For Johnson & Johnson, ITIL Means No More I.T. TearsBy Rob Garretson | Posted 02-07-2007
For Johnson & Johnson, ITIL Means No More I.T. Tears
Six years ago, Johnson & Johnson was among the world's oldest and most profitable heathcare companies. In 2001, profits hit nearly $5.7 billion on sales of $33 billion, and the far-flung enterprise surpassed 100,000 employees at 197 operating companies in 54 countries. But despite strong, double-digit growth in both sales and earningsup nearly 16 percent that yearthe New Brunswick, N.J.-based healthcare giant had a serious problem.
IT infrastructure costs were also growing at double-digit rates, while demand for servicesservers, storage, applications, hardware and particularly end-user supportwas growing just as rapidly. In 1996, the 120-year-old company had embarked on a wrenching shift to consolidate IT infrastructure under a single, centralized division, defying its heritage as a confederation of fiercely independent operating companies. The purpose was to corral uncounted millions in IT spending. (See Case Study: "Johnson & Johnson and Managing IT," December 2001.)
After federalizing its IT infrastructure, J&J could finally track technology costs across its globally dispersed and diverse operations. But the numbers still weren't pretty: With a global IT budget of $1.2 billion in 2001, double-digit growth in spending was not acceptable. In response, the company turned to its Networking and Computing Services division to provide IT services across J&J's global enterprise, and installed Michael Shea as president.
Among the key tools that Shea and his management team at NCS tapped to help control technology spending was a decades-old set of best-practice guidelines for IT service management called the IT Infrastructure Library, or ITIL. Originally developed by the U.K. government as a model for its outsourced service providers, ITIL is widely used by European companies as a framework for IT service management, and in recent years it has begun to gain momentum in the U.S. Its proponents often cite ITIL as a method of "running IT like a business."
Today, J&J's NCS manages nearly 97 percent of J&J's global IT infrastructure, according to NCS president Shea, and its budget is flat, even as demand for IT services from the operating companies continues to grow. IT costs that were growing at double-digit rates until 2003 have been trimmed over the past four years to a compound annual growth rate of minus 1 percent, in part thanks to ITIL, says Sylvia Weaver, vice president of process and compliance excellence at NCS. As a percentage of J&J's worldwide revenue, IT infrastructure costs dropped from 1.56 percent in 2001 to 1.2 percent in 2005, and Shea says he intends to trim that to 1.1 percent by 2009.
Like other IT governance or service management frameworksincluding the Capability Maturity Model (CMM) and Control Objectives for Information and Related Technology (COBIT)ITIL defines the terminology and outlines the key steps in the process of delivering, supporting and managing IT operations. When done right, ITIL helps an IT department improve its quality of service. How? By (among other things) providing faster problem resolution, thus increasing system uptime and security as the root causes of problems are discovered and corrected faster than the patchwork of ad hoc methods many IT departments use.
For instance, ITIL breaks down the response to a condition, such as a server outage, into separate tasks in fielding and recording the incident (incident management) and diagnosing and fixing the problem (problem management). In ITIL-speak there's an important distinction between an "incident," which is the event of the server failure, and the "problem," which is the cause of the failure. ITIL specifies steps that a help desk should take in fielding, recording and responding to incidents. Proponents say the big cost savings and increased uptime come from the subsequent steps in analyzing the underlying problem and eliminating it.
By applying its "Process Excellence" methodology, of which ITIL is a central component, J&J saw "cost savings and avoidance" of more than $30 million in 2005 alone. Among the Process Excellence projects highlighted in the most recent NCS Annual Report was the application of ITIL processes to the NCS China help desk, which over an eight-month period shaved one-third off the average time between incident report and resolution, from 27 minutes down to 18 minutes. The process improvement freed up more than two hours per day that help-desk personnel could dedicate to other activities, the report says.
In 2005, applying the ITIL framework to hardware acquisition at J&J Commercial in Latin America achieved more than a tenfold improvement in the time it takes to install new hardware. The previously undocumented approval-and-delivery process made users wait an average of 60 days from the time new hardware was requested. According to the NCS Annual Report, the project to document and streamline hardware standards, approval mechanisms, development of hardware scripts and physical delivery has cut the average wait down to five days.
Adopting the ITIL framework back in 2001 made J&J a pioneer among U.S. companies. But a growing cadre of mammoth U.S. organizations, such as Procter & Gamble Co., General Motors Corp., Nationwide Mutual Insurance Co. and the U.S. Navy, are also using the principles of ITIL to shave hundreds of millions in IT costs by delivering services faster, more consistently and more reliably.
"It's only a matter of time" until U.S. companies catch up to their European counterparts in adopting ITIL, says Forrester Research Inc. analyst Chip Gliedman. "About another 20 percent of large U.S. organizations are adopting ITIL each year. But J&J was extremely ahead of the curve," in adopting ITIL in 2001, he adds. "And since they've actually done a fair amount of it, they're still ahead of the curve."
ITIL Hands on Deck
ITIL Hands on Deck
When J&J turned to ITIL six years ago, the company was already five years into its sweeping overhaul of technology operations that centralized infrastructure services under the newly created NCS. Then-CIO JoAnn Heffernan Heisen set out to rein in IT costs by $50 million per year by 2003. More important, she wanted to trim the percentage of spending on basic infrastructure to free up funding for applications that would drive J&J's business, such as those that could accelerate the pace of pharmaceuticals research.
By the end of 2001, Shea's infant NCS division had succeeded in annexing half the infrastructure supporting J&J's globally far-flung, loose-knit collection of operating companies. Yet with the other half of IT services still under control of local operating companies, and with lingering cultural resistance to centralization, Shea needed more weapons in his arsenal.
Enter Sylvia Weaver, who joined the newly created NCS in 2000 from J&J's Independence Technology subsidiary, where she designed the business model for the sale and delivery of the IBOT, a gyro-balanced motorized wheelchair similar to the over-hyped Segway scooter (but available only by prescription to people with mobility impairments). The challenge Weaver faced at NCS was not only how to wring costs out of J&J's IT spending through the efficiency of centralizing, but also how to win the hearts and minds of CIOs at the operating companies, as well as thousands of employees annexed in the creation of NCS. The division had to deliver services better and more cheaply, all while improving the working environment for hundreds of IT support personnel who now had new bosses.
Shea and his leadership teamwhich, in addition to Weaver, included regional vice presidents in charge of the company's four key geographies: North America; Europe; Africa and the Middle East; and Asia-Pacificmet in early 2001 to hash out a number of process improvement initiatives aimed at increasing efficiencies, driving down costs and improving customer satisfaction.
ITIL isn't the only process improvement methodology J&J adopted in that meeting five years ago. Also coalesced under the J&J rubric, Process Excellence, were the trendy Six Sigma and Lean Manufacturing disciplines for eliminating waste in business processes. Yet ITIL is specific to IT service management, and as such remains central to the massive and ongoing overhaul of J&J's IT operations.
One of the key benefits of the ITIL methodology is that it describes ways to quantify and measure the quality of IT service delivery. By such metrics, according to Shea and Weaver, J&J has made major improvements to the efficiency of its infrastructure and has saved tens of millions in annual expenses. For example, between 2002 and 2006, the volume of change requests NCS fielded from the operating companies mushroomed by 250 percent, Weaver says. Yet its success rate for implementing system changesa failed request is one that is attempted but must be backed out of the system because of a problemincreased to 99.5 percent in 2006, up from a respectable 98.7 percent in 2002. "A significant difference in terms of volume," she notes. "But we've been able to handle that volume and still improve the rate of success."
End-user satisfaction is another key indicator that ITIL and other process improvements that NCS implemented are working, Weaver says. In its most recent survey of users across the worldwide operating companies, NCS achieved user satisfaction of 94 percent, she says, guessing that satisfaction levels in pre-ITIL days, before they gathered such data, probably hovered around 80 percent.
Critics note that ITIL can be a struggle for companies looking for rapid improvements in their operations. Because of the breadth of the guidelines, the need to adopt a potentially new vocabulary, the inertia typical of large IT shops, and the cultural changes required to implement the methodology, ITIL can be a serious challenge for many organizations. And even when done well, the framework takes years to implement, even if only in small pieces. "We're nowhere near done," says Weaver.
"In any situation, implementing these processes usually involves changes to the way people work, and facilitating this can take time," agrees Tracey Torble, an IT service management consultant with T2 Consulting in Berkshire, England, who worked with a U.K.-based J&J subsidiary on its ITIL implementation more than five years ago. "In a situation where an organization has multiple operating companies in different countries, the problem is magnified."
Weaver acknowledges that introducing a change across a company as global, diverse and steeped in tradition as J&J is not without its challenges. "When you're working with different groups from around the globe, everyone has an attachment to the way they do things," she admits, adding that she often fields the question: "Why do we need to change? It's working fine the way it is." Yet by providing a third-party framework not created by any individual unit of J&J, ITIL has helped with the politics of federalizing the company's formerly decentralized IT organization. Says Weaver: "It's almost as if ITIL provides a neutral zone. It's not one group versus the other. It depersonalizes the situation and allows people to [say] 'well, if this is the best practice, how can we build a process that aligns with it?'"
But like other service management frameworks, there are cultural impediments to ITIL that don't stem from inertia alone. "Once I tell you how to do something, in a sense I've diminished my own value within an organization," notes Forrester's Gliedman. "So we often see a pushback from people who are afraid that documenting how they go about solving problemswhat their personal secret sauce iswill make them less valuable. Plus, people just don't like to change. Change is scary."
Even staunch advocates of ITIL acknowledge that the necessary training and documentation it requires can be time-consuming, depending on the size and complexity of the IT department that adopts it. And the ROI for investing in ITIL can be even harder to measure than other IT projects, which are notoriously hard to cost justify. Metrics such as response-time improvements on J&J's China help desk, or shorter delivery lags for new hardware acquisition in Latin America, are fairly easy to calculate. Yet their bottom-line impact, or even the benefits of system uptimefrom outages that may have been prevented through the ITIL methodologyare not clearly visible on the balance sheet. "When was the last time you called your doctor to thank him that you didn't get the flu?" quips Gliedman.
Both by necessity and design, J&J has taken a slow, measured approach to introducing the ITIL concepts to its IT operations. Like most recent U.S. converts, it started with just a few key functionsincident and problem management, then change and configuration managementbefore attempting to spread the gospel to other parts of its operation.
After the 2001 management board meeting that launched ITIL as a strategic initiative, NCS convened an "all-hands" meeting of about 150 key managers who performed an assessment of procedures and how well they mapped to the ITIL framework. "There was a fairly broad gap between our processes and what the framework recommends," Weaver recalls. "The next step was building awareness about ITIL; what the framework would offer and how we could use it in our organization."
In addition to bringing in ITIL consultants to conduct informational briefings to promote the discipline, NCS offered ITIL certification to interested personnel, but did not mandate training across the board. Where specific problems surfaced, ITIL was applied as the corrective guideline. But there was no forced march, Weaver maintains. "We launched it in a grassroots kind of way," she says. "Where we had issues in the organization, we launched process-improvement efforts." For instance, when NCS wanted to improve the tracking of IT assets, it consulted the ITIL framework to help determine the best way to build and manage an inventory visible from a central repository. Weaver explains: "We started to use ITIL as the framework for process improvement, but we did not go in order, process by process."
In its first year, J&J trained about 50 of its engineers and support personnel in the ITIL basics, known as the Foundation Certification. The following year another 50 people were ITIL certified. As of the start of 2007, about 350 of NCS's total 1,200 IT personnel are certified in at least the foundation level, Weaver says.
And though it has been preaching the gospel for more than six years, J&J is only at the beginning of its ITIL journey, and plans a major "re-launch" of the initiative in 2007. Yet unlike the ad hoc, semi-voluntary efforts of the past six years, Weaver says, J&J's new ITIL thrust will be a top-down initiative.
"To that end, this time around, we trained the president [Shea] and his direct reports through the ITIL Foundation Certification," she says. "So what each leader is expecting from his or her staff is much more specific."