IBM IT Service Management strategy and vision April 2006 Demand-driven IT service management through enterprise Louis Mosher, executive architect, IBM IT Service Management John Helmbock, distinguished engineer, IBM IT Service Management John Hogan, executive architect, IBM IT Service Management Courtney McCarthy, consultant, IBM IT Service Management Michael O Mara, worldwide sales executive, IBM IT Service Management
Page 2 Contents 2 Executive summary 3 Performing as a business: the new IT priority 5 The strategic imperatives for demand-driven IT service management 7 IBM assets help IT departments transform 8 The IT service management technical conceptual blueprint 10 The IT service management technology enablement model 16 Conclusion: demand-driven IT service management through ERP-for-IT 17 Appendix: IT service management technical conceptual blueprint definitions Executive summary Leaders of internal IT departments are facing many of the same challenges that the leaders of the businesses they support are facing: managing increasingly volatile demand and controlling costs without sacrificing quality and customer satisfaction. Established practices in IT departments, combined with a historical supply-oriented focus on service delivery, often prevent IT departments from achieving this balance. To address these challenges, IT departments must begin to think and act as independent businesses within the larger enterprise and develop a demand-focused approach to IT service management. Just as businesses implement enterprise resource planning (ERP) systems to help them more efficiently forecast, fulfill and account for demand, IT departments must adhere to a similar strategy by adopting the processes, organizational structure and technologies that can help create the efficiencies and flexibility needed to manage continually changing demand for IT services. IBM has created two strategic intellectual assets that can help IT professionals identify the capabilities needed to transition their departments to demanddriven service management through an ERP-like approach: The IT service management technical conceptual blueprint The IT service management technology enablement model This white paper discusses both assets and the ways in which IT professionals can use them to help assemble and implement the technologies and practices requisite to demand-driven IT service management. For companies that use IT Infrastructure Library (ITIL) guidelines for process standardization in IT service management, these models can also serve as checklists for the technical components needed to support ITIL s suggested processes.
Page As priorities shift to better align with customer demand, the IT department often finds that the demand for IT services is significantly more volatile. Performing as a business: the new IT priority In most enterprises, the IT department has the responsibility of marrying the enterprise s strategic vision with the technology that enables that vision. Today s business leaders see information technology as a critical component in developing innovative, demand-driven practices and real-time communications. However, these same business leaders find that information technology by itself isn t always the answer. As the operational side of an enterprise shifts its priorities to better align with continually changing customer demand, the IT department often undergoes a similar transformation and finds that the demand for IT services is significantly more volatile. Effectively managing this volatility is as central to the enterprise s success as the technology employed. Rethinking the traditional approach to IT service delivery allows IT departments to be managed as stand-alone businesses that face many of the same challenges as the enterprises they serve. Compounding the challenge is the increasing pressure to limit IT costs. CEOs who are motivated to increase shareholder value and improve financial performance may be tempted to scrutinize IT spending more closely than some other areas of the business. For example, consider a company with a 10 percent profit margin that spends 4 percent of its revenue on IT expenditures, with 60 percent of those expenditures devoted to infrastructure support. A 10 percent reduction in IT infrastructure costs will increase net income by 2.4 percent clearly a significant improvement in the eyes of Wall Street and the company s shareholders. As a result, more IT leaders are seeking to clearly define and quantify the value of the services they offer. In essence, IT leaders begin to think of their departments as stand-alone businesses that face many of the same challenges as the enterprises they serve. This process often triggers a rethinking of the traditional approach to IT service delivery.
Page Presenting another hurdle, IT leaders find that many of their departments processes and infrastructures have evolved with little, if any, regard to a guiding strategic vision. Historically, the multiple business units and functional groups within an enterprise each separately purchased and maintained its own information technology to address highly specialized business needs. While these groups thoroughly understood their unique challenges, they weren t necessarily equipped to make the optimum technology choices. Consequently, these multiple discrete technology silos grew into an overly complex, heterogeneous IT infrastructure that the IT department now has the responsibility to maintain. To meet the challenge of supporting a patchwork environment while reducing costs, IT departments have justifiably focused on managing the supply side of the IT services supply/demand equation, which is the area under IT management s direct control. Common techniques have included vendor contract negotiation, consolidation and standardization of technologies across business units, strategic sourcing arrangements with trusted vendors and increased automation of labor-intensive support tasks. IT service delivery strategies must emphasize both unit cost savings Annual IT budget 10% reduction in unit cost 15% projected demand increase techniques as well as a capability to manage demand. 2005 budget 2006 baseline 2006 budget Figure 1: An illustration: Anticipated increases in demand for IT services can negate savings from unit cost reductions.
Page IT departments must adapt to fluctuating needs and market demands, develop a more strategic approach to service management and still control costs. IT departments must thoroughly analyze growth drivers and business priorities for a clear understanding of the demand and consumption of IT services. However, as more enterprises embrace the tenets of demand-driven business, managing demand for IT services becomes as important as managing supply, if not more so. In a demand-driven environment, IT departments support a constituency attuned to changing customer demand. Demand for IT services fluctuates as the business responds to a rapidly changing marketplace. IT departments must learn to adapt to this volatility and develop a more strategic approach to service management, while still controlling costs. The strategic imperatives for demand-driven IT service management IT departments must design an economically viable technology infrastructure capable of effectively managing volatile demand and cost for IT services. The first step in this initiative is to thoroughly analyze the company s growth drivers and business priorities for a clear understanding of the demand and consumption of IT services. The IT department can then develop an effective demand-driven service management strategy built on the following imperatives. Regulating demand by educating internal customers The typical consumer of IT services doesn t have an accurate understanding of the cost of those services. This lack of understanding leads to wasteful over-consumption. Demand-driven IT service management requires the IT department to restructure the way internal customers purchase services by shifting the responsibility for cost control onto the service consumer. Well-informed customers will better allocate their IT spending toward those services that deliver the highest value at the lowest cost.
Page 6 Customer-centric practices and technologies are key to creating a demand-driven IT department. Adopting customer-centric practices and technologies In the demand-driven IT service management model, customers have access to intuitive self-service tools that simplify requesting and subscribing to needed services. Automated workflow systems then streamline the fulfillment of those requests, enable the monitoring and measurement of service quality and help account for the true costs of delivering the service. Offering multiple service alternatives Demand-driven IT departments provide customers a choice of services to address particular needs. Choices such as selective outsourcing, out-tasking, or multiple internal fulfillment options for a single service are determined by the IT department s demand-management strategy. The competition among multiple vendors bidding on service contracts often leads to increased service quality at a lower cost for the end customer. Providing multiple tiers of service A demand-driven IT department also offers multiple levels of service within each service category. The service requesters have a range of clearly defined options, comprising different costs, benefits and implementation times, which they can use to make smarter consumption choice by precisely matching service levels with their needs. It also enables the IT organization to structure and staff itself more efficiently in response to limited cross-departmental service needs.
Page An ERP-for-IT system provides visibility into real-time demand and the IT department s capacity to fulfill that demand, and it helps enable IT leaders to marshal the necessary resources from throughout the organization. IBM assets help IT departments transform An ERP-for-IT system is an absolute prerequisite for realizing these demanddriven strategic imperatives. IT departments must implement systems similar to the ERP systems employed by global enterprises. Such systems offer a centralized storehouse of continually updated information on demand levels, inventories, capacity and personnel. They also automate the workflow, approval cycles and accounting associated with fulfilling demand. As a change in demand occurs, an ERP-for-IT system can help IT leaders coordinate the various activities involved in meeting internal customers needs with greater efficiency at lower cost. By providing increased visibility into real-time demand and the IT department s capacity to fulfill that demand, an ERP-for-IT system helps enable IT leaders to marshal the necessary resources from throughout the organization, while helping to minimize the associated costs through automated workflow, integrated information, streamlined communications and disciplined purchasing and accounting processes. IBM s experience as a thought leader in IT service management has resulted in two complementary assets that can help supply-oriented IT departments make the transition to a more demand-driven approach through an ERP-for-IT system: The IT service management technical conceptual blueprint The IT service management technology enablement model
Page The IBM IT service management technical conceptual blueprint provides IT executives with a benchmark they can use to help identify critical gaps in their existing capabilities and infrastructure. The IT service management technical conceptual blueprint The IBM IT service management technical conceptual blueprint defines the key generic tools (or technology enablers) required within an ERP-for-IT system. It provides IT executives with a benchmark they can use to help identify critical gaps in their existing capabilities and infrastructure. As IT departments leverage the conceptual blueprint to fill these gaps, they begin to acquire the defining characteristics of demand-driven businesses. Service-oriented financial analysis Service costing Time tracking Budgeting Service pricing Service billing allocations Billing feedback Benchmarking Demand planning Subscription management Capacity planning Service consumption Service-oriented project management Asset management Manage service Service catalog templates financials Service catalog (versioned) Service requirements projects Manage service service demand Manage Service entitlement Manage services Design services Manage service levels Service level analytics Develop services Service marketing Service publishing Publish services Invoke services Monitor service levels Service dashboard Automate Problem/incident Performance management Service notification Metering Auditing Quote services service fulfillment Service exchange services Request Service quote Third-party integration Service request Change automation Autonomic service level management Service futures market Configuration automation Release automation Task automation (e.g., TPM) Service workflow templates Automated service workflows Figure 2: IT service management technical conceptual blueprint
Page The IT service management technical conceptual blueprint comprises three distinct levels (see Figure 2). Starting with the lifecycle phases level and moving outward from the center, each level inherits the characteristics of the preceding level. The lifecycle phases level includes the following activities: 1) developing services, 2) invoking services and 3) managing services. The lifecycle phases level The lifecycle phases level describes the progression of a service from its design and creation through its eventual decommission. The phases include develop services, invoke services and manage services. The phases also serve to categorize the technologies and capabilities required to deliver the associated services. The functions level The functions level serves as a logical grouping of the generic tools required to support a service-oriented transformation. Each function serves a specific business purpose. When combined, these functions form the basis of an endto-end, service-oriented, demand-driven IT management environment. The IT service management technical conceptual blueprint illustrates ten functions ranging from design services through manage service projects. The Appendix provides a definition of each function.
Page 10 The key generic tools clarify whether an IT department s existing infrastructure will support a servicecentric approach to demand management. The generic tools level The outermost layer of the blueprint lists the key generic tools of demand-driven IT service management. These technical enablers facilitate the associated functions described in the preceding level (moving out from the center of the model). The generic tools also lend a concrete structure to the demand-driven IT service management vision, helping to clarify whether an IT department s existing infrastructure will support a service-centric approach to demand management. IT professionals can use this level to create a gap analysis and clearly define the appropriate strategy for acquiring or developing needed capabilities. The IT service management technology enablement model By running IT departments as independent businesses within businesses, IT leaders can find a realistic balance between managing volatile demand for IT services while simultaneously controlling costs. Where the IT service management technical conceptual blueprint catalogs the various technologies and capabilities needed for the transition to demand-driven service management, the IT service management technology enablement model outlines how to complete the transition (see Figure 3). Specifically, the model offers guidance for prioritizing the implementation of the generic tools that are prerequisites to demand-driven IT service management.
Page 11 Step 1: Align IT to business Step 2: Productize IT Step 3: IT as factory Step 4: Commoditize IT The IT service management technology enablement model outlines how to complete the transition to demand-driven service management. Establish service catalog Service catalog Catalog templates Entitlement Service publishing User self-service Service request Service workflow management Workflow templates Third-party integration Task automation Process standardization Configuration automation Release automation ILM automation Service requirements Change automation Problem/incident Capacity planning Service-oriented project management Service commoditization Service quote Service exchange Service futures market Services marketing Autonomic service level management Service accounting Asset management Service consumption/metering Pricing Costing Billing/billing feedback Demand planning Financial analytics Time tracking Subscription management Budgeting Service level management Service level analytics Service dashboard Service notification Performance management Auditing Benchmarking Figure 3: IT service management technology enablement model The model includes four key milestones that document the transition to demand-driven IT service delivery. The milestones are: Align IT to the business establish effective communication channels with internal customers Productize IT structure the IT department to reflect the services actually consumed by the business Transform IT into a factory increase efficiency by consolidating, standardizing and enforcing key processes and creating measurement and feedback mechanisms Commoditize IT transform targeted services and their underlying infrastructure into commodities.
Page 12 As IT departments act more like independent businesses, the traditional end user becomes a customer; IT professionals must communicate with those internal customers and revise their strategy to reflect end-customer needs. Align IT to the business As IT departments begin to think and act as independent businesses, they take on a more service-oriented mindset in which the traditional end user becomes a customer. To maintain this orientation, IT departments must continually communicate with internal customers and revise IT strategy to reflect end-customer needs. A service catalog is a key component of this effort; it should define IT services from the perspective of the end customer. IT departments should limit the catalog s complexity by using preexisting or industry-standard templates. The catalog should also be easily accessible and should establish clear permissions for each service. Productize IT IT departments must attune their organizational structures, their technologies and their financial processes to reflect the services available in the service catalog. By productizing their services in this way, IT departments can achieve the efficiencies characteristic of a demand-driven enterprise. User self-service Internal IT consumers should have the ability to request services from the service catalog through an online portal. The portal should also allow the requester to track the real-time status of the request. To deliver the requested services efficiently, the IT department must implement the workflow systems to automate the fulfillment processes and approvals required for each service. Service-oriented workflow automation (including component tasks such as provisioning a server image within a new server deployment service workflow ) has the potential to increase both the quality and timeliness of IT services, while lowering costs.
Page 13 Service-oriented workflow automation has the potential to increase both the quality and timeliness of IT services, while lowering costs. Service accounting A critical component of productizing IT services is more accurately allocating the cost of each service back to the internal customer, while ensuring the transparency of the costing process to help allow those customers to make informed consumption decisions. Service accounting requires that consolidated asset repositories, metering technologies and financial cost pools all have a service orientation. In this scenario, every IT cost must link back to a delivered service including labor, preferably through a labor-tracking system. Service consumption and subscription repositories support more efficient billing and facilitate demand planning by the enterprise s internal IT consumers. Billing should occur in standard cycles, with each bill clearly reflecting the services consumed by each business unit. Business units can then use a financial analytics engine to analyze the bill and their consumption in detail. A billing feedback workflow module helps resolve discrepancies and disputes in a timely manner. Demand-planning technology helps IT departments aggregate the estimated demand from all business units to develop its own projected budget. To accurately budget for their expected consumption of IT services, each business unit can use demand-planning technology to gauge expected demand. IT can then use this data to formulate estimated prices. Using this price, the business unit can revise its estimated demand. In turn, the IT department can aggregate the estimated demand from all business units to develop its own projected budget.
Page 14 Transform IT into a factory Following the productization of IT services, the IT department must build the efficiencies to ensure timelier, more cost-effective service delivery. Process standardization The workflows created in the productization phase must be documented, formalized and standardized across the IT department. Vendor technologies and process frameworks such as the IT Infrastructure Library help automate and standardize key management and operational processes derived from high-priority services. Management should establish relevant key performance indicators (KPIs) for each process to measure the efficiency of its execution and make needed adjustments. Prime candidates for process standardization are configuration, change, release, problem/ incident, capacity and service-related project management. Service-level analytics allow IT management and their customers to analyze which services have met historical performance objectives. Service-level management Service-level agreements for each service defined in the service catalog establish a baseline to measure both customer satisfaction and service efficiency. Real-time and ad hoc reporting on service-related KPIs provides a factual foundation for IT management s ongoing decisions. Similarly, service-level analytics allow IT management and their customers to analyze which services have met historical performance objectives. The IT department should make a performance dashboard available to allow IT personnel and their customers to monitor service consumption and servicelevel attainment at any given moment.
Page 15 Automated performance monitors enable IT management personnel to measure real-time compliance with service-level objectives, automatically issuing notifications when service levels reach predefined thresholds. IT personnel must also analyze current performance in the context of historical performance to ensure compliance with industry and government standards and corporate policy. Historical performance audits also allow IT personnel to measure costs, performance quality and competitiveness against established industry best practices. The productization and standardization of services help enable the IT department to manage services as a commodity and source services through a competitive bidding process. Commoditize IT The final milestone is to capitalize on the efficiencies created in the previous steps and commoditize IT services. The productization and standardization of services help enable the IT department to manage services as a commodity and source services through a competitive bidding process. IT departments can employ innovative bidding techniques, such as standard highest-bid auctions, reverse auctions and Dutch auctions, to help find the optimum price for a specific service and pass the savings on to the internal consumer. With the commoditization of services, IT departments may be able to take advantage of a futures market for outsourced services, allowing IT management personnel to negotiate service delivery contracts with external service providers to ensure adequate supply for projected needs, while helping to minimize the volatility in pricing normally associated with outsourced IT services. The standardization of services also supports advanced autonomic service-level management technologies that can help IT personnel anticipate and prevent potential service disruptions due to limited market availability. Automated response technologies can detect and correct the source of emerging problems before they result in any breach in service.
Page 16 IT departments that successfully navigate the transition from supplyfocused to demand-driven service delivery will help establish their companies as leaders in their respective industries. Conclusion: demand-driven IT service management through ERP-for-IT A more customer-centric, demand-driven approach to delivering IT services can help IT departments balance the competing priorities of cutting costs and managing highly volatile demand for quality service. IBM s IT service management technical conceptual blueprint and IT service management technology enablement model offer a roadmap for implementing the component technologies of an ERP-for-IT system to support a demand-driven IT culture. IT departments that use these tools to successfully navigate the transition from supply-focused to demand-driven service delivery will have a chance to play a key role in establishing their companies as leaders in their respective industries. For more information To learn more about IBM s vision for demand-driven IT service management, contact your IBM representative or visit: ibm.com
Page 17 Appendix: IT service management technical conceptual blueprint definitions Lifecycle phases Develop services the functions and enablers required to define, design, publish and market services Invoke services the functions and enablers required to quote, order, fulfill, monitor, meter and address the ongoing quality of services Manage services the functions and enablers required to measure and benchmark performance as it relates to the quality of service delivery, as well as those functions needed to influence consumers consumption behavior through financial means Functional requirements Design services creating a service catalog to define and structure services according to a predefined taxonomy based on consumer requirements Publish services publishing, marketing and advertising services to internal consumers Quote services enabling an internal consumer to request a quote for service, and allowing a provider to research and present the range of prices for the available service choice Request services requesting and/or subscribing to an existing service from a provider
Page 18 Automate service fulfillment automating the delivery of a service request, including the coordination of the workflows and associated processes and activities required to fulfill the service, including approvals Monitor service levels real-time monitoring and measurement of the ongoing health of available services, including the capability to reactively or proactively respond to deterioration of service quality Manage service levels reporting on the quality of service-level attainment for each available service Manage service demand the process that comprises the service provider s measurement of the ongoing consumption of services, the service consumer s projection of upcoming service demand, and the provider s subsequent calculation of aggregated demand and planning for future capacity requirements Manage service financials measuring costs as they relate to service delivery and investment and the allocation of those costs back to service consumers. These capabilities influence consumer consumption behavior and support the consumer s investment/divestiture decisions Manage service projects managing projects as they relate to investment in existing or new services
Page 19 Key generic tools The following generic tools enable the capabilities described. Design services Service requirements allowing a consumer to document needs for a potential new service and enabling the service developer to translate those needs into prioritized service characteristics Service catalog (versioned) designing and structuring a flexible service catalog according to a predefined taxonomy, including versioning capabilities Service catalog templates predefined service catalog artifacts that can be incorporated into an existing service catalog structure Service entitlement specifying and enforcing which consumers and providers can access specific services and the associated service details Publish services Service publishing presenting the service catalog to consumers and providers Service marketing promoting and advertising services to potential consumers (for example, banner ads and search advertising) Quote services Service quote allowing a consumer to request a quote for service and enabling the provider to present specific pricing based on point-in-time cost parameters and service-level requirements
Page 20 Service exchange allowing a consumer to request multiple bids for service and multiple providers to bid on the service, with the consumer ultimately selecting a service provider based on the best combination price/service-level bid Service futures market enabling a consumer/provider to claim the right to purchase/sell a specific service at a later date for a specific price Request services Service request subscribing to and/or ordering a service from a provider Automate service fulfillment Automated service workflows allowing a provider to coordinate the workflow, including approvals, needed to automate the fulfillment of a service Service workflow templates predefined artifacts used to populate automated service workflow technology and enable the timely definition and delivery of out-of-the-box service fulfillment Task automation completing specific tasks, such as server image, within a broader service workflow context Third-party integration connecting service generic tools to third-party products
Page 21 Change automation automating the change management process and associated workflow Release automation automating the release management process and associated workflow Monitor service levels Configuration automation automating the configuration management process and associated workflow Service dashboard a tool for monitoring the real-time consumption of subscription and single request services, as well as the current service-level attainment of the service provider in relation to a specific consumer Problem/incident automating the problem/incident management process and associated workflow Performance management automating the performance management process and associated workflow Service notification providing real-time notification to interested parties in the event of service-level quality deterioration or a breach of consumption thresholds Autonomic service-level management proactively identifying service-level quality deterioration and providing an automated response to address the issue prior to service failure
Page 22 Metering measuring the consumption of specific IT resources as they relate to the corresponding services Auditing auditing and reporting on service quality Manage service levels Service-level analytics reporting on the quality of service-level attainment (subscription and single request) for each available service Manage service demand Asset management tracking and managing assets as they relate to the services they support Demand planning managing the process of collecting upcoming service demand estimates from various consumers, modifying price based on aggregated demand and service cost characteristics and revising demand projections pending the finalization of pricing and consumption projections Subscription management capturing and reporting on all services currently and historically subscribed to by consumers Capacity planning automating the capacity planning process and associated workflow Service consumption capturing and reporting on current and historical consumption of services by consumers Manage service financials Service costing allocating direct and indirect costs as they relate to services Time tracking allowing providers to track their time against services delivered
Page 23 Budgeting enabling a service-consuming organization and service provider to communicate and manage budgets as they relate to current services, potential service upgrades/decommissions and/or new service investments Service pricing pricing the upcoming service execution cycle, based on service cost allocations and projected upcoming demand Service billing allocations charging consumers for the services consumed in a given period Service-oriented financial analytics enabling a consumer to pull reports on chargebacks incurred, including the supporting detail (for example, subscriptions, assets and onetime requests) Billing feedback enabling a consumer to dispute a particular charge, typically as a result of errors in the supporting service-consumption detail Benchmarking comparing service delivery quality and costs with those of external service providers, and researching best-practice service quality and costs through a comprehensive data store Manage service projects Service-oriented project management managing the investments and associated projects within a services construct
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