They establish clear incentives and reward programs that motivate good behaviors from IT staffers and business-unit partners alike. This database includes skill sets represented in the IT organization, individuals’ experience with certain types of technologies or within certain business domains, and other useful information that can aid in decision making. Technology Business Management is a value-management framework instituted by CIOs, CTOs, and other technology leaders. Founded on transparency of costs, consumption, and performance, TBM gives technology leaders and their business partners the facts they need to collaborate on business aligned decisions. Those decisions span supply and demand to enable the financial and performance tradeoffs that are necessary to optimize run-the-business spending and accelerate business change. The framework is backed by a community of CIOs, CTOs, and other business leaders on the Technology Business Management Council.
A finance organization needed an automated way to allocate and invoice shared services costs across 20+ globally dispersed business units. The current process required subject matter experts to spend a wealth of time maintaining, editing, and generating shared cost allocations. The complicated Excel worksheet used to facilitate the process lost its usefulness and became so complex that only a few resources had complete command of its pivot tables, macros, and formulas.
Benefits Of Tbm
Up until now, most IT operating cost reduction measures stayed around the fringe of the current cost structure, unable to make significant sustained reduction due to high numbers of vendors on locked-in contractual arrangements. When the topic of IT cost transformation is discussed and governed within the IT department only, the risk is high that it is treated as a list of one-dimensional cost levers only. Without partnering with the business to truly tie the values and services provided by technology investments, https://globalcloudteam.com/ IT department will find it hard to pivot out of the defensive corner into a strategic business enabler. IT should move beyond being a simple service provider and order taker required to seek efficiencies. Cost reduction exercises should be a joint effort between the CIO/IT executives and the CFO and Business Executives. All exchange of documents becomes automatic, including requisition, order confirmation and invoice validation such as reconciliation against purchase orders, payments plans and receipts.
These metrics are communicated throughout the company, so that performance expectations are shared and transparent. For instance, a company could mandate that full-time employees in the IT organization meet threshold productivity standards to control IT costs. More than ever, as COVID-19 has accelerated the pace of digital transformation, the role of the IT organization has been put under the spotlight, to pivot from that of defensive position to that of business and strategic enabler. The opportunity is ripe for IT organizations to create some fundamental shifts in IT cost structure, governing IT cross-functionally and increasing collaboration with CFOs and the business while reducing a high dependency on 3rd party providers.
Imagine a product catalogue that does the ordering for you (either straight to the vendor’s system or via email), recording the goods receipt along the way. The RPA cross-examines the receipt against other orders and invoices, and applies preconfigured rules to make sure the transaction is approved or not. Not only does this example make the invoicing process smoother, it makes it transparent, which reduces stress, error and improves lines of communication.
Automating Cost Transparency
The highly efficient organizations in our benchmark also boast flat structures; they use collaboration technologies rather than managerial hierarchies to disseminate information. They tend to increase the span of control given to IT managers; on average, more than 15 people report to each IT manager at these companies, compared with between 5 and 10 people per IT manager at less efficient companies. Within these flat organizations, managers focus on coaching their teams but also strive to keep themselves up-to-date as technologists.
Technology Business Management is an IT management framework that implements a standard IT spend taxonomy. TBM enables organizations to disaggregate IT spending into smaller, consistent categories to provide CIOs and other C-suite executives with a more accurate and detailed understanding of their organization’s IT costs. This allows CIOs to identify duplicative or unnecessary spending and to make better informed decisions regarding future investments.
In the long-term, these have strategic implications for organizations that lack the required skill set to pivot IT from a defensive to a strategic enabler position to support growth and new revenue models. In Japan, within large IT user companies, IT services are still mostly perceived more as a cost center, and less as a business value generator. A serious skills shortage also adds to the challenge of making the internal IT organization sustainable, cost effective and innovative. As a result, a large number of organizations adopt a common approach to outsourcing to 3rd party providers as a measure to control cost and de-risk. Every company recognizes the need to be strict about costs—particularly when it comes to vetting, sourcing, and implementing the wide range of technologies required to conduct business in the digital era. And not every senior leadership team takes the time to define clear metrics or mechanisms for ensuring that IT costs are being regularly reviewed and controlled.
Together, these measures will enable a more sustained approach to IT cost transformation that likely lasts beyond the current crisis and can convert the rusted IT department to a strategic business partner. Most conversations regarding IT cost reduction are still happening at the IT service layer, for example, license optimization, cloud infrastructure uplift, consolidation of network service contracts etc. Very few organizations can conduct this type of conversation in a language that is more business-outcome-focused. This requires a highly mature IT financial management and allocation structure that regularly helps communicate the value of IT to business, and conversely the impacts to customers, and the business, by function, by service level, if cost levers are pulled.
The time and effort it takes to make the P2P process run smooth is exhausting, and the byproduct of this is lack of transparency and effective communication. When IT cost transformation is set up as a discrete one-off initiative, the risk is that it is typically driven top-down, requiring high upfront activities to align while at the same time will be quickly outdated. This pattern is particularly prevalent in times of crisis, where there are very specific mandates to achieve a cost saving target. Considering the domestic Japanese landscape, contrasting the local trends with those in other markets, Strategy& has observed three key challenges/ anti-patterns to addressing sustained IT cost transformation impacts in Japanese market. Whether you need help analyzing the true cost of the cloud, optimizing your technology spend, or communicating IT’s value to the business, Apptio can help.
Firstly, the operational cost is high, whether it is to maintain a custom built solution on COBOL, or vendor negotiations with 3rd party providers on long term lock-in, outsourcing contracts are costly compared to the level of service provided. This in turn can lead to an IT operating cost structure that is highly fixed and difficult to flex to future changes in business demands. However, overemphasis on short-term wins risks missing the long-term opportunities in bold strategic bets that deliver long-term IT cost transformation. A short-term focus could lead to a vicious cycle of degraded IT quality, agility and flexibility of IT capabilities leading to a greater perception that the IT function does not deliver value and is not a true business partner. If not planned carefully, IT organizations might find themselves in a difficult situation, with limited runway to grow and play offense after a sustained period of defensive cost reduction. Maryville Consulting Group responded with an enterprise business management solution built on the market-leading, cost transparency platform, Apptio.
We built the cost distribution model, generated reports, and automated the creation and distribution of invoices. The less efficient companies in our research tend to adopt industry-standard technologies only when there is competitive push to do so. The highly efficient companies, by contrast, actively participate in standards-making organizations and bodies, and they incorporate industry standards within their IT architectures as early as possible. In these ways, they foster compatibility with external partners’ systems and can avoid the need to make significant changes as existing systems age. Again, in agile work environments, where delivery times are expected to ramp up significantly, such adherence to standards becomes even more critical.
It Seen As A Defensive Necessity In Japanese Organizations
He already has a list of cost optimization initiatives that includes application rationalization. These initiatives would serve the business’s interests far better than delaying the portal project . Another dimension to this highly fixed IT cost structure is the over-reliance on heavily customized packaged solutions. Domestic Japanese organizations have traditionally favoured highly customized package solutions or even custom-built software to tailor to their unique business needs. This approach has had significant impacts to the IT cost structure in two fundamental ways.
- This prevents business leaders from understanding how best to work with IT, what kinds of resources are available, and how to gain the most value from the relationship.
- Technology Business Management is an IT management framework that implements a standard IT spend taxonomy.
- This is particularly poignant in the Japanese market, where the role of CDO/ CIO, while on the rise, only exists in a small number of organizations.
- The likes of Basware, Kissflow Procurement Cloud, Automation Anywhere, Stratas and our good selves here at Aito offer solutions to help ease the complicated nature of the P2P process.
- All exchange of documents becomes automatic, including requisition, order confirmation and invoice validation such as reconciliation against purchase orders, payments plans and receipts.
- This pattern is particularly prevalent in times of crisis, where there are very specific mandates to achieve a cost saving target.
- They tend to increase the span of control given to IT managers; on average, more than 15 people report to each IT manager at these companies, compared with between 5 and 10 people per IT manager at less efficient companies.
When IT executives are pressured to reduce their IT budget to meet targets, they often first turn to short-term IT cost cutting to yield immediate results. Traditional IT cost responses in this category include postponing IT initiatives in the pipeline, freezing recruitment, reducing contractor engagements, and lowering service levels. As a result, most large enterprises are still grappling with the cost burden and operational complexity of managing legacy IT assets. Once deemed a competitive advantage, providing an integrated solution between business operations and customer interactions, most of these systems have now become a technical debt burden. Often monolithic in nature, with a tightly coupled architecture, legacy IT systems bring two major cost-related challenges. There are so many people involved in the P2P process that human error has to, by rite of passage, crop up now and then.
Centralize Cost Management And Identify Key Performance Indicators
Additionally, the client was challenged to send and receive service invoices and business unit expenses in 20 different currencies. Each business unit wanted a more detailed view of their costs, but there was no way to efficiently accommodate their needs. Finally, the highly efficient companies in our benchmark were likelier than the other companies to have deployed virtualization across servers in all business units and functions. As companies collect more customer information and need to transmit it in real time across applications, they require more storage and computational power.
Antipattern 2: Approaching It Cost Initiatives Within The Silo Of The It Organization Only, And Not A Company
To capture value from the five core capabilities highlighted by our benchmarking work, companies must explore an integrated set of operating-model changes, not just isolated initiatives to close individual gaps. True breakthrough efficiencies typically occur only with a combination of best practices in all five areas. For instance, strict cost controls, effective sourcing approaches, and IT demand-management practices have made it less expensive for some highly efficient IT organizations in our benchmark to run their infrastructures. They routinely inform internal customers about the cost to meet their demands for IT service.
Mass It Outsourcing Trend And Implications For The It Cost Structure
Apptio Cost Transparency provides a unified view of IT financial and operational data to identify optimization opportunities, optimize application costs, rationalize your portfolio to unlock resources for growth. Companies’ relationships with IT suppliers are critical for ensuring efficient, reliable operations. These relationships can be difficult to maintain, however, when expectations on both sides are miscommunicated. IT buyers often struggle to understand how to set realistic objectives and incentives; how to balance multiple priorities relating to cost, efficiency, quality, and innovation; and how to structure governance arrangements to benefit both sides. There has been anecdotal evidence but little data-backed evidence on what creates the greatest efficiencies in IT organizations.
Create A Transparent View Of Costs
In many of the less efficient companies in our research, the IT strategy is formulated with only limited or periodic input from the business units or functions. This prevents business leaders from understanding how best to work with IT, what kinds of resources are available, and how to gain the most value from the relationship. By contrast, the highly efficient IT organizations in our benchmark constantly and actively engage with the business unitsand functional leaders on how IT can improve business processes or customer experiences. IT strategy is formulated in close cooperation with the business units through formal governance structures and processes, and with adequate representation from critical IT and business stakeholders. The highly efficient companies in our benchmark view sourcing relationships differently from the less efficient companies. They believe the sourcing relationships give them opportunities to learn about new technologies and frameworks that are relevant to the business or their industry.
Over a five-year period between 2010 and 2014, we collected data from 164 banks and 97 telecommunications companies worldwide. Increasingly, they have faced significant competitive pressures to digitize products, processes, and customer experiences. Cost optimization initiatives offer a wide range of potential value that generally reflects the accompanying complexity and risk. For example, optimizing procurement processes is relatively straightforward, but offers low to moderate value. Launching the next big customer innovation or implementing cost-savings technologies with the business will be more difficult, but generally offer more potential value.
Part of their job is helping all parts of the business understand that while IT cost optimization includes cost-cutting, the focus should be on eliminating low-value activities. As a CIO, engage business leaders to ensure that optimization reflects business priorities and that you’re looking at IT costs in the context of end-to-end business processes. Nhu Le is a manager at Strategy& with over 10 years of advisory experience across Australia, Hong Kong, Japan and Malaysia markets.
In the highly efficient companies, there are clear incentives for the business units to monitor and continually improve their demands for IT resources. Some of the companies in our benchmark, for instance, employ usage-based pricing for IT services, rather than fixed prices. That way, the business units can pay less in chargebacks when they consume less than the amount budgeted for IT services.
Mapping The P2p Process With Automation
From sourcing through contract negotiation, purchasing, receipt of goods, invoicing and analytics, people-powered manual processes are rife. Drive conversations and collaboration between IT and Finance about the costs, utilization, and operations of all IT Services. Look for insights” Now that you have started mapping your data, where does that data lead you? Focus on examining the data to see how it provides insights into issues or benefits around the identified outcomes.
To that end, they attempt to develop a shared understanding of outcomes—for instance, taking the time to consult with key internal stakeholders as well as IT suppliers about desired goals and “beyond cost” opportunities. They focus on the long-term opportunities presented by the sourcing relationship—for instance, the ability to partner with IT suppliers on innovative projects—and devise win–win contract mechanisms. As we mentioned earlier, the highly efficient companies encourage the conversion of high-tenure contractors to full-time internal it cost transparency staff, and they establish incentives and talent strategies to make this path possible. In response to the widespread digitization of products and processes and end users’ growing expectations for always-on data and services, IT organizations must look for ways to move faster. Release cycles are getting shorter, which puts an even greater premium on IT efficiency and precision execution. Many of the highly efficient companies in our benchmark are responding by deploying agile-development methodologiesand continual-delivery systems.
They implement chargebacks in ways that create incentives for business units to clarify requirements, and they negotiate contracts with vendors that align interests and assure joint commitment to productivity-driving innovations. They have improved their time to market and the quality of their decision making, while devising clear road maps to deliver new business and IT capabilities. What’s more, they are boosting their odds of success with digital transformations that may be critical to business survival. Indeed, they are realizing a substantial efficiency dividend and then reinvesting that in their most critical priorities. We believe that many players operating at lower efficiency levels can capture this same prize by focusing their attention on the right levers. Related to the need for strict cost management is the need for IT and business units to have a clear and shared understanding of business-unit and functional priorities, ranked according to their contribution to business success.
They do not natively support the speed, sophistication and agility required by the business at the right price point and rely on formal relationships. The outsourcing arrangement during the build stage often gets further complicated with multiple vendors and subcontractors. Used prevalently in multi-staged waterfall-style project management methodology, the subcontracting approach emphasizes scope and cost control, at the expense of agility and adaptability. The clever companies, on the other hand, will adapt to change by applying RPA to inefficient processes, not merely painting over the cracks in the plaster but replastering the wall itself. The likes of Basware, Kissflow Procurement Cloud, Automation Anywhere, Stratas and our good selves here at Aito offer solutions to help ease the complicated nature of the P2P process. What we can’t control is the risk of post-pandemic apathy, where companies revert to doing what they’ve always done.