IT Service Management: Bridging the Gap between ITIL and Business Value with TBM

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Summary

If you’re headed down the road to IT Service Management (ITSM), then you’re probably leveraging the IT Infrastructure Library, or ITIL®. Since its origin some 25 years ago, acceptance and adoption of ITIL has continued to grow – to the point that it now plays a major role in how many technology leaders are attempting to “align IT with the needs of the business.”

However, the truth is that, while many ITIL initiatives are benefiting IT organizations, they rarely deliver value the business really cares about. This is because most organizations apply ITIL with a technology-centric, “inside-out” approach to service management, when what’s really needed is a customer-centric or “outside-in” approach that focuses on business needs and outcomes. To achieve this perspective, IT must first be able to relate to the business in terms it understands.

Technology Business Management (TBM) bridges this gap, providing the missing link required to integrate IT services with the needs of the business, maximize business value, and quantify that contribution to the business. This is achieved through a decision-making framework that relies on cost visibility and cost transparency to empower meaningful conversations between IT and business stakeholders, enabling them to “speak the same language” in determining the cost and quality tradeoffs required to optimize run-the-business spending and change-the-business investments. When combined with ITSM and ITIL, TBM provides a practical, applied approach for maximizing the business value received from every dollar invested in a services portfolio.

ITIL: The De-Facto Standard for IT Service Management

Over the years, ITIL has evolved from a focus on service delivery and support to encompass the entire services lifecycle.

ITIL v3, published in 2007 and updated in 2011, breaks that lifecycle into 26 processes that are grouped into five volumes:

Service Strategy, Service Design, Service Transition, Service Operation, and Continual Service Improvement.

As ITIL’s scope has grown, so has its following. The official ITIL website bills ITIL as “the most widely adopted approach for IT Service Management in the world.” A 2011 study by the APM Group (Ref: Review of Recent ITIL Studies for APMG by Rob England, APM Group Ltd., November 2011) on the state of ITIL adoption (an evaluation of 23 other studies on its use) estimated that up to 83 percent of the study’s population has adopted ITIL. The study goes on to state a compounded annual growth rate (CAGR) of 20 percent in the ongoing adoption of ITIL, along with a CAGR of 30 percent in the number of ITIL course attendees over the previous 10 years.

But how successful has the adoption of ITIL been to date? The simple truth is that, while ITIL has benefited IT, it often fails to deliver value that is recognized by the business. In the remainder of this paper, we’ll take a closer look at why that is – and more importantly, what service management professionals can do about it.

Alignment with Business Needs: ITIL’s Unfulfilled Promise

ITIL’s broad adoption is being driven in large part by its promise to “align IT with the needs of the business.” (Ref: Information Technology Infrastructure Library, Wikipedia, retrieved 08/28/2014) ITIL purports to do this through six capabilities that, according to the official ITIL website, include supporting business outcomes, enabling business change, managing risk in line with business needs, optimizing the customer experience, showing value for money, and continual improvement.(Ref: The Key Benefits of ITIL for the Organization and the Professional, Axelos, July 2013.)

In turn, these capabilities give rise to a set of benefits that include :

  • Benchmarking services and maximizing return on investment
  • Ensuring the quality of service(s) matches customer needs and expectations
  • Forecasting, responding to, and influencing the demand for your services in a cost-effective way
  • Building and maintaining positive business relationships with customers and improving satisfaction

At first glance, these benefits look to be “business-centric,” implying a positive impact on the business as a customer. So why then, according to a 2013 survey of service management professionals by Forrester and the IT Service Management Forum (itSMF), do only 13 percent of service management professionals say that ITIL has “significantly benefited” its reputation with the business?(Ref: The State and Direction of Service Management: Progression, Deceleration, or Stagnation?, Forrester, April 2014) It’s because ITIL approaches all of this from a process and services perspective (i.e., looking inside-out from the technology organization to the rest of the business).

To get the intended benefits out of ITIL, you need to shift the focus to the needs of the business; only then can you best determine what the business needs from IT in order to achieve its goals. This is how things should be done, and most service management professionals know it. Unfortunately, few organizations do this well (or at all) today. Forrester’s aforementioned report (Ref: The State and Direction of Service Management, Forrester) on the state and direction of service management reinforces this perspective:

“The way we think forms the basis of our actions, and as technology management professionals, we often focus too much on the technology itself rather than on the business requirements that drive it. Service management, as a theory and practice, is rooted in product marketing and management principles that place the customer at the center of all decision-making within the service provider organization. Unfortunately, this extreme customer focus is often lost when the principles are applied to technology management, producing the well-known discipline of IT service management (ITSM). In today’s age of the customer, this absence is unacceptable.”

Why So Many ITSM Initiatives Fall Short: A Lack of Demonstrable Business Value

“Why do IT organizations struggle so much with talking to the business? It’s exactly just that, they talk TO the business. IT organizations, and even some IT best practices (i.e. ITIL) have talked about ALIGNING with the business. Alignment is an interesting word. Alignment generally means to work in parallel. In order to be fully successful and prove value, IT organizations have to be INTEGRATED with the business.” Jason Rosenfeld, Practice Leader, Service Management, Cask LLC.

Without a business-centric focus, service management initiatives run the risk of becoming an “innovation trap.” Even if you believe that ITIL has had a positive impact on service quality (i.e., ITIL is benefiting IT), as did 73 percent of service management professionals in the aforementioned Forrester/itSMF survey, you’ll have a hard time proving your contributions to the business if you can’t communicate them in terms of business value delivered. Case in point: how many nontechnical stakeholders in your organization know what you mean by terms such as service standardization, application rationalization, or SLA breach rates?

This lack of perceived business value – whether justified or not – is one reason why Forrester concludes that “Service Management has both progressed and plateaued.” Forrester goes on to state that, “Demand from the business is growing exponentially, while technology management’s ability to support it is progressing linearly, and though service management is an integral part of IT, it is not immune to obsolescence.”

Lack of demonstrable business value is also why many ITSM initiatives never get past the service desk, or basic incident management. APM Group’s review of ITIL studies confirms this. Not surprisingly, customer satisfaction ranked #1, which makes sense from a service desk perspective.

However, the next three top benefits of adopting ITIL have clearly been more tactical (i.e., technology centric) than strategic (i.e., business-centric):

  • Cost control ranked #2, with a weighted score of 50
  • Faster response and resolution ranked #3, with a weighted score of 38
  • Standardization of service ranked #4, with a weighted score of 31.

Higher-level, more business-centric benefits were significantly farther down on the list – for example:

  • Deliver business objectives ranked #15, with a weighted score of 15.
  • Return on investment ranked #21, with a weighted score of 5.
  • Competitiveness ranked #24, with a weighted score of 3.
  • Profitability/revenue ranked #27, with a weighted score of 3.

Two observations in the APM study confirm this lack of a focus on business value:

“Interesting here that the primary focus appears to be on cost control/damage limitation, and not so much on ‘innovation’ and differentiating a business. It appears to be seen very much as an operational thing (think ITIL V2) as opposed to a strategic and differentiating asset (think the ITIL V3 theory).”

“The outcomes support the assertion that ITIL projects are rarely to support direct business value such as ‘innovation’ or ‘business transformation’. Many ITIL implementations start and finish with incident management. This provides short-term customer satisfaction.”

Putting Business Value at the Core of ITSM

Given the need to focus on and deliver demonstrable business value, the question becomes “How?”

The answer is both practical and straightforward: IT needs to be able to speak in terms that the business understands – namely, cost and quality. This baseline provides a common language and starting point that technical and nontechnical leadership can use to align IT services to business needs and objectives.

Cost provides a definitive and credible starting point for measuring and discussing value, the latter of which is inherently more subjective to measure. By providing business stakeholders with an accurate total cost for IT services, you empower nontechnical stakeholders to understand how those costs affect their bottom line, determine whether the cost of those services exceeds the value being received, and ultimately decide which of those services they really need and which are candidates for retirement.

You’ll need a similar understanding of the quality of your IT services – the term referring to all the attributes that contribute to the value delivered by your services. Put another way, these are the things that stakeholders find important.

For an ERP application, they might include service availability, transaction response times, and cost-per-transaction. For the service desk, they might include customer satisfaction, mean time-to-resolution, and service level agreement (SLA) breach rates.

Once you are able to quantify and communicate cost and quality, how then can you use this information to maximize business value? The simple fact is that you can’t – at least not on your own. As an IT leader, you can best manage the cost and quality of the services that your team delivers. Your stakeholders, on the other hand, are the best judge of business outcomes. To bridge this gap, you need a decision-making framework for collaborating with business stakeholders on cost, quality, and business outcomes. Only through such an approach can you decide where best to apply ITIL – and demonstrate the business value it helps you provide.

The Gaping Hole in ITSM & ITSM Solutions

More and more CIOs are turning to TBM for a better way to integrate with the business, provide true cost transparency, financial awareness and start showing the money, as Jerry Maguire once said. … It’s not just about projects…It’s about integration with how the business operates, demand and capacity, cost vs. quality, true visibility, and balance across an organization.” Jason Rosenfeld, Practice Leader, Service Management, Cask LLC.

By now, we’ve established that getting the most out of ITIL requires measuring the value provided by IT in business terms, using that information to drive collaboration with nontechnical stakeholders about how to “get the most business value from every dollar invested in IT.”

To do this correctly, you’ll need to understand and present the total cost of supporting each service or business entity. What’s more, you’ll need visibility into all of the components that make up that cost – including hard, soft, variable, and fixed. Put another way, you’ll need cost transparency.

ITIL defines the need for a financial perspective in the context of ITSM as IT Financial Management, or ITFM, which it breaks down into four sub-processes: Financial Management Support, Financial Planning, Financial Reporting and Analysis, and Service Invoicing. However, its guidance in this area doesn’t go far enough to achieve true, sustainable cost transparency.

For example, ITFM fails to articulate a coherent approach for routinely managing the total cost of services, measuring their variable costs, or providing a meaningful “Billing Standard” to the consumers of those service.

This lack of sufficient guidance should come as no surprise given that, as the name Financial Planning for IT Services suggests, the focus is primarily on services (think rate cards and chargeback/showback). In part, this is due to a vague and overly narrow focus, which states that “The objective of ITIL Financial Management for IT Services is to manage the service provider’s budgeting, accounting, and charging requirements.”(Ref: IT Process Maps, Financial Management, IT Process Wiki – the ITIL® Wiki) Clearly, this focus is IT-centric and ignores the financial impact to the business of IT services they consume.

The end result is a “corporate accounting” approach that fails to bridge the gap between IT services and business value. It doesn’t provide enough detail to make credible, defensible decisions, and does nothing to address how to invest across a services portfolio to get the most out of every IT dollar.

Forrester’s report on the state and direction of service management confirms the importance of a cost perspective, concluding that ITFM “has improved slightly… But still sits below average maturity.” The report goes on to state that “You cannot be ‘good’ at financial management without transparency,” concluding the discussion on ITFM with the following expert tip:

“Transparency of your technology management costs is fundamental to understanding your technology spending. Technology management organizations face pressure to reduce costs of technology management on one hand, while delivering more value on the other. The only successful strategy is the effective management of demand, ensuring that technology resources are applied to the maximum benefit for the business. Costing Standard is the first critical step to fulfill this and should be the first step in your financial management journey.”

Given that the ITFM guidance within ITIL doesn’t go far enough to address cost transparency, it should come as no surprise that such capabilities are also sorely lacking within existing ITSM tools. This lack of functionality can be partially attributed to the fact that the origin of such tools is mostly rooted in help-desk and incident manageme nt. A recent Gartner analysis of BMC and ServiceNow,(Ref: How to Decide Between BMC and ServiceNow for ITSSM and Beyond, Gartner, July 2014) the top two market share leaders in IT service support management (ITSSM) software with a combined 50 percent share, confirms this, giving both offerings a “N/A” in comparing their ITFM capabilities (one of 17 capabilities of ITSSM tools examined in the report).

TBM: Bridging the Gap Between ITSM & Business Value

Technology Business Management (TBM) is a practical, applied approach for maximizing the business value received from every dollar invested in IT. It achieves this through deep, sustainable cost transparency across an entire services portfolio from all perspectives, including CapEx and OpEx; direct and indirect costs; variable and fixed costs. TBM also addresses all phases of the services lifecycle – from planning and project spend through ongoing operations and service retirement.

At the core of TBM is a decision-making methodology to help technology leaders and their business partners collaborate on optimizing how IT dollars are spent – for example, determining whether the benefits of storage re-tiering are worth the additional cost. A few other examples include datacenter consolidation, sunsetting applications, and “upstreaming”

costs to self-service and the service desk. Just as important, since IT resources are finite, TBM helps determine which of those initiatives (or combination thereof) can yield the greatest bang-for-the-buck. Such tradeoffs are essential in finding ways to deliver greater value even in the face of resource constraints. Even if budgets are increasing, TBM ensures maximum return on every IT dollar spent.

TBM also addresses transparency in service quality and demand for IT services, enabling IT leaders to:

  • Quantify the total costs of IT services and applications, and understand their major cost levers
  • Establish a baseline from which to identify opportunities and turn insights into action
  • Clearly communicate the business value delivered by IT – in terms of contribution to desired business outcomes

So how does TBM achieve this? The image below shows the TBM Framework, which starts with positioning an organization to manage the supply chain of IT – including roles, responsibilities, and processes. Building upon this foundation, TBM defines three core disciplines needed to make collaborative decisions with business partners:

  • Understanding and benchmarking true cost and quality
  • Changing behavior through bidirectional transparency (in terms of costs, quality, and business consumption of IT services)
  • Planning with greater confidence

In turn, these three core disciplines support four ways to maximize business value through tradeoffs. The first two – optimize cost for quality, and rationalize to sustain value creation – address decisions required to run-the-business more cost-effectively. The other two –innovate to grow and compete, and transform the business by enabling agility – address decisions required to optimize change-the-business investments. At the end of the day, not only does runningthe-business more cost-effectively help IT demonstrate credibility, but it also increases what’s left over for change-thebusiness investments.

Last but not least, because an organization’s ability to maximize business value depends on its ability to act on these types of decisions, TBM combined with best-practice guiding principles addresses all the elements necessary to instill a performance-based culture – including governance, roadmaps, organizational change management, training, marketing IT services, the socialization of TBM, and the proper operational cadence for TBM decision-making.

The end result of all this? Service owners and underlying infrastructure owners have the transparency, benchmarks, and other insights required to optimize their services. Business partners and consumers understand how their consumption of/demand for those services affects their cost, in effect helping them become better consumers. And governance is improved as business and IT leaders develop a better understanding of the true costs and tradeoffs associated with a services portfolio, including both run-the-business spending and change-the-business investments.

“It’s more critical now than ever, as a Senior IT leader, to understand costs and the value IT provides back to the business. Don’t be the last of your peers to this game, as it’s already begun!" – Jason Rosenfeld, Practice Leader, Service Management, Cask LLC.

Getting Started with TBM

TBM and ITSM are complementary and should be used together in parallel – in fact, the shift to a services perspective is the primary reason why most IT leaders adopt TBM. It enables them to explain their costs and resources in business terms, often for the first time. The end result is that the business receives more value from IT, and service management professionals are able to improve IT operations and demonstrate real business value.

If your service transformation is already underway, take a short pause to understand how TBM can bolster your service initiative as an integral part of your service delivery strategy. If you’re still thinking about ITSM, consider starting with BM as the baseline in which to define a successful service strategy. With an accurate picture of total costs, you’ll be in a much stronger position to evaluate your strengths, weaknesses, opportunities, and threats. You will be able to make the business case for where to focus your efforts, and ensure that IT strategy remains aligned with business needs.

Apptio is the leading provider of cloud-based Technology Business Management (TBM) software that helps CIOs manage the business of IT. For more information, visit the Apptio website or the Apptio blog at www.apptio.com.

Cask is a Business and Technology Management Consulting firm focused on providing clients with a dynamic range of services including strategy development, decision support and roadmaps, service design, service costing, process improvement, education, and organizational transformation. For more information, visit the Cask website or the Cask blog at www.caskllc.com.