Transforming IT: Three New Rules to Turn the Tide

It may not be obvious to the casual observer, but IT is under siege. The cloud, in all its incarnations, is reshaping the way IT thinks about delivering services to the business. Conversely, the cloud is also providing new avenues for the business to procure IT services. For the first time, business users who consume IT services have a choice: if IT cannot provide them with the services they require in a timely and cost-effective manner, they’ll simply go elsewhere.

Some CIOs have taken to labeling this trend “shadow IT,” in that users are following the path of least resistance – IT policies be damned. The ubiquity of these cloud services, meanwhile, is forcing CIOs to understand their cost structure at a much more granular level. After all, if you know that it costs $7 per GB of storage to go with Amazon S3, but can’t say with any certainty what you spend on storage, it’s hard to have a meaningful conversation with the business. To put it another way, the cloud is putting increased pressure on CIOs to deliver IT services at established “market rates.”

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This is but one of the reasons why IT leaders are under pressure to bridge the widening gap that exists between IT and the business units it serves. For too long now, these CIOs have had to combat the perception that “IT is too expensive.”

In a recent meeting, more than 65 enterprise CIOs and IT leaders shared on how they are applying transformational strategies in their organizations to keep up with the change. The gathering featured case study presentations from Rebecca Jacoby, CIO for Cisco, Charlie McNerney, GM for Microsoft Global Foundation Services and the VP of Technical Operations at a Fortune 50 entertainment company. What follows are three “new rules” gleaned from their experience in aligning IT with business priorities:

Rule #1: CIOs Need to Manage IT Like a Supply Chain

Today’s intelligence-starved CIO is beginning to think about IT less as a collection of technology products and more as a portfolio of IT services that should be managed like a traditional supply chain. In the supply chain of IT, these resources consist of everything from data center facilities and labor costs all the way up through the server and application tiers. Taken together, these components make up the IT services that business units eventually consume. However, getting a handle on what these services actually cost to deliver – and how they’re being utilized – has until now been more dark art than science. CIOs believe it’s critical to understand the fully burdened costs of all the raw materials (i.e., the cost of goods sold or “COGS”) that comprise the finished product. From there, the CIOs believe it was imperative to relay the information back to business users. Only then can both the supply and demand curves for IT services be properly tuned. One participant at the roundtable, Charlie McNerney at Microsoft, repeatedly reminded the group, “If you make the facts available, rational minds will eventually prevail.”

Rule #2: Cost Accounting is the New Must Have IT Skill

An overlooked and essential skill for the new generation of IT personnel is basic cost accounting. For example, at Cisco, every person in the CIOs organization is required to take a basic class on cost accounting. Without this foundational skill, they believe (and rightfully so) that IT managers are unable to provide meaningful cost analysis back to the business. For instance, while calculating unit cost information at the server level might be valuable from an operational perspective, understanding and communicating the variance in cost is more relevant to the business since this type of data point speaks to the budget planning cycle.

Rule #3: IT Transformation Starts with Culture

CIOs with IT transformation projects on their agenda must recognize that cultural changes are just as important as technology decisions.< For example, Cisco's CIO, Rebecca Jacoby has made a concerted effort to implement strategies that address the cultural aspect of their services transformation. To ensure cross-functional support for her team's services transformation initiative, Rebecca established management "cohorts" which are small groups (12-15 people per group) each with their own designated leader. These cohorts meet eight times per year for two hours per session with a goal of sharing leadership strategies and best practices. According to Rebecca, this type of strategy has been "instrumental in terms of getting everyone to buy into the notion of transformation."

One thing all of these CIOs readily agree upon is that the business is demanding greater accountability and alignment from IT. The cloud is but one external factor driving CIOs to “self reflect” by understanding their own cost structures at a deeper level and delivering services at market rates. CIOs who are prepared to answer questions from the business with cold, hard facts will be in a significantly better position to transform their IT organization and contribute to the bottom line.

Transformer car image by Mark Rain

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