The Nature of IT Within Organizations
The Nature of IT Within Organizations
Generally categorized by only 5 areas:
Has 300 software licenses and 500 hardware leases
Runs 3,000 software applications
Has 65% Desktop penetration
Provides over 500 services!
Example: Data Center Operations:
Each IT-based product/service requires different skills, capabilities, and resources
Best service, but high cost practices:
Low cost, but lower service practices:
| I.T. ACTIVITY | MINIMAL COST/MINIMAL SERVICE | PREMIUM COST/ PREMIUM SERVICE |
|---|---|---|
| Mainframe Operations | Centralized Operations (ex: 1 data center) | Multiple Operations (ex: multiple data centers) |
| Software Versions | Support one version (ex: Everyone using Win 95) | Support Multiple versions (ex:Windows 3.0, 95, & NT) |
| Software Packages | One Package per Function (ex: Support only Microsoft Word; only Lotus 123) | Support Multiple Packages (ex: Microsoft Word & WordPerfect; Lotus 123 & Quatro Pro) |
| Software Suite | Try to buy suites from one vendor (ex: Microsoft/Borland/ or Computer Associates) | Buy best fit package from multiple vendors (ex: Microsoft/Borland/ & Computer Associates) |
| Software Support | Minimal changes to vendor functionality and configuration | Tweaking to meet idiosyncratic user needs |
| Printing | On-line reports only | Local printing on multiple forms and paper sizes |
| Service Support | Business Hours Only | 24 Hours per day |
| Service Support | Centralized Support Staff | Dedicated Support Staff |
The people who usually pay for IT (senior managers) are not the people who primarily consume the service (users)
In general, senior executives view the total IT function as a commodity whose main objective is cost minimization:
"All they (senior management) see is this amount of money that they have to write a check for every year. Year after year after year. Where is the benefit? MIS says, 'Well, we process data faster than we did last year.' They say, 'So what?' MIS says, 'Well, we can close the ledger faster.' And they say, 'So what? Where have you increased revenue? All you do is increase costs, year after year after year and I am sick of it. All I get are these esoteric benefits and a bunch of baloney on how much technology has advanced. Show me where you put one more dollar on the income statement.'" --Corporate Manager of IS Planning, Petroleum Company
"There was a feeling that this was a rat hole to pour money down...We don't like you guys anyway, you cost too much, you want to increase our prices, our profits are down, we want to go outside."--Data Center Manager, Ralston Purina, describing his senior management's perceptions of IS
In general, business managers and users viewed the total IT function as a differentiator whose objective is service excellence:
"If it cost $5 million more dollars to have this in my business unit and be able to control it and make it responsive to my needs it's worth 5 million dollars to me."-- Division Manager, Petroleum Company
"...the [expectations were] the services were going to be fantastic. They were going to have PCs on a desk in 9.5 minutes and God knows whatever else. So the end customer had got this expectation of a step-change." -- CSC Vice President.
"There is generally an expectation of management on the user side that here is this knight in shining armor, I'll get three times better service at half the price." -- Contract Administrator, South Australian Government
In general, IT managers were placed in the impossible position of trying to provide
a Rolls Royce service at a Chevrolet price:
"I said [to management], 'I cannot get any support from you all in how to allocate these resources. And we cannot be the traffic cop in this whole process because it's not right. I'm trying to satisfy everybody and it's not working.'" --IT Director, Petroleum Company
"We are an IT company, so we can transfuse current IT, state of the art IT, future IT, conceptual IT. But of course that transfusion as far as we are concerned is not free. The big problem is these people think that transfusion is free. All we are contracted to do is drive a service of this level." -- CSC Quality Manager on BAe Account
Effect of IT Cost/Service Trade-off on Expectations and Perceptions of IT
| SERVICE/COST | MINIMAL COST | PREMIUM COST |
|---|---|---|
| PREMIUM SERVICE | SUPERSTAR Senior management's and users' expectations | DIFFERENTIATOR decentralization, customization, loose controls |
| MINIMAL SERVICE | COMMODITY /LOW COST PRODUCER centralization, standardization, tight controls | BLACK HOLE Senior management's and users' perceptions of IT |
Stakeholders must align the IT strategy with the business strategy, including determining the cost/service trade-off for each IT activity
Develop chargeback systems that associate a cost with a service in the users' minds
Develop service level agreements
Stakeholders must align the IT strategy with the business strategy, including determining the cost/service trade-off for each IT activity:
| Contribution of IT Activity to Business Operations: | |||
|---|---|---|---|
| CRITICAL | |||
| USEFUL | |||
| COMMODITY | DIFFERENTIATE | ||
| Contribution of an IT Activity to Business Positioning |
Strategic information systems that will help gain a competitive advantage
by critically differentiating our company from our competitors in the minds of customers.
Focus on service excellence.
Critically useful information systems that will significantly affect daily business operations.
Focus on service excellence.
Useful Commodities: information systems that we all need to have;
Standardized IT product or service that is readily available in the marketplace.
The market has achieved economies of scale leading to lower unit prices.
For true commodities, the product or service is so standardized, that the buyer and
seller need never meet. Focus on low costs.
Develop chargeback systems that associate a cost with a service in the users' minds:
Chargeback systems can be categorized into:
1. General Allocation Chargeback Systems
2. Usage Allocation Chargeback Systems
3. Profit Center
IT operating budget is viewed as an overhead expense.
At year end, some algorithm is used to spread costs across the organization.
Marketing would be charged $5 million for IT
Production would be charged $4 million for IT
R&D would be charged $1 million for IT
How does this motivate behavior?
| Marketing | Production | R&D | I.T. |
|---|---|---|---|
| CPU minutes: | 10,000 | 10,000 | 20,000 |
| Gigabytes storage: | 200 | 100 | 100 |
| IT staff Man-hours | 1,000 | 1,000 | 1,000 |
Now we have to re-coup $10 million IT budget. Assume we re-coup:
| IT Resource: | Marketing | Production | R&D | |
|---|---|---|---|---|
| $2 million CPU minutes: | 10,000 (25%) | 10,000 (25%) | 20,000 (50%) | |
| $1 million Gigabytes storage: | 200 ( 50%) | 100 (25%) | 100 (25%) | |
| $7 million IT staff Man-hours | 1,000 (33%) | 1,000 (33%) | 1,000 | (33%) |
| IT Resource: | Marketing | Production | R&D |
|---|---|---|---|
| CPU minutes | $500,000 | $500,000 | $1,000,000 |
| Gigabytes | $500,000 | $250,000 | $250,000 |
| IT Staff | $2,333,333 | $2,333,333 | $2,333,333 |
| Total: | $3,333,333 | $3,083,333 | $3,583,333 |
How does this motivate behavior?
CPU minute costs $15.00
Gigabyte of storage costs $100.00
Printed page $1.00
1 man-hour of a programmer $50.00
1 man-hour of an analyst $80.00
Each new workstation $10,000.00
Pros:
Cons:
Example:
95% of security requests (new logon IDs, access to data sets) will be correctly processed within 2 working days after receipt of the signed and correctly filled-out security request form.
100% of security requests (new logon IDs, access to data sets) will be correctly processed within 4 working days after receipt of the signed and correctly filled-out security request form.
Service Level Principles:
"I think our conclusion is that we seek no more than a dozen key performance indicators. Otherwise, yes the relationship is more complex than that. But unless you pick the 12 maximum most important keys, you again will have something which is unmanageable because you are trying to manage too many points." -- BAe General Contract Manager
| Service | # of EDS responsibilities | # of SA responsibilities | # of shared responsibilities | Total activities defined by service |
|---|---|---|---|---|
| Mainframe | 106 | 48 | 15 | 169 |
| Midrange | 111 | 47 | 14 | 172 |
| LAN | 104 | 50 | 14 | 168 |
| WAN | 46 | 12 | 3 | 61 |
| Workstations | 54 | 36 | 12 | 102 |
| Infrastructure | 30 | 18 | 6 | 54 |
| Total | 726 |