CIOs have long struggled to quantify the value of IT services relative to production costs, a financial black box that sows distrust between the tech department and business divisions. As IT implements additional digital capabilities in service of the business, this disconnect is widening, inspiring more CIOs to embrace technology business management (TBM), a discipline aimed at documenting the value of IT services.
“Technology business management as a discipline supports the Elite CIO by enabling a single, transparent view of technology costs, consumption, and performance across the enterprise,” according to research published in October by KPMG CIO advisory practice leader Jason Byrd.
TBM isn't new. CIOs have built large spreadsheets to document the operational efficiency of an IT service, such as time saved and expenses reduced, alongside what it cost to produce the service. If a business peer asked for the information, CIOs share the corresponding spreadsheet. But the share-a-spreadsheet model is hardly sustainable in an era where business executives expect to view metrics and charts from a single digital pane of glass.
"Five years ago, we had a bead on our expenses, but they were locked in spreadsheets and only understood by myself and a financial analyst," Gerry Imhoff, senior vice president of global IT services at Maritz tells CIO.com. This ad-hoc method made it impossible for the business to "consume the data," fueling tensions between IT and Maritz's business.
Imhoff and CIOs from enterprises such as Federal Express, Cisco Systems and several other leading brands have turned to SaaS (software-as-a-service) analytics that automates TBM, eliminating the onerous task of typing financial metrics into a spreadsheet and hoping the business doesn't ask for the data. Using SaaS software from Apptio, CIOs such as FedEx's Rob Carter have shaved hundreds of millions of dollars by eliminating redundant and legacy technologies, part of a broad application rationalization project that had grown unwieldly.
Fresh off a customer conference in November, a few of Apptio's customers recently shared their experiences with CIO.com.
‘We suck at IT’
IT was no friend to the business when Imhoff began running IT for Maritz, which builds customer loyalty programs, such as credit card points, and other marketing services, five years ago. For years, IT had operated as a shared services organization at Maritz, making technology decisions for business stakeholders, and providing little choice. Business stakeholders complained that the IT department was expensive, offering little material insight into the value for their money. "Our approach to our customers really sucked," Imhoff recalls. "We were on the bullet train to irrelevancy."
Imhoff took a new path after Maritz founder and CEO Steve Maritz opted to decentralize IT and put more control in the hands of the business. But there was a catch: a mandate for Imhoff to reduce IT costs by 35 percent. So Imhoff implemented Apptio's software to help rein in costs and show results. Apptio helped Maritz cut 40 percent of its IT costs, showing, for example, that a business unit didn't need a new server when it could put new workloads on existing servers, or that another group could save money by moving data to cheaper storage. Another group agreed to move its data off a costly mainframe after two peer groups saved money by shuttering the mainframe themselves.
"Apptio put information in the hands of the people responsible for spending and budget," Imhoff says. “It enabled us to change the conversation with our businesses.” Imhoff says he cut over US$20 million from IT expenses, which Maritz used to fund acquisitions and refresh a legacy platform. Imhoff followed the initial savings by trimming an additional 5 percent, or $3 million in IT costs, which he then reallocated for spending on cybersecurity.
"It's really great when you don't have to go to the CEO or the CFO and say, ‘I need an additional $3 million to bolster cybersecurity,’" Imhoff says. "And you can say, ‘I'll self-fund it.’"
Using TBM to swing the pendulum
In 2012, Chevron’s Amy Absher was feeling pretty good. Business was booming and the company was hiring across the board. Moreover, the Chevron general manager of technology, strategy and services had delivered over $1 billion in transformation value after winnowing applications from 14,000 to 5,000 and reducing the energy giant’s project portfolio by 30 percent.
But as it happens so often in the cyclical oil and gas sector, the pendulum swung the other way. The market turned and IT costs rocketed. Absher, acting on a tip from then Cisco CIO Rebecca Jacoby, elected to use Apptio to improve the transparency of IT costs and services consumed. “She painted a powerful picture of a management system to manage the upturns and downturns and give us transparency and a system of accountability,” Absher says of Jacoby.
Absher first installed Apptio in Chevron’s central IT unit, which governed large-scale utilities and ERP systems, before applying it to embedded IT groups at the edge, which were focused on generating innovation to support growing business demands. In 2014, Chevron built its first chargeback model to show the costs of IT services, hardware and software to the business unit in which they are used.
“Our biggest priority was improving transparency and being able to have more productive conversations about billing and recovery so people can understand the cost of what they were consuming,” Absher says. Eventually, Absher hopes Apptio will help Chevron analyze the costs of an entire service rather than simply the IT component.
Fiscal transparency through SaaS-based TBM
TBM is old hat for Greg Morrison, CIO of $20 billion Cox Enterprise Group, which operates automotive, cable and media businesses. In the 1990s, Morrison began using TBM in a prior role at Prudential, where he learned the importance of cost transparency while providing shared IT services to the business.
Morrison brought the same discipline with him to Cox, where he became CIO in 2002 and opted to build his own shared services model. TBM was manual and spreadsheet-based. He created a taxonomy to align value with IT services and worked through the challenges of allocating all of the costs associated with the service catalog.
“We did it that way until Apptio came into being,” says Morrison, adding that he was an early adopter of the SaaS app. He says the software allows Cox to benchmark IT costs while saving time and people resources. But it also enables he and his business peers to decide whether it makes more financial sense to deliver services internally or through third parties, or even at all.
That fiscal transparency drives the narrative around the value Apptio creates and is a big reason why the company is gaining momentum, according to financial analysts who attended Apptio’s customer conference in November.
“Apptio seems to be at the front and center of mainstreaming this opportunity by delivering product innovations and rapid time to value for its customers,” wrote equities analyst Raimo Lenschow in a research note following the event. “Our customer and partner conversations highlighted the greenfield market opportunity for TBM that is characterized by a need to replace legacy, homegrown solutions and better manage IT costs.”