Operationalizing Technology Business Management:

Transcription

1 Operationalizing Technology Business Management: Cisco s Playbook for IT Services Transformation By Rebecca Jacoby, SVP and CIO, Cisco Systems Abstract At Cisco, we recognized that in order to drive business value and innovation, we had to become a competitive provider of IT services. This meant, among other things, that we had to change the very conversations we were having internally and with our business partners. Our conversations and our vocabulary needed to move beyond technologies, SLAs and projects, to discussions about the trade-offs needed to balance cost, quality and value. Only in doing so could we free up resources for business growth and strategic execution. These trade-offs are at the core of Technology Business Management (TBM). To make this transformation, we developed a playbook with six chapters on everything from how we define our services to how we cost, market and fund them. In this paper, I ll share with you those six chapters and how they not only made for a successful IT services transformation but how they operationalized TBM, making it a core part of the way we work today.

2 Operationalizing Technology Business Management Page 2 Contents Transforming IT at Cisco... 3 Critical Value Conversations for IT... 3 Cisco s IT as a Services Organization Playbook... 4 Services Taxonomy... 5 Services P&L (Cost and Value)... 6 Services Roles... 7 FY10/FY11 Roadshow Deck... 8 Services Funding... 9 Our New Conversations... 9 Start with a Vision About the Author About the Apptio CIO Technology Business Management Council... 12

3 Page 3 Operationalizing Technology Business Management Operationalizing Technology Business Management Page 4 Transforming IT at Cisco As almost anyone who works in IT knows, Cisco is the world s largest provider of networking technology and services. While our long-held leadership in backbone technologies such as routers and switches is core to our strategy, our growth is dependent on extending the role of the network to new markets. We are constantly delivering new products and solutions even new communications paradigms in order to better serve our customers and grow our business. Executing on this strategy is no trivial matter. We face strong competitors in our core markets as well as our new ones. To execute on this strategy, Cisco focuses on two critical success factors: innovation and operational excellence. My organization, IT, is a key component in our strategy and execution. To succeed, we had to start thinking like our line of business leaders and providing IT products and services that meet the needs of our internal consumers, business partners (we have more than 20,000 channel partners alone), and customers. A few years ago, we made a decision to focus very heavily on transforming IT from a largely technologycentric provider to a world-class provider of services. In this way, we would be better aligned to our lines of business and more adept at supporting innovation and improving operations. Our vision is to lead every move we make with networked IT and translates into our IT strategy and execution, forming what we call our VSE (Vision, Strategy, and Execution). We knew this transformation meant changing virtually every aspect of IT, from the way we defined our services to our processes and our organizational model, roles and responsibilities. It would also change the way our businesses work with IT. Critical Value Conversations for IT The Vision for Cisco IT: Lead Every Move We Make with Networked IT Changing the way we work with our business executives meant that we needed to change the conversations we were having. Instead of talking about technologies, we needed to talk about value and business trade-offs in a common language. We discovered that the primary types of trade-offs and questions that must be included in these discussions included: Scope, source and architecture. Where do we want to source a service? Do we want to build it internally? Do we want to purchase it as a cloud service? Do we want to outsource the whole shop, or just part of it? How do we architect it? Cost. How much are we willing to spend on the service? How will we determine the cost of goods sold? What price should we charge the business? Quality. What level of service do we need to provide? Do we need to provide different tiers of service at different price points? Time to Capability. How quick do we need to have the service in place? What s the business impact or lost opportunity of waiting? Risk. What level and types of risks are we willing to accept? How much are we willing to spend to reduce the risks? These are so important that decided to make sure everyone in IT consistently describes the trade-offs associated with their deliverables. What we found, however, is that not everybody in IT has the skills set to deal with this. So we set out to make everyone in IT extremely competent in discussing them. The context in which we would discuss these trade-offs was extremely important. We needed a framework for these discussions to make sure they were happening at the right time between the right people. For this, we settled on five different types of value conversations, as shown below. Conversation Purpose Leader(s) 1 Audience Strategy Alignments IT Portfolio Planning Architectural Reviews Quarterly Value Discussion Aggregate Conversation Provide a clear exchange to understand the general aspirations of the business constituent, as well as specific near- and medium-term priorities Develop IT s response to the Strategy Alignment conversations and articulate new investments and changes in project/release priorities Establish and/or alter the architectural strategy and its effectiveness, drive down run-the-business spending, support changethe-business prioritie Provide an operational review of IT in the context of a particular business function Discuss the overall business impact of IT and relate it to the annual planning for IT This framework provides for both discussions with our business constituents, such as the strategy alignments, as well as internal discussions where we plan, design and manage our services and execution. Each one is centered on the trade-offs described above. These conversations, however, are only part of our IT services transformation. They re instrumental in the way we think and communicate, but they are as much the outcome of our transformation as they are part of it. Once we defined our vision, our strategy and the conversations we wanted to have, we had to come up with a plan for executing this services transformation. Cisco s IT as a Services Organization Playbook We developed our plan in the form of a playbook with six main chapters. Five of the chapters defined distinct but interrelated deliverables needed for transformation, such as a Services Taxonomy and a Roadshow Deck. The sixth chapter defines our approach to change management and organizational adoption. 1 The roles of Service Manager, Service Owner and Account Manager were defined in the playbook and are described in Table 3 on page 8 2 Project Management Office / Release Management Office Service Manager, Account Manager Service Owner Service Owner Service Manager CIO, Service Managers Table 1: Critical Value Conversations between IT and the Business CIO, Business Executive Global Process Owner, PMO/ RMO 2 CIO, IT Senior Staff, Operations Advanced Planning Team (OAPT) Business Partner, Service Executive CFO, COO, Business Executive

4 Page 5 Operationalizing Technology Business Management Operationalizing Technology Business Management Page 6 It took us almost a year to define and agree on this taxonomy, proving that agreeing on a common language is difficult. This effort alone was valuable. For one thing, we learned just how many different solutions we had for the same business functions. For example, we had five different enterprise messaging systems, each with thousands of users. Each system is expensive to own and support, consuming money and support that we would rather invest elsewhere. For Cisco, our taxonomy is driven tops-down from the global business processes (GBPs) that support the lines of business. Beneath the GBPs are the services that IT provides. These are defined in layers that provide the services stack, including the following categories: Figure 1: Cisco s Playbook for Transforming and Running IT as a Services Organization For each of the chapters, I assigned an owner from my senior staff, who then led a collaborative effort to develop it. This playbook and the chapters now drive many of our senior staff conversations. Application development services including software development, transition and testing Operational services such as monitoring and asset management Governed and functional business services such as pricing/discounting, identity management, opportunity/deal and promotions Foundational services such as master data management and enterprise B2B Infrastructure services such as application hosting, content and storage Network services to provide the foundation for data, voice & video communications Altogether, we ve defined a little over 300 services that fall into these seven categories. What this taxonomy provides us is an understanding of the relationships and dependencies of IT services to business services (i.e., GBP capabilities). It reconciles who is served and what business impact does it have. We can even articulate what is involved in specific transaction, such as booking an order. Without this taxonomy, our next chapter of the playbook would be impossible. Services P&L (Cost and Value) Services Taxonomy The concept of the services taxonomy at its most basic is a common language about what IT provides. The word services means something different to everyone you ask. We had a camp in IT that wanted to use ITIL to define our taxonomy. ITIL is useful Figure 2: Cisco s IT Services Taxonomy (Organizing Principles and has really promoted the concept of service management, but for Cisco it was too complicated. We needed to define a taxonomy that was consistent with ITIL but specific to our needs without overcomplicating things and becoming a barrier to its adoption. The term, P&L profit and loss is a familiar one in accounting and finance circles. At Cisco, IT is not chartered to create a profit by charging back more than we spend. In fact, we do not do formal chargeback. However, we needed to get the whole organization to the full trade-off conversation. We found that by focusing on cost and value, they provide the backbone of how you have this conversation and how you can organize around it. We first focused on our methodology 3: Cisco s Cost Model for Distributing Costs to for costing our services and capabilities. Figure Services and Capabilities This is how we ended up getting deeply involved with Apptio: we realized we needed a business management system for IT, one that could meet our needs for costing, support a tops-down planning process

5 Page 7 Operationalizing Technology Business Management Operationalizing Technology Business Management Page 8 and give us deeper insights into services demand and quality. Apptio was the only capability on the market that could do this and free up my team to focus on outcomes rather than developing the system. We worked with Apptio to define a costing model that reflected our services taxonomy and gave us the ability to see how much services and capabilities cost us to provide, even when they span many different functional silos, technologies, geographies and so on. We also learned that cost and value are two different things. Certainly, you don t want to spend more providing a service than the value you re delivering, but cost and value are two different concepts. This is something we continue to work on, but we found that it is difficult to judge the business value of discrete technologies and IT services. Instead, you need to be able to assess the cost of services in the context of the business capability that it provides. A good example was directory services. We had never had a problem with the cost of providing directory services because the total cost, at the level of the identity management service, was never apparent. Once we made this assessment, we learned that we were greatly overspending on our directory services and made architectural decisions to reduce the cost. This translated to millions of dollars in savings that would not have happened without a clear consideration of cost and value. The services P&L provides a number of metrics and reports that we used to manage our services and portfolio. Some of the key metrics are shown here. Metric/Report IT Service Costs (TCO) Spend by Capability ( Investment Triangle ) Run-the-Business vs. Change-the- Business Spending Run-the-Business Spend Analysis The services taxonomy and services P&L including the metrics and reports above are key components of our value conversations both internally and with our business executives. Services Roles Purpose Table 2: Key Metrics / Reports from Service Costing Assess the fully burdened cost of a service against the perceived business value (a gut check ) and make continuous improvements to close the gap Evaluate the actual spend in three categories of investment for the business: strategy, business capability, and operational capability Evaluate the actual spend according to its impact on driving the business forward, making decisions to increase investment in changing the investment over time Identify RtB opportunities for savings, such as application rationalization, identification of redundant functionalities/instances, decommissioning and/ or virtualization No transformation could be successful without restructuring the organization. We had to change up our ownership model and alter responsibilities. We had to create new roles, define how people are held accountable, and clarify what they need to deliver in the organization. In fact, this is probably where we had the greatest degree of transformation within our organization. We found the following roles did not exist but were critical for our success. Metric/Report IT Service Costs (TCO) Service Owner Service Manager The impact on roles and responsibilities is certainly not limited to just these roles. Nearly every role, especially manager and up, was impacted by the change. Architects were also impacted as they now must work with services owners and managers in developing (or redefining) architectures that are more cost-effective and commensurate with the value they deliver. Perhaps more importantly, we wanted to make the transformation pervasive throughout our organization and the business. To make this happen through IT, we educated everyone in my organization on these new concepts, such as the value conversations and the tradeoffs that we have to make. We even built and offered informal classroom and web-based training. To ensure cross-functional support within IT, we established management cohorts small groups of 12 to 15 people from different functional silos. These cohorts meet eight times per year for two hours per session with a goal of sharing leadership strategies and best practices. These cohorts have been instrumental in terms of getting everyone to buy into our transformation, learn the vocabulary, and improve our techniques for making it happen. These worked great for my organization. But we also needed to market this transformation to the business. FY10/FY11 Roadshow Deck Purpose Much like many companies do when they launch a product, we launched our transformation by doing a roadshow. Everyone on my senior staff participated in the roadshow. The goal was to both sell the transformation (answer the question, What s in it for me? ) but also educate our customers on how to work with us in this new paradigm. It also became part of our annual planning process with the business. The roadshow deck contained many elements that were important parts of the conversation: Assess the fully burdened cost of a service against the perceived business value (a gut check ) and make continuous improvements to close the gap This is a dedicated role (not an overlay) that operates like a business owner and is responsible for managing and communicating the cost, quality, resiliency, time to provision and other aspects of the services This role is responsible for managing the delivery of the service by working with the technology owners, process owners and other constituents to meet service level agreements Table 3: Critical Roles and Responsibilities for Cisco s Services Transformation Figure 4: Cisco s Investment Triangle for IT

6 Page 9 Operationalizing Technology Business Management Operationalizing Technology Business Management Page 10 Our prior year actuals and our next year plan mapped to our IT services framework Our annual roadmap for technologies and services Demonstration of our shift in investment from operational functionality to business strategies Our services story, including the rationale for centralizing services to drive lower costs and higher quality to the businesses Our roadshow deck evolved over time as we presented it and learned from those conversations. However, our transformation, which depended on changing the conversations we were having with our business constituents, would not have been possible without it. Services Funding We intentionally put funding as our last of the five main chapters of the playbook. Ordinarily, funding is often the first thing that IT leaders worry about, and they spend a lot of time trying to justify their funding, i.e., their budget. While that s very important, we wanted to first address the other elements of our playbook, especially the services we were going to deliver, the value that the business gets from those services, and their cost. Only then would we be prepared to talk about how we re going to fund IT and the services we would provide. With funding, this is where we came upon the Bill of IT concept. Coming from a supply chain management background, it seemed intuitive that we were assembling services out of parts and that we had to communicate the value of those services, not the parts, to the business. That s what the Bill of IT does for us. For Cisco, the Bill of IT supports a showback process, not chargeback, but helps us in going through our funding (budgeting process). Finally, with effective service costing in place, we have been able to evolve from a baseline budgeting process (i.e., one that started with last year s actual spend and made adjustments based on various assumptions) to a zero-based (bottoms-up) budgeting process. We re now able to work with the business to determine demand and then build our budget based on the investments we have to make to meet the demand. Our New Conversations As a technology company, Cisco has no shortage of technophiles. Moreover, we love to eat our own dog food, so to speak. Every time Cisco rolls out a new product such as TelePresence, WebEx or Cisco Quad (our enterprise social networking platform), we get thousands of internal requests for the new service. Of course, none of these are free, even internally. They cost us an investment of money and resources and there is an opportunity cost associated with the internal consumption of Cisco IT services. Having a new way of communicating with our business executives, in a language that they naturally understand, has proven invaluable to address this challenge. Today, when we receive a request, we can talk about the relative cost of one option versus another. A good example is our video communications services. We provide many different options, as you can see in the Figure 5. While many employees and teams may want the best we have to offer a three-screen TelePresence platform they need to understand that the relative cost of that service is three times that of the single-screen platform and nearly 60 times greater than a personal TelePresence system. Figure 5: Cisco s Tiered Options for Video Communications Services (BW = bandwidth) While we do not perform formal chargeback at Cisco (i.e., business line P&Ls aren t charged for most IT services they consume), we have found that when business leaders understand the cost and value trade-offs, they make the right decisions for the business. This has really helped drive accountability for costs which, in turn, helps us drive down costs while putting business leaders in control of the services and qualities they receive. Our new way of conversing has also reduced a lot of friction in decision making. A lot of friction occurs when decisions are based on opinions and conjecture. It also leaves a lot of room for distorting the truth. Once you shine the light of cost, quality and value on an issue, decisions can be made quickly. For example, when we acquired WebEx, we had to make decisions about its data centers. Should we leave them as they were, within the WebEx business, or centralize them within IT. Once we were able to show that we could support the WebEx infrastructure for a fraction of its current cost, the decision was much easier. These decisions are not just good for IT, they are good for the business. They are instrumental in our ability to shift spending from run-the-business to change-the-business investments, in turn helping us execute on our business strategy. My goal is reduce the cost of running IT services 5-10% per year on a sustainable basis funds that Cisco can choose to deploy to strategically change the business. Start with a Vision I know a lot of other CIOs who are on this journey of IT service transformation within their own business. Each is taking a different approach and some are moving more quickly than others. What matters most is whether or not the CIO and his or her team share a clear vision for their transformation and have made sure that it is aligned to the strategy, needs and culture of their business.

7 Page 11 Operationalizing Technology Business Management Operationalizing Technology Business Management Page 12 David Reilly, the Global Technology Infrastructure executive at Bank of America, has shared approach that builds on years of experience and organizational maturity. His team leans on transparency and accountability (to the point of a formal chargeback program) for the infrastructure services that the businesses consume. While this is not entirely new at the bank, he is streamlining transparency, empowering infrastructure product owners and making information more broadly available to a very diverse group of decision makers. On the other hand, Tim Campos, the CIO of Facebook, has a vision that exploits the innovation culture of their organization. In such a fast-paced organization, he s building an IT organization that provides services on demand a self-service IT organization. While different David s vision, Tim s also leans on transparency. Their visions are different. However, they are both very clear and they seem to be wellaligned to their businesses, which is why I believe they ll be successful. So for me, the place to start is to work with your team and your business leaders to define a new vision for IT. Figure out how you can leverage many of these new paradigms, such as IT services, Technology Business Management and more, to redefine IT s role. That s step number one. If you would like to learn more about this, consider joining the Technology Business Management Council. Comprised of hundreds of senior IT executives from leading companies, the Council focuses on an overall theme of running IT like a business. Discussions often center on IT financial transparency and fiscal discipline, but extend to related topics such as cloud computing, application rationalization, infrastructure optimization and more. You can learn more about the council at TBMCouncil.org. About the Author Chief Information Officer Rebecca Jacoby has more than 15 years of experience at Cisco in a variety of operations and IT leadership roles. Her extensive understanding of business operations helps her advance Cisco s business through the use of Cisco technology. Jacoby is responsible for making the Cisco IT group a strategic business partner and for producing significant business value for Cisco in the form of financial performance, customer satisfaction and loyalty, market share, and productivity. Her strong commitment to operational excellence, innovative approach to business problems, and aptitude for partnering cross-functionally are reshaping and elevating the role of IT at Cisco. Previously at Cisco, Jacoby was Vice President for Customer Service and Operational Systems and played a key leadership role on the Business Process Operations Council, which governs the transformation agenda at Cisco. Before that she was director of manufacturing for the Access business unit prior to establishing the central manufacturing planning function in 1997 and assuming responsibility for manufacturing IT in Jacoby joined Cisco as senior manufacturing operations manager. In 1996, she was recognized with the YWCA Tribute to Women and Industry (TWIN) award. Prior to joining Cisco, Jacoby held a variety of planning and operations positions at UB Networks, Inc. and Amdahl Corporation. About the Technology Business Management Council The TBM Council emerged from a biannual executive summit sponsored by Apptio, the leading and independent provider of TBM solutions. To allow for an independent board of directors, the TBM Council was formed as a nonprofit organization to create and promote best practices for running IT as a business. Apptio remains the Council s technical advisor. Our mission is to serve equally our members and our profession by defining a decisionmaking framework that creates and sustains business value by balancing the supply of and demand for technology services. The Council s objectives are to publish a generally accepted set of TBM practices and facilitate benchmarking by business technology leaders against those practices. The Council is open to any qualifying CIO or senior IT executive. Learn more at TBMCouncil.org.

8 Page 13 Operationalizing Technology Business Management About Apptio Apptio is the leading independent provider of on-demand Technology Business Management (TBM) solutions for managing the business of IT. Apptio enables IT leaders to manage the cost, quality and value of IT Services by providing deep visibility into the total cost of IT services, communicating the value of IT to the business through an interactive Bill of IT, and strategically aligning the planning, budgeting and forecasting processes. Apptio s TBM solutions play a critical role in helping companies understand and drive chargeback, virtualization, Cloud and other key technology initiatives. Global enterprise customers such as Bank of America, Boeing, Cisco, Clorox, Facebook, JPMorgan Chase, Microsoft, St. Luke s Health System, and Swiss Re rely on Apptio to manage more than $101 billion in annual IT spending.

9 Intrigued? Visit TBMcouncil.org/MIT to Learn More Be a part of this revolution. Shape the future of IT with us! Apptio is a Proud Sponsor of MIT Sloan CIO Symposium and is the Technical Advisor to the TBM Council