Month: March 2012

Tying Consumption to Cost: Allocation Best Practices

    Jim D

In 1968, Garrett Hardin wrote about the over-exploitation of common resources in an essay titled the “The Tragedy of the Commons“. While Garrett wrote about the overexploitation of common pastureland where individual herders overused and diminished common pasture, there can be a very similar effect with IT resources within a large corporation. If there is no cost associated with the usage of IT resources by different business unit, than each unit will utilize the the IT resources to maximize its potential benefit to the detriment of the corporate as a whole. Thus, to ensure effective use of the IT resources there must be some association of cost or allocation between the internal demand and consumption by each business unit. A best practice allocation approach enables business transparency of IT cost and business drivers of IT usage so that thoughtful business decisions for the company as a whole can be made with the minimum of allocation overhead and effort.

A well-designed allocations framework will ensure this effective association as well as:

  • provide transparency to IT costs and the particular business unit costs and profitability,
  • avoid wasteful demand and alter overconsumption behaviors
  • minimize pet projects and technology ‘hobbies’

To implement an effective allocations framework there are several foundation steps. First, you must ensure you have the corporate and business unit CFOs’ support and the finance team resources to implement and run the allocations process. Generally, CFOs look for greater clarity on what drives costs within the corporation.  Allocations allow significant clarity on IT costs which are usually a good-sized chunk of the corporation’s costs.  CFOs are usually highly supportive of a well-thought out allocations approach. So, first garner CFO support along with adequate finance resources.

Second, you must have a reasonably well-defined set of services and an adequately accurate IT asset inventory. If these are not in place, you must first set about defining your services (e.g. and end user laptop service that includes laptop, OS, productivity software, and remote access or a storage service of high performance Tier 1 storage by Terabyte) and ensuring your inventory of IT assets is minimally accurate (70 to 80 %). If there are some gaps, they can be addressed by leveraging a trial allocation period where numbers and assets are published, no monies are actually charged, but every business unit reviews its allocated assets with IT and ensures it is correctly aligned. Once you have the service defined and the assets inventoried, your finance team must then set about to identify which costs are associated with which services. They should work closely with your management team to identify a ‘cost pool’ for each service or asset component. Again, these costs pools should be at least reasonably accurate but do not need to be perfect to begin a successful allocation process.

The IT services defined should be as readily understandable as possible. The descriptions and missions should not be esoteric except where absolutely necessary. They should be easily associated with business drivers and volumes (such as number of employees, or branches, etc) wherever possible.  In essence, all major categories of IT expenditure should have an associated service or set of services and the services should be granular enough so that each service or component can be easily understood and each one’s drivers should be easily distinguished and identified. The targets should should be somewhere between 50 and 150 services for the typical large corporation.  More services than 150 will likely lead to more effort being spent on very small services and result in too much overhead. Significantly, less than 50 services could result in clumping of services that are hard to distinguish or enable control. Remember the goal is to provide adequate allocations data at the minimum effort for effectiveness.

The allocations framework must have an overall IT owner and a senior Finance sponsor (preferably the CFO). CFOs want to implement systems that encourage effective corporate use of resources so they are a natural advocate for a sensible allocation framework. There should also be a council to oversee the allocation effort and provide feedback and direction where majors users and the CFO or designate are on the council. This will ensure both adequate feedback as well as buy-in and support for successful implementation and appropriate methodology revisions as the program grows. As the allocations process and systems mature, ensure that any significant methodology changes are reviewed and approved by the allocation council with sufficient advance notice to the Business Unit CFOs. My experience has been that everyone agrees to a methodology change if it is in their favor and reduces their bill, but everyone is resistant if it impacts their business unit’s finances regardless of how logical the change may be. Further, the allocation process will bring out intra business unit tensions toward each other, especially for those that have an increase versus those that have a decrease, if the process is not done with plenty of communication and clear rationale.

Once you start the allocations, even if during a pilot or trial period, make sure you are doing transparent reporting. You or your leads should have a monthly meeting with each business area with good clear reports. Include your finance lead and the business unit finance lead in the meeting to ensure everyone is on the same financial page.  Remember, a key outcome is to enable your users to understand their overall costs, what the cost is for each services and, what business drivers impact which services and thus what costs they will bear. By establishing this linkage clearly the business users will then look to modify business demand so as to optimize their costs. Further, most business leaders will also use this allocations data and new found linkage to correct poor over-consumption behavior (such as users with two or three PCs or phones) within their organizations. But for them to do this you must provide usable reporting with accurate inventories. The best option is to enable managers to peruse their costs through an intranet interface for such
end-user services such as mobile phones, PCs, etc . There should be readily accessible usage and cost reports to enable them to understand their team’s demand and how much each unit costs.  They should have the option right on the same screens to discontinue, update or start services. In my experience, it is always amazing that once leaders understand their costs, they will want to manage them down, and if they have the right tools and reports, managing down poor consumption happens faster than a snowman melting in July — exactly the effect you were seeking.

There are a few additional caveats and guides to keep in mind:

  • In your reporting, don’t just show this month’s costs, show the cost trend over time and provide a projection of future unit costs and business demand
  • Ensure you include budget overheads in the cost allocation, otherwise you will have a budget shortfall and neglect key investment in the infrastructure to maintain it.
  • Similarly, make sure you account for full lifecycle costs of a service in the allocation — and be conservative in your initial allocation pricing, revisions later that are upward due to missed costs will be painful
  • For ‘build’ or ‘project’ costs, do not use exact resource pricing. Instead use an average price to avoid the situation where every business unit demands only the lowest cost IT  resources for their project resulting in a race to the bottom for lowest cost resources and no ability to expand capacity to meet demand since these would be high cost resources on the margin.
  • Use allocations to also avoid First-In issues to new technologies (set the rate at the project volume rate not the initial low volume rate) and to encourage transition off of expensive legacy technologies (Last out increases)
  • And lastly, and ensure your team knows and understands their services and their allocations and can articulate why what costs what they cost

With this framework and approach, you should be able to build and deliver an effective allocation mechanism that enables the corporation to avoid the overconsumption of free, common resources and properly direct the IT resources to where the best return for the corporation will be. Remember though that in the end this is an internal finance mechanism so the CFO should dictate the depth, level and allocation approach and you should ensure that the allocations mechanism does not become burdensome beyond its value. remember that allocations framework.

What have been your experiences with allocations frameworks? What changes or additions to these best practices would you add?

Best, Jim Ditmore

 

Evolving Metrics to Match Your Team’s Maturity

    Jim D

We have covered quite a bit of ground with previous posts on IT metrics but we have some important additions to the topic. The first, that we will cover today, is how to evolve your metrics to match your team’s maturity. (Next week, we will cover unit costs and allocations).

To ground our discussion, let’s first cover quickly the maturity levels of the team. Basing them heavily on the CMM, there are 5 levels:

  1. Ad hoc: A chaotic state with no established processes. Few measures are in place or accurate.
  2. Repeatable: The process is documented sufficiently and frequently used. Some measures are in place.
  3. Defined: Processes are defined and standard and highly adhered. Measures are routinely collected and analyzed.
  4. Managed: Processes are effectively controlled through the use of process metrics with some continuous process improvement (CPI).
  5. Optimized: Processes are optimized with statistical and CPI prevalent across all work.

It is important to match your IT metrics to the maturity of your team for several reasons:

  • capturing metrics which are beyond the team’s maturity level will be difficult to gather and likely lack accuracy
  • once gathered, there is potential for unreliable analysis and conclusions
  • and it will be unlikely that actions taken can result in sustained changes by the team
  • the difficulty and likely lack of progress and results can cause the team to negatively view any metrics or process improvement approach

Thus, before you start your team or organization on a metrics journey, ensure you understand their maturity so you can start the journey at the right place. If we take the primary activities of IT (production, projects, and routine services), you can map out the evolution of metrics by maturity as follows:

Production metrics – In moving from a low maturity environment to a high maturity, production metrics should evolve from typical inward-facing, component view measures of individual instances to customer view, service-oriented measures with both trend and pattern view as well and incident detail. Here is a detailed view:

Production Metrics Evolution

 

Project metrics – Measures in low maturity environments are project-centric usually focus on date and milestone with poor linkage to real work or quality. As the environment matures, more effective measures can be implemented that map actual work and quality as the work is being completed and provide accurate forecasts of project results. further, portfolio and program views and trends are available and leveraged.

Project Metrics Evolution

 

Routine Services – Low maturity measures are typically component or product-oriented at best within a strict SLA definition and lack a service view and customer satisfaction perspective. Higher maturity environments address these gaps and leverage unit costs, productivity, and unit quality within a context of business impact.

Routine Services Metrics Evolution

The general pattern is that as you move from low to medium and then to high maturity: you introduce process and service definition and accompanying metrics; you move from task or single project views to portfolio views; quality and value metrics are introduced and then exploited; and a customer or business value perspective becomes the prominent measure as to delivery success. Note that you cannot just jump to a high maturity approach as the level of discipline and understanding must be built over time with accumulating experience for the organization. To a degree, it is just like getting fit, you must go to the gym regularly and work hard – there is nothing in a bottle that will do it for you instead.

By matching the right level of metrics and proper next steps to your organization’s maturity, you will be rewarded with better delivery and higher quality, and your team will be able to progress and learn and leverage the next set of metrics. You will avoid a ‘bridge too far’ issue that often occurs when new leaders come into an organization that is less mature than their previous one, yet they impose the exact same regimen as they were familiar with previously. And then they fail to see why there are resultant problems and the blame either falls on the metrics framework imposed or the organization, when it is neither… it is the mismatch between the two.

And you will know your team has successfully completed their journey when they go from:

  • Production incidents to customer impact to ability to accurately forecast service quality
  • Production incidents to test defects to forecasted test defects to forecasted defects introduced to production
  • Unit counts of devices to package offerings to customer satisfaction
  • Unit counts or tasks to unit cost and performance measures to unit cost trajectories and performance trajectories

What has been your experience applying a metrics framework to a new organization? How have you adjusted it to ensure success with the new team?

Best, Jim Ditmore

Just about Time for Spring Break

    Jim D

It is just about time for spring break and given the significant number of new readers, I thought I would touch again on the key goals for this site and also touch on some posts and additions you may have missed.

I would also like to thank Steve Wignall for his contributions in the Service Desk arena. We now have 5 solid pages relating to all aspects of Service Desk and we are typically ranked in the top 20 searches in Google for a number of searches related to service desk (e.g., ‘service desk best practices’, etc). While I am quite pleased for us to achieve this in a matter of a few months, what is most important is that the content is useful and relevant and meaningful to IT leaders.

As many of you know, delivering IT today, with all of the cost reduction demands, the rapidly changing technology, the impact of IT consumerization, and security and risk demands, is, simply put, tough work. It is complicated and hard to get the complex IT mechanism, with all the usual legacy systems issues, to perform as well as the business requires. RecipesforIT has been built to help those IT leaders out, to provide recipes and ideas on how to tackle the tough but solvable problems they face. And in addition to providing best practices, we will give you a solid and sensible perspective on the latest trends and technologies.

And note we will continue to build out the best practices areas and not necessarily post the material. For example, we have added Build an Outstanding Customer Interface, Service Desk Leadership and Service Desk Metrics pages to the appropriate best practice areas. So don’t forget to leverage these areas for material when you are faced with issues or challenges.

As promised in January, we have really covered the service desk area with the help of Steve Wignall and Bob Barnes. And we covered innovation (and Kodak). There was also a request to cover how to effectively consolidate an IT organization and that was covered in  the post Building IT Synergy. 

So what is upcoming? I will continue to touch on current topics (hopefully you liked the Australian pilot and low PDI post) but I will also divert time to cover leadership and high performance teams. I have also received a request to cover production operations and best practices in that area that I hope to complete. Steve will also cover another page on service desk for us. And I will continue with incremental but hopefully material improvements to the site pages that will provide further details on best practices in a comprehensive manner.

I continue to receive strong feedback from many of you on the usefulness and actionability of the material. I will definitely work to ensure we maintain that relevance.

One last note: don’t forget you can subscribe to the site so you get an email when there’s a new post (subscribing is on the rightmost bar, halfway down the page). And feel free to provide comments or suggestions — the feedback really helps!

If you are new to the site, I recommend a few posts for relevance and fundamentals:

So, expect plenty more and enjoy your break and the warm weather!

Best, Jim Ditmore

Why you want an Australian Pilot: Lessons for Outstanding IT Leadership

    Jim D

Perhaps you are wondering what nationality or culture has to do with piloting an airplane? And how could piloting an airplane be similar to making decisions in an IT organization?

For those of you who have read Outliers, which I heartily recommend, you would be familiar with the well-supported conclusions that Malcolm Gladwell makes:

  • that incredible success often has strong parallels and patterns among those high achievers, often factors you would not expect or easily discern
  • and no one ever makes it alone

A very interesting chapter in Outliers is based on the NTSB analysis of what occurred in the cockpit during several crashes as well as the research work done by Dutch psychologist Geert Hofstede. What Hofstede found in his studies for IBM HR department in the 70s and 80s is that people from different countries or cultures behave differently in their work relationships. Not surprising of course, and Hofstede did not place countries as right or wrong but used the data as a way to measure differences in cultures. A very interesting measure of culture is the Power Distance Index (PDI). Countries with a high PDI have cultures where those in authority are treated with great respect and deference. For countries with a low PDI, those in authority go to great lengths to downplay their stature and members feel comfortable challenging authority.

Now back to having an Australian pilot your plane: commercial aircraft, while highly automated and extremely reliable, are complex machines that when in difficult circumstances, require all of the crew to do their job well and in concert. But for multiple crashes in the 1990s and early 2000s, the NTSB found that crew communication and coordination were significant factors. And those airlines with crews from countries with high PDI scores, had the worst records. Why? As Malcolm Gladwell lays out so well, it is because of the repeated deference of lower status crew members to a captain who is piloting the plane. And when the captain makes repeated mistakes, these crew members defer and do not call vigorously call out the issues when it is their responsibility to do so even to fatal effect. So, if you were flying a plane in the 1990s, you would want your pilot to be from Australia, New Zealand, Ireland, South Africa, or the US, as they have the lowest PDI cultural score. Since that time, it is worth noting that most airlines with high PDI ratings have incorporated crew responsibility training to overcome these effects and all airlines have added further crew training on communications and interaction resulting in the continued improvement in safety we witnessed this past decade.

But this experience yields insight into how teams operate effectively in complex environments. Simply put, the highest performance teams are those with a low PDI that enables team members to provide appropriate input into a decision. Further, once the leader decides, with this input, the team rotates quickly and with confidence to take on the new tack. Elite teams in our armed forces operate on very similar principles.

I would suggest that high performance IT teams operate in a low PDI manner as well. Delivering an IT system in today’s large corporations requires integrating a dozen or more technologies to deliver features that require multiple experts to fully comprehend. In contrast, if you have the project or organization driven by a leader whose authoritative style imposes high deference by all team members and alternative views cannot be expressed, than it is simply a matter of time before poor performance will set in. Strong team members and experts will look elsewhere for employment as their voices are not heard, and at some point, one person cannot be an expert in everything required to succeed and delivery failure will occur. High PDI leaders will not result in sustainable high performance teams.

Now a low PDI culture does not suggest there is not structure and authority. Nor is the team a democracy. Instead, each team member knows their area of responsibility and understands that in difficult and complex situations, all must work together with flexibility to come up with ideas and options for the group to consider for the solution. Each member views their area as a critical responsibility and strives to be the best at their competency in a disciplined approach. Leaders solicit data, recommended courses and ideas from team members, and consider them fully. Discussion and constructive debate, if possible given the time and the urgency, are encouraged. Leaders then make clear decisions, and once decided, everyone falls in line and provides full support and commitment.

In many respects, this is a similar profile to the Level 5 leader that Jim Collins wrote about that mixes ‘a paradoxical blend of personal humility and professional will. They feature a lack of pretense (low PDI) but fierce resolve to get things done for the benefit of their company. Their modesty allows them to be approachable and ensures that the facts and expert opinions are heard. Their focus and resolve enables them to make clear decisions. And their dedication to the company and the organizations ensure the company goals are foremost. (Of course, they also have all the other personal and management strengths and qualities (intelligence, integrity, work ethic, etc.).)

Low PDI or Level 5 leaders set in place three key approaches for their organizations:

  • they set in place a clear vision and build momentum with sustained focus and energy, motivating and leveraging the entire team
  • they do not lurch from initiative to initiative or jump on the latest technology bandwagon, instead they judiciously invest in key technologies and capabilities that are core to their company’s competence and value and provide sustainable advantage
  • because they drive a fact-based, disciplined approach to decisioning as leaders, excessive hierarchy and bureaucracy are not required. Further, quality and forethought are built in to processes freeing the organization of excessive controls and verification.

To achieve a high performance IT organization, these are the same leadership qualities required. Someone who storms around and makes all the key decisions without input from the team will not achieve a high performance organization nor will someone who focuses only on technology baubles and not on the underlying capabilities and disciplines. And someone who shrinks from key decisions and turf battles and does not sponsor his team will fail as well. We have all worked for bosses that reflected these qualities so we understand what happens and  why there is a lack of enthusiasm in those organizations.

So, instead, resolve to be a level 5 leader, and look to lower your PDI. Set a compelling vision, and every day seek out the facts, press your team to know their area of expertise as top in the industry, and sponsor the dialogue that enables the best decisions, and then make them.

Best, Jim

The Accelerating Impact of the iPad on Corporate IT

    Jim D

Apple announced the iPad two years ago and began shipping in April 2010. In less than two years, the rapidity and scale of the shock to the PC marketplace from the iPad has been stunning.   The PC market trends in 2011 show PCs of all types (netbook, notebook, desktop) are being cannabilized by tablet sales. And iPad sales (15.4M in 4Q11) are now equivalent to PC desktop sales. We saw desktop PCs shipments slowing the last several years due to the earlier advent of notebooks and then netbooks, but now stagnating and even dropping in great part due to the iPad. With the release of the iPad 3 just around the corner (next week), these impacts will accelerate. And while the release of Windows 8 and new PC ultrabooks (basically PC versions of the MacBook Air) could possibly cause improved shipments in 2012, the implications of this consumer shift are significant for corporate technology.

Just as IT managers used to determine what mobile devices their employees used (and thus invariably Blackberry) and now companies are adopting a ‘bring your own device’ (BYOD) approach to mobile, IT managers will need to shift to not just accommodating iPads as an additional mobile device, but should move to a full-fledged BYOD for client computing for their knowledge workers. Let them decide if they need a tablet, ultrabook, or laptop. Most front office staff will also be better served by a mobile or tablet approach (consider the retail staff in Apple’s stores today). Importantly, IT will need to develop applications first and second for the internet and tablets, and only for traditional PCs for back office and production workers.

The implications of this will cause further shock to the marketplace. Just as in the mobile device marketplace where the traditional consumer vendors were impacted first by the new smart phones **(i.e., Nokia impacted first by Apple and Android) and then the commercial mobile vendor** (Blackberry), PC vendors are now seeing their consumer divisions severely impacted with modest growth in commercial segments. But front office and knowledge workers will demand the use of tablets first and air books or ultrabooks second. Companies will make this shift because their employees will be more productive and satisfied and it will cost the company less. And as the ability to implement and leverage this BYOD approach increases, the migration will become a massive rush, especially as front office systems convert.  And the commercial PC segment will follow what already is happening in the broader consumer segment.

As an IT manager you should ensure your shop is on the front edge of this transition as much as possible to provide your company advantage. The tools to deploy, manage, and implement secure sessions are rapidly maturing and are already well-proven **. Many companies started pilots or small implementations in that past year in such areas as providing iPads instead of 5 inch thick binders for their boards ** or giving senior executives iPads to use in meetings instead of printed presentations. But the big expansion has been allowing senior managers and knowledge workers to begin accessing corporate email and intranets via their own iPads from home or when traveling. And with the success of these pilots, companies are planning broader rollouts and are adopting formal BYOD policies for laptops and pads.

So how do you ensure that your company stays abreast of these changes? If you have not already piloted corporate email and intranet access from smart phones and pads, get going. Look also to pilot the devices for select groups such as your board and senior executives. This will enable you to get the support infrastructure in place and issues worked out before a larger rollout.

Work with your legal and procurement team to define the new corporate policy on employee devices. Many companies help solve this issue by providing the employee a voucher covering the cost of the device purchase but the employee is the owner. And because the corporate data is held in a secure partition on the device and can be wiped clean if lost or stolen, you can meet your corporate IT security standards.

More importantly, IT must adjust its thinking about what the most vital interface is for internal applications. For more than a decade, it has been the PC with perhaps an internet interface. Going forward, it needs to be an internet interface, possibly with a smartphone and iPad app. Corporate PC client interfaces (outside of dedicated production applications such as the general ledger for the finance team or a call center support application) will be one of casualties of this shift from PCs.

If you are looking for leaders in the effort, I would suggest that government agencies, especially in the US, have been surprisingly agile in delivering their reference works for everything from the state legal code to driving rules and regulations on iPad applications in the Itunes store. I actually think the corporate sector is trailing the government in this adoption. How many of you actually have their HR policies and procedures in an iPad application that can be downloaded? Or a smart phone app to handle your corporate travel expenses? Or a front office application that enables your customer facing personnel to be as mobile and productive as an Apple retail employee?

And ensure you build the infrastructure to handle the download and version management of these new applications. You can configure your own corporate version of a iTunes store  that enables users to self-provision and easily download apps to their devices just as they download Angry Birds today. This again will provide a better experience for the corporate user at reduced cost. And the leading senior infrastructure client managers today are looking to further exploit this corporate store and later extend this infrastructure and download approach to all their devices. This is just another example of a product or approach, first developed for the consumer market, cross-impacting the commercial market.

As for those desktop PCs, where will they be in 2 to 3 years? They will still be used by production workers (call centers, back office personnel, etc) but they will be more and more virtualized so the heavy computing is done in the data center and not the PC. And desktop PCs  will be a much smaller proportion of your overall client devices. This will have significant implications on your client software licenses (e.g. Windows Office, etc) and you should begin considering now how your contracts will handle this changing situation.  And perhaps just beyond that timeframe, it is possible that we will consider traditional desktops to be similar to floppy drives today — an odd bit of technology from the past.

Best, Jim Ditmore

* for those of you who read my occasional post on InformationWeek, I have updated my article that was originally posted there on Feb 14.