ENTERPRISE MANAGEMENT ASSOCIATES®
Analyst Corner
December 2008 EMA Analyst’s Corner:
Managing the “Business” of IT
As IT has become pervasive, IT management tools and processes have focused on managing technology and, more recently, services. Services represent a giant step in bringing IT much closer to the business. Yet, even as the cost and complexity of IT has grown, it does not address the across-the-board business activities of IT as an organization. Key disciplines for IT around investment, risk management, and transparency for both costs and priorities have all been missing or cobbled together in an inefficient manner for many IT organizations. CIOs are reaching out for management technology that can help them make better decisions and be strong and responsible business partners in the enterprise.
For both efficiency and focus, businesses are often structured around functional areas including finance, sales, marketing, human resources, legal, operations and IT. There are many types of businesses and, depending upon the vertical, may include additional functions like manufacturing, customer support, or research and development. Other businesses end up with fewer functions by combining groups like human resources and legal, at least at the corporate level. In fact, IT is sometimes combined with other functions such as finance. In other cases the IT function does not get any recognition—individually or as part of another function—at the most senior executive level which reports to the CEO. More and more, IT executives are focused on demonstrating clear value to the business as they strive to gain visibility as a strategic business partner.
At the same time, IT is responsible for providing many of the tools that other business functions use to accomplish their business activities and demonstrate their business value. For example, IT delivers and supports the customer relationship management (CRM system) used by sales and marketing to track customers and prospects, develop sales forecasts, and report progress on quarterly financial goals. Similarly, IT manages the enterprise resource planning (ERP) system used by manufacturing for scheduling, inventory management, and workflow. IT executives are responsible for ensuring the smooth operation of these and many other key business tools. Without appropriate tools, these business functions would struggle to participate at the executive level and credibility for the management in these groups would suffer.
Somewhat paradoxically, the IT organization has frequently been left without the tools it needs to complete some of its own business activities. IT operations groups have specialized tools for managing technologies including servers, networks, databases, and applications. They also have tools for managing services which deliver the consumable value to end users. Many have tools, like business service management (BSM) tools, that link technology components to IT services and IT services to business impact. However, there are still a number of remaining activities for which too many senior IT leaders lack supporting tools. The CIO and those reporting to the CIO are responsible not only for IT operations but for managing the business of IT. This includes, among others, customer management, strategy, marketing, financial management, risk management, supplier and contract management, and resource management including the portfolio of services offered, human capital, and tangible assets.
Managing the business of IT involves many of the same business functions as you would find in traditional business management. The idea is to take proactive control of the activities that are best managed by IT and that are needed for IT to contribute value to the business. For instance, in managing investments and investment risk for IT, Project and portfolio management (PPM) offers IT executives a means to evaluate investment priorities, but also to look at how resources are allocated both financially and from a utilization point-of-view. IT has its own customers, users, and business partners, it has its own budget and there are many planning and strategic activities that demand analytical visibility for good decision-making.
By taking proactive control of IT-specific business activities rather than just IT operational activities, the IT organization can have far greater impact on the bottom line of the business. Even where IT is structured as a cost center, an organization that does not generate revenue for the business, IT can have a large impact on overall business productivity, quality and costs. Each of these ultimately flows to the business bottom line of profit. And impacting business profit is one sure way to a seat at the executive table. The trick for IT executives is being able to demonstrate that impact.
What the IT executive team needs is a set of tools for managing the business of IT, in some ways equivalent to the CRM system for sales and marketing or the ERP system for manufacturing. Financial governance tools for IT are emerging in the market. EMA recognizes this as a growth area for 2009 and beyond. Some tools, such as project and portfolio management, have been on the market for some time and have matured to provide extended value. Others, offering financial transparency, vendor management tied to operational performance, and enterprise portfolio management are entering the market and beginning to offer IT management teams real decision-making tools.
EMA is furthering its research in this area and will be writing on the topic early in 2009. If you are a vendor or user of tools for managing the business of IT, I’m interested in hearing your perspectives as I evaluate existing and emerging needs. Please feel free to contact me via email at lericksonharris@enterprisemanagement.com.
