Create a Competitive Edge by Managing IT like a Business

By Shahryar Shaghaghi, Kurt Salmon, CIO Advisory

Financial services CIOs and IT CFOs face an increasingly intractable problem: IT demands continue to grow on a near daily basis as technology becomes increasingly intertwined throughout banking products and services divisions, yet IT budgets tend to remain nearly stagnant. Advanced technology services such as virtualization, big data and cloud computing – essentials to effectively competing in today’s business environment – are also adding greater complexity to what is already frequently viewed as the “Black Box” of IT organization costs.

Those in charge of IT budgeting and cost allocating find themselves under pressure by their boards and business leaders to be more proactive in demonstrating added value to the strategic business units they serve and more transparency in assessing costs allocated back to the business. Without this clarity, it becomes increasingly difficult to assess and manage the IT organization as a strategic added-value unit of the overall business.

IT Financial Management – Transparency, Efficiency, Strategic Value

An effective approach that can help organizations achieve a competitive advantage in their business is to take a holistic view of the IT organization through IT financial management (ITFM). Essentially, this approach views the IT organization as a standalone strategic business unit (SBU) of the overall organization, with the requisite focus on proactively offering products and services to its financial services line of business clientele, while providing price transparency to management and controlling input costs.

This approach adds value to the organization in the following areas:

  • ITFM provides cost transparency, increasing accuracy in the attribution of costs to specific products, services and lines of business and leading to better investment decisions, more accurate and understandable billing, and clearer budgeting.
  • ITFM creates the visibility needed to better value the role of IT in the delivery of line-of-business products and services, helping to rationalize investment both in IT, as well as the IT-supported business products.
  • The linkage of cost with actual consumption enables more efficient resource allocation and decision-making, resulting in an improved ability to align IT resources with business value.
  • With established services and unit rates, IT can start to be run like a business – both financially and functionally in the organization.

Rationalizing Operations & Technology Costs

Putting ITFM Into Action

Successfully implementing an ITFM approach begins with an introspective look at the current state of the IT organization. This internal view includes defining a current standard set of IT products and services, detailing line-of-business consumption of IT services on a “rate times volume” basis and establishing clear business unit responsibilities for managing IT consumption and growth. The bulk of the ITFM implementation work occurs at this stage, as the IT organization defines key drivers to help align costs to IT products and services and looks to benchmark unit costs against the IT divisions of other financial firms. This upfront work may posit difficult questions, as the IT organization looks to determine which services deliver the most value and which may deliver little or no value. This is a critical stage in the process, however, that will drive future efficiency gains and cost savings.

From this point, the business as a whole must determine a desired future state, whether this is IT cost savings, better utilization of key technology resources or simply more transparent IT costing.  A comparison between the initial assessment and the desired future state will reveal what gaps exist and help illuminate a plan forward for transforming the IT organization to meet this future vision. Continued benchmarking against industry best-in-class examples will enable IT to identify areas of opportunity for pushing best practices ahead in the business, as well as potential areas of under investment that should be more closely considered under the next budget cycle.

IT Financial Management Maturity Curve

The value of ITFM increases over time as the process matures and is refined over iterations, moving from basic models and simple processes through to full business alignment and behavioral change.

Business Value ITFM Maturity

Source: ComSci

An effective ITFM process encompasses several phases of maturity, and it is not necessary for every part of the process to reach the same level of maturity simultaneously. ITFM is a cyclical mechanism that develops over time, through multiple iterations. When successfully implemented at any stage of maturity, ITFM helps financial organizations to continuously provide visibility and transparency of IT consumption and cost, enhance partnerships between the IT organization and lines of business and enable better budgeting and strategic decisions for the business as a whole.

Shahryar Shaghaghi (shahryar.shaghaghi@kurtsalmon.com) is a Partner with Kurt Salmon’s CIO Advisory practice which assists CIOs in formulating, planning and executing programs that improve the responsiveness, adaptability and cost-effectiveness of their IT organizations and drive overall business performance.

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