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The Promises of Moving IT to a Services Model

CEOs agree that IT is a key enabler to improved business efficiencies and competitive advantage. What frustrates them about IT is the speed of delivery, high costs, and quality of solutions. Moving IT to a Service Model and running IT as its own business unit with its own P/L has the potential to lower IT costs, improve quality, and deliver projects quicker.Most CIOs attempt to make their IT departments faster, better, and cheaper, but they are hamstrung since ~80% of their budget and staff are used to support existing systems. This is due to:

* Project based funding--Every project funds only for the immediate business requirements. After decades of projects, IT becomes a hodgepodge of legacy systems that are "hacked" together, and any change requires a lot of effort.

* Vendor controlled--Vendors convince IT that their products and services are the best and a premium should be paid. The vendors dictate the architecture and solutions.

* Non-Proactive culture--Change requires architecture discipline to mediate between competing priorities, new skills, and risks in terms of availability and performance.

ITIL Service Catalog and Services Oriented Architecture take IT and define it as a set of services. Each service is sharable, reusable, and implements a discrete piece of functionality through a well defined interface. The value includes:

* Focus on Requirements--The business dictates its requirements, and IT prices out the solution per requirement versus the entire project. This enables the business to decide what is critical now and defer some requirements to future enhancements.

* Modularization--With every IT service made from a set of sub-components, the underlying technology and vendor products are hidden from the business. IT can swap out components to improve cost, quality, and/or delivery.

* Smart-Sourcing--Permanent staff who are accountable to architect, manage, and support IT services and task out-sourcing, building, and deployments based on supply and demand.

* Benchmarking--With standard services, IT can benchmark itself against equivalent service offerings by 3rd parties and competitors. Benchmarking will highlight whether component costs are too high, processes need to be refined, and/or staffing model is not optimized.

The transition of IT to a Services Model can be difficult because:

* Investment--It takes a significant infusion of capital and effort to transition to a Services model, and the ROI takes years and is difficult to measure.

* Financial Coordination--Linking IT spending directly to specific business unit P/L and being able to predict and control IT spending. Charge-backs for services becomes a hot topic.

* Silos--The conflict inherent with a mixture of vertical groups responsible for their IT components and the horizontal architecture and service groups responsible for solutions.

* Measurements--Service Level Agreements around cost, quality, delivery, and performance requires defining what to measure, the associated thresholds, and the ability to automatically track and report on them.

Changing the culture, organizational model, financial controls, and IT vendor relationships takes significant time and commitment. Just like CRM, SCM, ERP, or any other large, multi-year IT initiative, the benefits outweigh the risks, but the path there is never easy.