Benefits of the IT Business OfficeBy Bob Reinhold
Building an IT Business Office
The challenge of demonstrating the business value gained from IT spending has been an issue for as long as there has been IT. This is particularly a challenge for financial services firms as they strive to respond to emerging regulatory requirements and drive a growth agenda in the current cost-constrained environment. But these challenges are not unique to financial services. Improving the ability to measure and communicate the business value of IT is critical for any organization in this challenging economic and regulatory environment.
One of the greatest pitfalls in linking spend to value is the common communications gap between the business and IT. IT professionals have developed a robust set of metrics designed to drive the management of IT; unfortunately, expressions like "four nines of availability" and the maintenance of "DASD utilization below 75%" are often meaningless to, say, the head of the wealth management business. According to David Reilly, Technology Infrastructure executive and Chief Technology Officer at Bank of America, "there is a big difference between management information and management reporting -- the metrics you use to measure yourself and run the business of IT are not necessarily the same things the business will use to judge your success."
To bridge this gap, a growing number of financial firms are building an IT business office. This function aids in managing IT value delivery by packaging and measuring IT services in business terms and improving the ability of the business to collaborate with IT to manage technology investments. It's a model that can work for any enterprise. The goal of this function is to increase transparency and accountability, both for IT and the business and, ultimately, to deliver the maximum value out of technology to meet the needs of the business.
IT business offices take different forms depending on the organization. Regardless of whether there is a formal entity called the "IT business office," or a rather informal adoption of business-aligned management and communication practices, we have found that two foundational elements are necessary to achieve the desired results.
Agreement on value components
A critical requirement for successful alignment is to get IT and the business to agree on a common definition of what is valuable to the business. Pascal Boillat, CIO of Fannie Mae, introduced the concept of an IT business office when he joined the government-sponsored entity and immediately focused on creating a common set of goals between business and technology. By agreeing on goals and standards of measurement, the "business gains transparency into IT and is empowered to make more informed decisions. The collaboration raises accountability on both sides," he says. Bank of America's Reilly emphasizes the importance of having the business take ownership of values and measurement: "You have to hold yourself accountable to what the business cares about; while this may be difficult, it is the business impact that matters."
Two kinds of value should be defined:
Transformative value. This is a change from the current environment to a desired future state. This type of value is often associated with significant strategic initiatives, such as implementing a new financial system. To keep focused on the strategic objective, the IT business office should ensure that business stakeholders and IT share a vision of the ultimate business outcome to be achieved through the effort, as well as value to be achieved over the course of the initiative. Transformative value can also be associated with more general, cultural or environmental changes, such as reducing complexity in the applications architecture or adopting a more mature set of IT processes. In both cases, IT is charged with moving the organization along a path; progress on the path should be visible and measured by definable business outcomes.
Operational value. This, essentially, is the effective delivery of IT. Typically, it is defined and measured by IT's ability to meet appropriate service levels. But it is important for "effective" to be defined in the language of the business. For example, translating the phrase "four nines of system availability" to "one hour of unavailability per year" may be clear language for a business executive, but still more information may be needed to understand its significance. In this case, an outage occurring as a series of events during peak trading hours will have a significantly greater impact than a single outage occurring overnight.
According to Bank of America's Reilly, "What business executives really care about is reducing or eliminating the number of incidents that impact their business." To that end, Reilly advocates measuring the number and duration of business-affecting incidents, and holds himself and his team accountable to the business stakeholders' definition of impact.
Identify Opportunities to Automate Measurement and Reporting
As important as defining goals is defining how they will be measured and reported -- specifically the processes, roles and responsibilities for IT business office functions. Whether you have established a formal business office or are simply introducing business office practices into your organization, you must define the organizational structure that will be established to capture and report on the metrics that demonstrate IT value delivery.
It is important to be pragmatic in this effort. The business office function will fail if it requires a large bureaucracy or expensive custom reporting. In some cases, close proxies may need to be used for metrics that are difficult to capture and quantify. For example, let's say your goal is to increase the adoption of an improved systems-development lifecycle process. It would be hard to measure the adoption directly, other than by observing the actions of a large team of people. However, you can measure the indicators of success, such as the number of emergency bug fixes, which would be reduced if team members follow a rigorous development process.
It can be a challenge to gather information and produce reports on a regular basis without incurring major repeated costs or business interruptions. Efficiency, repeatability, and speed to implementation are important to Fannie Mae's Boillat: "We found we lacked the infrastructure we needed to automate gathering the metrics, so we had to start off with fairly basic measurements," he says. "The lesson here is not to wait for the perfect reporting systems. Start with what you can and make it an iterative process."
It's best to automate as much of the reporting process as possible. Means of automation would include direct reporting from financial systems or creating purpose-built data stores to capture relevant IT business operations data. Similarly, automating workflows with business process management tools will enhance the efficiency and effectiveness of the process.
Some organizations apply the IT business office concept to individual business units or functional areas. When this approach is taken, experience has shown there is an advantage gained from establishing common measures that all business units report. Establishing a common set of scorecards and measurement approaches across business units streamlines the convergence process and ultimately lowers the cost of the overall implementation.
Benefits of the IT Business Office
Successful implementation of an IT business office function will result in enhanced transparency, improved trust, joint accountability and, ultimately, alignment between IT and the business.
"Our primary objective in starting the IT business office was to help us apply the same disciplines to technology that you take for granted in running a business: establishing goals and measuring progress against them with a strong focus on the financials," says Fannie Mae's Boillat. "The end result has been far greater transparency for the businesses [than was previously possible], giving them the opportunity to direct and really own their IT spend."
The business office helps firms understand the levers available to business decision-makers to provide a degree of control over IT cost allocations. Since IT is one of the biggest costs at many institutions, this can be a significant gain for firms.
The benefits extend beyond the walls of the organization. An IT business office can enable improved communication with regulators, the board of directors and internal and external auditors. Firms can take a holistic, centralized look at the IT risk management function in response to business objectives, regulatory requirements and board directives, and demonstrate the maturity and reliability of IT processes to regulators, auditors and other stakeholders.
About the Author
Bob Reinhold is a Principal in the Financial Services Office of Ernst & Young LLP. The views expressed herein are those of the author and do not necessarily reflect the views of Ernst & Young LLP.