What is Happening?
This week, ISG Insights attended the Technology Business Management (TBM) Council’s 4th annual event in San Diego, CA. TBM is a framework and taxonomy for managing IT costs, and eventually, helping IT shift from a focus on costs to measuring the economic benefit provided to the business. The goal of TBM is to provide standards for IT to measure costs and communicate its value to the business in a standardized way. By giving business people the information about how IT is being consumed, and the true cost of each application, report, and service, IT and business are better able to partner to save money, or reallocate resources to higher impact areas.
ISG is a sponsor of the event and a participant in the TBM Council standards body, although ISG Insights does not participate in that process. ISG’s Kathy Rudy, Partner, Americas, and Alex-Paul Manders, TBM Practice Lead, Americas were among the presenters and session leaders at the event as well.
The TBM Council is an independent standards body initiated by Apptio that helps to create the frameworks and methodologies that make up the TBM process. The event brings together executives many large companies that are on their journey to implement TBM to compare notes, share successes, and evolve best practices. Many presentations at the event highlight the real end-game for cost management and the holistic value proposition of this practice for IT: Digital Transformation.
At the event, we talked to a variety of TBM users across a wide array of industries – from banking to manufacturing to telecom to logistics – and they tended to fall into two categories. The first were those primarily interested in TBM for cost transparency. They hoped that by implementing the TBM framework supported by software, they would be able to accurately survey their IT costs and explain value back to the business. However, their ambitions after the implementations were much more subdued; cost optimization to meet the needs of the business, and more accurate projections of costs.
The second group was usually implementing TBM in service of a broader business transformation – frequently one that was already underway. This group is committed to moving beyond the back-office support model, and want to use TBM as a framework to measure and report the economic benefits that their organization was delivering with each and every piece of technology.
Why is it Happening?
IT cost transparency has always been an important issue for the office of the CIO, but in this era of Digital Transformation, IT is even more inextricably intertwined in business processes. Explaining the business value being provided in economic terms is critical. Business leaders want to know what IT costs – and they care how they consume IT services and how much value these provide. Increasingly, complex business demands on IT include transforming business models, delivering new products and services, and directly impacting revenue – while IT’s accounting practices still have roots in measuring the cost of delivering back-office services.
Some of the keynote presentations highlighted different reasons that TBM was adopted, and the goals they were aiming to achieve. Keynote presentations were from organizations that had already implemented mature TBM practices, and were using that information to support transformation efforts within the company. Examples include the following:
- “Speed is the new currency of technology” said Mike Brady, Global CTO, AIG. TBM helped AIG build faster business cases for new IT investments. This speed helped them capture even greater returns from being able to meet business needs quickly.
- “Shadow IT shows that you are not delivering what the business wants” said Bharat Amin, VP & CIO, Newport News Shipbuilding, a division of Huntington Ingalls that uses TBM to manage and communicate IT costs as they engage in an IT-led Digital Transformation that will touch nearly all business processes at the company.
- “Chase transparency and precision,” said Ed Smith, CIO, Cox Automotive. “Provide the service that the business wants to use, don’t explain why you can’t do it.” Their TBM implementation focused on ensuring that their IT department provided the capabilities that met the needs of the business.
Market Impact
Supporting or leading Digital Transformation is on the mind of every IT leader today. However, many IT departments still struggle with shrinking or flat budgets. As companies increasingly look at incorporating emerging technologies, especially into processes that have not previously had much IT involvement at all. Building business cases to support these technologies puts a lot of pressure for IT to behave and communicate as an extension of the business and to ensure that their budgets are being spent on technology that truly drives business value.
Traditionally, building these business cases involved proving ROI on the technology, and focused on one-time TCO calculations to create projected cost estimates. The trouble was that because costs were not compiled continuously, and IT departments seldom accounted for their costs in business terms, it meant that each TCO calculation and each business case was good only for point-in-time calculations. The lack of a transparency and process meant that these calculations were not kept up to date. This in turn led to a tremendous duplication of effort every time IT needed to build a business case, and very low follow through to really check costs against projections once the project was underway.
The TBM process supports building these business cases by ensuring that costs are continuously compiled and tied to specific technology projects and goals. When IT needs to build a new business case, they are already half way done with the calculations – all the costs are transparent, so projecting business return becomes the focus. This shortens the time to decision, and once the decision is made it allows the IT department to continually check in with the business to re-evaluate costs and benefits to ensure that each IT service or project is still aligned to business needs.
Supporting the Digital Transformation means that companies need to be able to build the business case and deploy the technology to support it quickly. It also means being able to integrate that technology deep into business operations and processes without letting costs or usage spiral out of control. Increasingly IT and Finance are realizing that they need to align to ensure that business utilization and IT costs are aligned, and increasingly TBM is the framework they are using to enable it.
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