisite for knowing how to go forward and to look at a project’s cost and where you can optimize cost or take cost down and where you have risk in the organization. So, visibility is absolutely the key.
Gardner: It’s almost ironic that the IT department has been helping other elements of the enterprise do the exact same thing — to have a better sense of their data and backwards visibility into process and trends. Business intelligence (BI) was something that IT has taken to the business and now has to take back to itself.
Wills: It is ironic, because IT has spent probably the last 15 years taking tools and technologies out into the lines of business, helping people integrate their data, helping lines of business integrate their data, and answering business questions to help optimize, to capture more customers, reduce churn in certain industries, and to optimize cost. Now, it’s time for them to look inward and do that for themselves.
Gardner: When we start to take that inward look, I suppose it’s rather daunting. Ken, tell us a little bit about how one gets started. What is the problem that you need to address in order to start getting this visibility that can then provide the analytics and allow for a better approach to cost containment?
Cheney: If you look at the situation IT is in, businesses actually had better management systems in place in the 1980s than the management systems in place today. The visibility and control across the investment lifecycle were there for the business in the 1980s with the likes of enterprise resource planning (ERP) and corporate performance management capabilities. Today, IT operates in a very siloed manner, where the organization does not have a holistic view across all the activities.
In terms of the processes that it’s driving in a consistent manner, they’re often ad hoc. The reporting methods are growing up through these silos and, as such, the data tends to be worked within a manual process and tends to be error-prone. There’s a tremendous amount of latency there.
The challenge for IT is how to develop a common set of processes that are driving data in a consistent manner that allows for effective control over the execution of the work going on in IT as well as the decision control, meaning the right kind of information that the executives can take action on.
Gardner: John, in getting to understand what’s going on across these silos in IT, is this a problem that’s about technology, process, people, or all three? What is the stumbling block to automating some of that?
Wills: That’s a great question. It’s really a combination of the three. Just to be a little bit more specific, when you look at any IT organization, you really see a lot of the cost is around people and around labor. But, then there is a set of physical assets — servers, routers, all the physical assets that’s involved in what IT does for the business. There is a financial component that cuts across both of those two major areas of spend.
As Ken said, when you look back in time and see how IT has been maturing as an organization and as a business, you have a functional part of the organization that manages the physical assets, a functional part that manages the people, manages the projects, and manages the operation. Each one of those has been maturing its capability operationally in terms of capturing their data over time.
Industry standards like the Information Technology Infrastructure Library (ITIL) have been driving IT organizations to mature. They have an opportunity, as they mature, to take advantage and take it to the next level of extracting that information, and then synthesizing it to make it more useful to drive and manage IT on an ongoing basis.
Gardner: Ken, you can’t just address new technology at this juncture. You can’t just say, “We’re going to change our processes.” You can’t just start ripping people out. So, how do you approach this methodologically? Where do you start on all three?
Cheney: IT organizations are going to be starting in multiple places to address this problem. The industry is in a good position to address this problem. Number one, as John mentioned, process standardization has occurred. Organizations are adopting standards like ITIL to help improve the processes. Number two, the technology has actually matured to the point where it’s there for IT organizations to deploy and get the type of financial information they need.
We can automate processes. We can drive the data that they need for effective decision-making. Then, there is also the will there in terms of the pressure to better control cost. IT spend these days composes about 2 to 12 percent of most organizations’ total revenue, a sizable component.
Dana Gardner is president and principal analyst at Interarbor Solutions, which tracks trends, delivers forecasts and interprets the competitive landscape of enterprise applications and software infrastructure markets for clients. He also produces BriefingsDirect sponsored podcasts. Follow Dana Gardner on Twitter. Disclosure: HP sponsored this podcast.