The IT Value Model: Winning the business battle with the right IT nails

IBM Global Services The IT Value Model: Winning the business battle with the right IT nails The horseshoe nail For the want of a nail the shoe was lost, For the want of a shoe the horse was lost, For the want of a horse the rider was lost, For the want of a rider the battle was lost, For the want of a battle the kingdom was lost And all for the want of a horseshoe nail. Introduction The above, paraphrasing the aphorism from Benjamin Franklin, illustrates the implicit connection between a battle and its infrastructure. But like the horseshoe nail on the battlefield, it can be difficult to align the value of a single information technology (IT) investment with the business at large. After all, how do you determine which nail is attached to the horseshoe that could have helped win the battle? To exploit fully each and every element of the IT infrastructure (the horseshoe nails), it is critical to map those components to mission-critical business initiatives (the battle-winning horses) and, in turn, long-term business success (the war). More than ever, a better understanding of the value delivered by any one IT nail is critical to informing and guiding IT investments and initiatives.

The IT Value Model This is a new way to view and manage the IT infrastructure. Until recently, IT investment decisions have been a top down management issue. While organisations viewed IT as a necessary resource in helping to achieve and sustain competitive advantage in a global and dynamic marketplace, it was also viewed as an obvious target for cost efficiency improvements through server consolidation or asset management, for example. Now, with the IBM IT Value Model, it is possible to establish business/it linkage and accumulate accurate and specific data about the intrinsic value IT brings to specific business activities and components as well as to an organisation, or kingdom, overall. This type of value-informed decision making can help executives better contain costs, target investments, accelerate and optimise return on investment (ROI) (without negatively affecting business results), and drive profitability. The IT Value Model Business processes Business/ IT linkage Business activities Business applications IT capabilities IT services Logical IT fabric Physical IT fabric 2

Mission critical: The state of the IT infrastructure Today s executives are accustomed to using information technology to enhance capabilities and support specific business initiatives from supply chain management to e-commerce and customer relationship management. Consequently, over time, organisations have increased their reliance on servers, networks, applications, e-mail solutions, data centres, and storage systems. Similarly, the people and processes associated with a company s IT organisation have become mission-critical resources. Now, with costs more under control and the economic outlook brightening, executives are placing more emphasis on the strategic business value IT can provide. A recent survey of the world s top corporate chief executive officers (CEOs) reveals that, for a large majority, revenue growth is now their top priority. 1 This research, based on interviews with hundreds of executives from across geographies and industries, offers valuable insight into corporate trends, including the emphasis on bottom-line improvements. Global economic pressures and uncertainty have placed additional stress on the IT infrastructure. As Chief Information Officers (CIOs) and Chief Technology Officers (CTOs) struggle to do more with less, many organisations have launched optimisation initiatives aimed at evaluating, rationalising and streamlining their IT environment. These efforts have focused on making the infrastructure more manageable, adaptive, productive and cost-effective. While many companies have made improvements in cost control, there remains a gap when it comes to connecting specific IT investments to strategic business gains or benefits. The answer may lie in implementing a holistic, value-based approach to optimise the entire IT environment. By doing this, companies can continue to reduce costs and complexities while establishing a direct relationship between IT services or elements (the horseshoe nails) and business success or wins. We are over the crisis and now we re in a new cycle of growing the business. Media executive in the UK 2 3

The IT Value Model Evaluating the provider profiles: What is the company s strategy for using IT? High Enabler Provider researches, recommends and implements technology to enable quantum leap in business capability Partner Capability as IT value driver Provider works with others to develop a business service and provide resources/ skills necessary to support the service Utility Provider of a quality service at a cost equal to or lower than the competition Commodity Provider of an adequate service at a cost lower than the competition Cost as IT value driver High 4

Serving the kingdom: Optimising IT for value Value-driven optimisation initiatives can contribute significantly to operational excellence and set the stage for evolving to advanced capabilities such as IT agility and on demand characterised by focused, variable, resilient and responsive systems and processes. While enterprises (and sometimes even individual business units) can differ in their specific IT requirements and optimisation strategies, most could characterise their strategy for using IT according to the following provider profiles : Commodity The business driver is expense control; the corporate view of IT is as a provider of technical capabilities; IT investment decisions are project-based. Utility Business drivers are business unit measurements; the corporate view of IT is in terms of organisational efficiencies; IT investment decisions are based on portfolio management of applications within a process. Partner The business driver is market share; the corporate view of IT is that it is strategically aligned with the business; IT investment decisions are made according to enhanced portfolio management. Enabler The business driver is industry leadership; the corporate view of IT is as an enabler of corporate vision; IT investment decisions are based on future options. Business and IT executives should agree on the best strategy for using technology in order to achieve business-it alignment and provide context for IT investment priorities. Once this agreement is achieved, the infrastructure can be analysed for optimisation potential in terms of management and technical domains, pinpointing areas for improvement. These improvement areas can be narrowly or broadly defined; most optimisation opportunities span multiple domains. 5

The IT Value Model Domains fall into the following categories: IT optimisation method elements: The seven domains Technical domains Computing systems and storage The server, desktop and storage hardware, along with operating Applications and data software and middleware that provides the platform for business applications. Applications and data The portfolio of business applications and data used to manage operations and achieve competitive advantage. Network Voice and data networks, including wide Computing systems and storage IT services Strategic alignment Network area, local area, wireless and other technology interconnection capabilities. Process Organisation Management domains Strategic alignment Business and IT alignment, Finance and environment complemented by domain alignment. Process The systems, processes and governance structures used to manage IT. Finance and environment The financial structure of IT as well as the larger legal, geopolitical and environmental context. Organisation The staff, structure and skills of the IT organisation. For several years, the IBM IT Optimisation Solutions portfolio has offered a proven, holistic approach for assessing these domains and tailoring a solution to a company s requirements through the various stages of solution framing and design, transition planning and governance, and solution delivery. 6

The IT Value Model: Identifying and aligning the IT nails with the objectives and benefits of the business battles IBM can help companies derive even greater value from their IT infrastructure by incorporating the insights gained through the use of the IT Value Model (IVM) into IT Optimisation Solutions. Implicit in the IT Value Model is the recognition that just as businesses deliver value to their customers by way of business products and services, IT delivers value through IT products and services. The challenge lies in articulating the specific role of the IT processes, technologies and organisation in business terms, and establishing the connection between the IT capabilities or services and the related business activities and components. Toward these ends, IVM is designed to assist organisations in mapping the IT nails to the relevant business battles by helping enterprises: A value primer Business value chain The components, processes and services that collectively deliver value to the firm s customers. IT value chain The IT components, processes and services that collectively deliver value to the firm s business components and services and, potentially, to the firm s external customers. IT services The capabilities provided by a company s IT processes, technologies, applications and organisation, articulated in business terms and linked to specific business benefits. Connect IT services to their specific contributions to business value. Assess the potential business impact of infrastructure investments. Leverage IT to enable revenue growth and increase competitiveness. Discern which IT elements support specific business results. Achieving a data-driven roadmap to value: The IVM framework In the IT Value Model, IBM defines IT as a fabric of processes, technologies and organisation that supplies or supports IT services. As a part of any value-based optimisation initiative, IBM consultants assess the maturity of an enterprise s IT fabric in the context of its strategic intent and status (the provider profile) and its structure (business process integration). Enterprises can, in turn, articulate the current state and value of their T infrastructure, and compare that status to desired state data. 7

The IT Value Model This is a multi-dimensional task, best illustrated below by the IT Value Model cube a visual representation of the firm s strategy for the use of IT on one axis; the level of business process integration on another; and the maturity of the IT fabric on the third. This analysis helps enterprises define and work toward tomorrow s best practices, while serving the needs of the kingdom today. Moreover, the IBM IT Value Model enables organisations directly to link IT and business value by connecting related business and IT key performance indicators (KPIs). KPIs offer a tangible mathematical link between IT services and business processes by using financial, functional, performance and availability measurements, such as the cost per transaction or Web site transaction volumes. KPIs, then, are the mechanism with which we can quantify the business-it linkages that are essential to the IT Value Model. In short, these KPI connections enable businesses to assess quantitatively the impact of IT investments on the business. The IT Value Model (IVM) cube combines strategy, integration and fabric maturity into one framework Integration Integration of the customer s business processes Dynamic Partner Enterprise Partial Discrete E D C B A Basic Controlled 2 Maturity Managed 3 Maturity of Optimised 4 the customer s Advanced IT fabric 1 5 C U Commodity P Utility E Partner Enabler Strategy Customer s strategy for the use of IT 8

The IT Value Model provides a framework for fabric metrics and KPIs to facilitate the IT maturity analysis and help identify and evaluate potential value-add opportunities. Furthermore, IBM applies proven, leading-edge analytics to address the often complex and interrelated characteristics of IT maturity, integration and strategy. This permits companies to target their value enhancement efforts more appropriately, resulting in a roadmap to an improved future state. Forward-looking organisations can leverage the IT Value Model to: Target particular business or IT pain points Create a model of the current business and IT environment Identify appropriate KPIs Assess the current IT fabric Map the fabric status to KPIs Compare the current environment to the desired ideal state Evaluate alternative scenarios against the model to pinpoint improvement potential Design a roadmap for value-driven optimisation Evaluate the current services catalogue. Fabric slide rule Analysis of a customer infrastructure will determine the current (and relative) position of each element which will provide a pattern to be used to diagnose potential value improvement opportunities. Low value Par High value Organisation 1 2 3 4 5 Servers 1 2 3 4 5 Process 1 2 3 4 5 Value delivery constrained by immature processes? Over invested in servers? Storage 1 2 3 4 5 Applications 1 2 3 4 5 Data 1 2 3 4 5 Network 1 2 3 4 5 Network capability, a barrier to value delivery? Desktop 1 2 3 4 5 9

The IT Value Model In Maslow s hierarchy of needs, basic needs survival and safety must be satisfied if higher-order needs such as self-actualisation are to be met. A fully optimised IT infrastructure requires the same type of methodical, hierarchical building process. Basic operational excellence must be established before next-generation levels of responsiveness, integration and flexibility can be achieved. The IT infrastructure according to Maslow In a more general sense, an IT infrastructure reflects a Maslow s hierarchy of attributes. Said differently, higher order capabilities, such as agility and on demand, require that fundamental or survival needs, such as operational excellence, be satisfied. A fully actualised IT infrastructure will demonstrate a full range of attributes, building on the effective execution of those attributes at lower levels to provide the essential platform for delivering more advanced capabilities. At the base or survival level of this hierarchy are the fundamental characteristics of efficiency (and effectiveness): a focused commitment to differentiating competencies and tightly integrated strategic partners providing non-differentiating activities; operations at the Optimising the IT infrastructure On demand Actualised Efficient IT fabric maturity Survival Masslow s hierarchy A solid, operationally efficient IT base must be built before progressing upward to a totally optimised, on demand environment. 10

Conclusion lowest possible costs for the given IT strategy; effective use of automation to reduce complexities and management costs; and high levels of reliability to pre-pare for threats and help enable the business to continue operating consistently. Building on this base of efficiency, the IT fabric is now capable of supporting the needs of an agile business by delivering commensurate IT agility through the implementation of open standards, unconstrained by vendor-proprietary architectures. The agile business is able to share resources in virtual pools, regardless of location or application, and can be more responsive by sensing and responding to rapidly changing requirements. Finally, at the pinnacle of actualisation, the fully on demand fabric adds to the efficient and agile foundation by connecting disparate data, applications and processes across and beyond the enterprise into an integrated whole. It can also adapt variable cost structures and business processes to reduce risk and increase levels of business productivity, cost control, efficiency and predictability. The IT Value Model can enable companies in every sector to define and work toward an ideal IT state identified in terms of business value through KPIs and according to the company s strategy for IT. In this way, IVM can provide critical insight into a company s current environment and help define a strategic roadmap for positive change. More specifically, this approach can be used to identify potential areas for improvement in the IT fabric such that IT services deliver more value to the business and the bottom line. IBM Global Services offers the IT Value Model through our IT Optimisation offering leading-edge solutions driven by world-class skills, top technologies and proven expertise. Our optimisation consultants are skilled in IVM and can help you identify and leverage your most valuable IT nails for winning the business battle. For more information To learn more about the IT Value Model and IBM Optimisation Solutions, contact your local IBM sales representative, or visit: ibm.com/services 11

IBM United Kingdom Limited PO Box 41 North Harbour Portsmouth Hampshire PO6 3AU Tel: 0870 010 2503 ibm.com/services/uk About the authors L. Mark Ernest, Distinguished Engineer, IBM Global Services (lernest@us.ibm. com) Albert L. Swett, Principal, IBM Global Services (aswett@us.ibm.com) William G. Miller, Global Business Development Executive, IBM Global Services (williamgmiller@us.ibm.com) Chris Finden-Browne, Executive Consultant, IBM Global Services (chris_finden-browne@uk.ibm.com) IBM Ireland Limited Oldbrook House 24-32 Pembroke Road Dublin 4 Tel: 1890 200 392 ibm.com/services/ie IBM Nederland N.V. Postbus 9999 1006 CE Amsterdam Tel: 020 513 5151 ibm.com/services/nl IBM South Africa Limited Private Bag X9907 Sandhurst 2146 South Africa Tel: 0860 700 777 ibm.com/services/za UK company-wide registration to ISO9001. Certificate number FM 92089. The IBM home page can be found at ibm.com IBM, the IBM logo, ibm.com and On Demand Business logo are trademarks of International Business Machines Corporation in the United States, other countries, or both. Other company, product and service names may be trademarks, or service marks of others. 1 You Turn: Global CEO Study IBM Business Consulting Services 2004. 2 Ibid. References in this publication to IBM products, programs or services do not imply that IBM intends to make these available in all countries in which IBM operates. Any reference to an IBM product, program or service is not intended to imply that only IBM products, programs or services may be used. Any functionally equivalent product, program or service may be used instead. This publication is for general guidance only. Information is subject to change without notice. Please contact your local IBM sales office or reseller for latest information on IBM products and services. Copyright IBM Corporation 2005 All Rights Reserved. 05-IGS-000162 (02/05) CK