An important aspect of running your IT shop in a cost-effective manner aligned with business objectives is to measure efficiency ratios or metrics.

This, as everything in business, keeps you and your team in line with your plan and most importantly, gives you perspective, or in other words tells you how you compare to the herd, a general one or a more industry-specific one. This seems funny but it is extremely important in knowing where to focus your improvement efforts and where not to waste time.

What to measure is a very good question and the answer varies from business to business, but I will try and share our experience on what matters and what is most commonly used.

I will start with general Enterprise IT efficiency ratios, and in future posts will expand to specific areas within IT.

IT Spend as a % of Total Revenues
IT Spend as a % of Operating Expenses
IT Spend per Corporate FTE
IT FTE count/Corporate FTE count
IT Contractor Usage (% FTE In-house vs. Contractor)
IT Capital spend as a % of Total IT spend
IT Operation spend as a % of Total IT spend

As to what are the specific industry values one should expect for each one of these, that varies from industry to industry and probably requires a longer conversation than this post.

Hope this helps.

What is the Bill of IT? Why do you need it?

Bill of IT is the declaration of what you can do, as well as what you have done.

In the “What we can do” part, we usually refer to what is available. This is usually presented in a form of a service catalog or services portfolio which includes what are the IT capabilities or services that are available as well as the cost, performance, activation time and benefits associated with each one of them.

In the “What did we do” part, we typically include the actual cost, use, performance, benefits for every service and all services used by an organization or a specific individual.

As IT is making its way towards a utility service, it is also adopting practices we are used to in the utility business.

How easy is it for you to figure out what type of gas, water and electricity services are available to you? How easy is it for you to order these services? How easy is it for you to understand how much did you consume and were billed for last month?

That’s where IT is heading. That’s the Bill of IT.

I have to be honest, after leading the SLA & KPI Management market for years we internally thought it a dead market. We thought that all was said and done in that space and that we had a nice ride on it.

As good, focused businessmen, we focused all our efforts towards the up and coming market of IT Financial Management, in which we played for years but seemed to really pick up only in the last two years.

Guess what? The SLA deals kept on coming and even more importantly, after directing our sales team to not sell both together, they came back with more and more feedback from customers who wanted SLA in tandem with IT Financial Management.

Well that’s a pleasant surprise! But what’s behind it? It’s very simple. Once you know the TCO and Unit Cost of services, and allocations are done accurately, you need to make decisions as to what are you willing to spend money on and how much.

But how do you do that in IT? You set a business SLA and see if you are willing to pay for it. Are you willing to pay 100K more annually so that your response time for non-critical applications is 2 minutes vs. 30? Are you willing to have your expense management system down on average 4 hours per month except for the last week of the month rather than 30 minutes but avoid 200K annually?

And the examples go on and on. Bottom line: If you are planning, showing, charging and optimizing IT cost, you must measure value.

Long live SLA’s!

The world of IT finance is changing. As we’re entering a new era of dynamic allocation, brought on by the rise of virtualization and cloud computing, Digital Fuel enables companies to allocate usage of cloud computing resources, and to track which application installed on top of an instance of a VMware virtual machine is active at any given time.

IT organizations can readily use the Digital Fuel models and templates to create an out-of-the-box experience that allows them to get started using Digital Fuel not only faster, but in a more meaningful way than other solutions.

Read more here: IT Business Edge

It is hot. Actually, hot is an insult to the actual temperatures this summer. My wife, who just started her 8th month of pregnancy, starts her day sitting on the ground, weeding or picking vegetables! Sounds odd? Sounds bizarre?

It all started when we first moved to California. My wife, a straight-A student with scholarships out of the wazoo, was trained as a psychologist and practiced with the mentally ill. She decided she was sick of the mainstream and even more than that, she wanted a job where she wouldn’t need to talk all day. She checked her options and found an organic gardening course and a carpentry course. I, in a last attempt to stick to productivity and something useful, pushed towards carpentry, but lost the battle as she missed the registration’s close date, so she went to study organic gardening in San Francisco. Life is what happens while you are busy making other plans.

She was hooked. She found her destiny! Before I knew it, she became an organic advocate, what you may call tree hugger, earth eater, and I became the enemy of the world representing the corporate capitalism in all the “interesting“ gatherings and new friends she attended and made. What’s life without some excitement?

She graduated her course and started working on different farms and CSA’s (Community Supported Agriculture) and even completed her Master’s degree in community agriculture. In 2003, she had her mind set – she wanted to open her own community supported agriculture farm. We sat down and wrote a business plan, invested some money, got some ground and started. In less than a year the business was profitable. No aggressive marketing and promotion, just word of mouth and reputation.

Today, my wife, her business partner and their employees supply fresh vegetables once a week to 400 families, from the field straight to the house. Organic vegetables are usually 3-4 times the cost of conventional produce, but my wife was not willing to charge that much – she agreed to a maximum of 30% on top of conventional market price. Agriculture workers get paid minimum wage if they are lucky. My wife insisted on paying way above minimum wage even at the cost of hurting margins, just because that is what’s right in her mind! A lady with core values.

I saw this business will catch wind and told my wife that after we succeed with this one, we will open a franchise and open a network of 200 of these farms worldwide based on our expertise. She looked at me and smiled gently as if forgiving a little child and said, “keep your capitalist colonial aspirations to your business, I don’t want to grow beyond the point where I know personally and talk once a month with each one of my customers.”

And so it was. Despite growing demand and a waiting list double the amount of customers she has, my wife is not willing to grow the business. She believes in small and personal and that’s it, end of story. In the meantime, to address the demand that my wife is not willing to fulfill, she helps some of her employees and other farming entrepreneurs open similar CSA’s , coaching and mentoring them. When I ask about competition and what if they end up cannibalizing the business, she smiles again, saying competition is good and there is enough for all of us. Interesting concept .

I can go on and on about this business that operates in a whole different approach and set of values than what we know from the high-tech industry. I can go on and on with stories about happy customers and missed business opportunities. It won’t change the basic fact that it is an amazing business, ran by amazing people who do good to lots of families.

This post is dedicated to all the folks out there who believe that business is about the creation of good products and services, and doing good to employees, customers, partners and the communities we live in.

Happy birthday my dear wife.

Good to be back.

I apologize for slowing down in the last few weeks. I was extensively immersed in an amazing flow of new customer engagements, a new version moving to QA and lots of company foundation work that really bumped us several levels ahead, enabling response to the growing demand in the market. Stay tuned!

On a separate subject and more on a professional aspect, I am being asked by customers again and again, “Where to start with IT Financial Management?” Well, here is a quick maturity road map we have developed for organizations to follow when starting down the path of IT Business Management.

Phase 1 – Understand & Communicate TCO of IT Services

• Create a cost model for highest cost applications. Mostly use percentage allocations in the cost model.
• Provide cost visibility to selected business units.
• Compare to industry or internal benchmarks.
• Data: general ledger, timesheets, blended rate for labor, invoice breakdown from external service providers, industry benchmarks.

Phase 2 – Plan and Track IT Budget, Optimize IT Cost

• Expand cost model to additional applications and new business and technical services.
• Introduce more and more usage-based cost allocations.
• Establish a formal budget and demand planning process based on service-based costing.
• Provide cost visibility to all business units and involve all business units in budget planning.
• Define and compare various what-if and forecasting scenarios.
• Consider selected cost optimization approaches as possible scenarios, e.g. server consolidation.
• Compare actual to plan on a monthly basis and re-forecast.
• Data: service usage, CMDB, utilization.

Phase 3 – Optimize IT Demand Through Chargeback

• Define cost model for majority of IT services.
• Move most of cost allocations to usage-based.
• Set service unit rates and publish a price list.
• Establish a formal chargeback process. Produce monthly IT bill for business units.
• Track cost recovery margins.
• Increase the number of evaluated cost optimization approaches.
• Data: currency conversion table

Best served cold and built one at a time!

I don’t know if you are following the World Cup games in South Africa. I am not a big soccer fan but I still enjoy loosely following this special event. I am especially fascinated with the connection between team sports and business management, and leadership in general.

All teams are made out of players who don’t usually play together, with no financial incentive to win. So what drives them? Ego, national identity or simple competitive spirit? To make all of these work, you need a leader. To take a bunch of talented players and make them tick leadership is required, the same leadership that is required in business, in military, in politics and in many other fields.

It was amazing to read about the British team eliminating their goalkeeper from the opening team due to a mistake in the first game. Guess what?  The second game ended at 0:0. A very simple axiom in management is that you can’t manage with fear! You need to support your team even if they don’t succeed. A regime of fear will kill innovation and motivation and you will get 0:0.

Remember that! Lead, don’t scare! See the spirit Maradona is driving into his guys…

ITIL- Information Technology Infrastructure Library, probably the most popular methodology for running IT. Many organizations adopted this methodology over the course of the last 5 years. This adoption started with what is categorized by ITIL as Service Transition and Service Operation, including: Change Management, Asset and Configuration Management, Knowledge Management, Release Management, Deployment and Decommission management, Request Management, Event Management, Incident Management, Problem Management, Access Management and Coffee Making Management , just joking!

All, as you can see, are part of running IT operations, hence companies appointed ITIL process owners from the delivery side of the house - the folks who make things happen, the doers. In the last few years, companies have started getting to the maturity level where they want to adopt the services design and services strategies components of ITIL as well in order to not only operate IT but also manage the business of IT by following ITIL process for Service Portfolio Design, Catalog Management, Service Level Management, Supplier Management, Capacity Management, Service Economics, IT Financial Management, and IT Demand Management.

It’s funny, but it seems like this part is handled by folks in the organization that are less into ITIL. Often you will find IT Financial Management and Vendor Governance folks performing these tasks, but not from an ITIL perspective and not connected to the ITIL folks in the organization. It seems like ITIL is still for IT ops folks, and IT Finance, Vendor Management, Demand, and Economics are different folks in the organization.

Will a merger happen or will this line between IT ops and IT Business Management always exist? Will ITIL be the bridge? Time will tell…

Seems like the good old discussion about chargeback vs. showback has come to life again. Several esteemed writers have recently touched on this subject.

Well truth needs to be told, the majority of companies still don’t perform full billing and chargeback for IT services. Statements like “We tried it but the hassle was not worth the benefits“ are still heard in IT corridors and conference rooms. That said, Chargeback is definitely getting some back wind recently and more and more companies are considering doing full chargeback. This is driven by the move to centralized shared IT and the growing adoption of shared virtualized resources, in which case you must breakdown cost by usage.

Also the growing awareness of running IT in a cost effective manner is driving organizations to empower BU’S to take responsibility over their IT spend by performing chargebacks. Here comes into play a method that seems to be very popular recently as well, show back, a lightweight, less formal version of chargeback. This method is the process of showing BU’s and P&L’s what was the actual IT spend of their organization but not actually charging back. This is much easier to achieve as you don’t need to deal with setting a price/ rate list, which chargeback requires.

Personally, I find that the difference between companies who perform chargeback and those who just do show back is less a matter of taste and choice but more a function of the business structure. Companies who are divided into multiple legal entities and P&L’s will usually do full chargeback. They simply need to for tax and regulatory purposes. Companies who have a simpler structure will stick with show back as a method for behavior changing.

Back from a week in classic Europe and on my way to the East Coast. Spent some time in England, Switzerland and Spain with customers and prospects at IBM, Steria, Swiss RE, BT, Telefonica, Capgemini, and HMRC.

Spending more than 50% of my time on the road definitely gets tiring, especially with 2 young daughters and a pregnant, beloved wife at home. But it is all worth it when I meet customers who use our software. Of course, I’ve already told you about that and don’t want to bore you.

I love Europe. The history, the culture, the character, the colors, and real people who have perspective on life and know how to live it! I’ve been recently criticizing the western world, stating that we spend more than we produce, take loans we can’t return, that many of us don’t really create anything but just trade and deal, and that government debt is inherent to democracy. After all, to win elections you need to win a popularity test, and anyone who ever managed people knows you can’t be popular if you make the hard, right decisions. How can you be fiscally responsible if you need to win a popularity test every 4 years?

But after a few days in Spain and in other European countries, all my economic theories break down, and I’m thinking, we need them! The world just won’t be the same without Madrid, Rome, Athens, or London.

I was lucky to have Madrid on my tour agenda this visit. I simply love it. The historical buildings, the lively atmosphere, the amazing tastes, the joyful people, the passion, and the passionate language rolling off their tongues.  And the food – oh, the food. I can’t spend time in Madrid without sitting at a local restaurant and having a good glass of local wine with a big dish of Cordero Asado, lamb grilled slowly for many hours in an oven with just water and salt sprinkled on it. It’s a simple, heavenly dish. No sophisticated spices, just pure, soft-as-butter lamb meat that melts in your mouth. I think Laith, my director of EMEA PS got scared seeing me enjoy it so much…

All of you who have any doubts, make no mistake – the world needs Europe. I asked Vince, my CFO, to prepare a proposition for our board to buy Spanish government bonds in return for a steady supply of Cordero Asado.

Just kidding