CIO Leadership, Cloud

When the CIO gets transformed, what’s left for you to do?

Blog-post by,

As I mentioned in my last blog post, “One company’s management of IT financials in a Cloud era,” I attended this week the IT Financial Management Association Conference in Scottsdale, Arizona, and am blogging on two of the sessions. I’m hearing a lot that can really help both public and private IT executives, particularly around the financial management of cloud computing.

The next speaker I heard was from Georgia State University (GSU). He started by saying that GSU’s recent move from a central IT model to a cloud provider model has led IT to ask itself a number of questions, including:

  • What is the impact of moving from building to buying on the Web?
  • Does the business want to do anything more than pick and choose from Web or outsourced providers?
  • Does this mean that IT organizations need to manage the care and feeding of external providers for their business customers?
  • Are IT organizations becoming intermediators?
  • Are CIOs being transformed from CIOs to service brokers?
  • Is IT as a result really now a vendor management function?

 

Does IT finance need to become the CFO of IT?

What do these questions imply for IT finance? Our speaker’s conclusion was that IT finance needs to move from being financial accounting—bean counters—to CFOs of IT. In this new role, IT finance needs to be involved in creating concrete business recommendations.

What does it mean to be a service broker?

The other question the speaker asked was: What still needs to get done with IT in the role of service broker? He suggested that what really still is needed is a catalog. Customers need to be able to match their needs versus items provided in the internal/vendor catalog. We need to enable customers to shop for the best solutions. The catalog absolutely needs to include competitively defined offerings.

Going further, in this new reality IT’s role becomes about eliminating friction in the selection and management of vendors. For comparability, SLAs need to be based on variable delivery. Cost calculations become more important than ever – and we in IT need to allocate them as we see them. With our vendor management hat on, we need to enable our customers to mix and match between the internal and external service providers. This means that IT organizations need to go from zero-based planning to variable-demand pricing. They need to become more like outside vendors.

Another interesting point the speaker made: In the past, we were judged by our actual predictable—today, we are judged by our ability to collect actuals at the time of consumption. This means we need just-in-time finance. From a planning perspective, we need to move from planning new services to offering them as they become available. This moves internal IT from longer term to shorter term projects. Simply put, IT finance needs to be help the service manager figure out the catalog. This catalog must include products competitive with internal offerings. And internal costs need to compared against Amazon or Rackspace. Customers can buy things somewhere else. So as an internal provider, you need to be able to say what makes you better. The customer makes decision of who they buy from. Meanwhile IT will monitor and manage external service providers. Central IT needs to provide a network and be an enabler of everything else.

So, what do you think? Do you agree with these assessments of how IT finance needs to change? Leave a comment and let me know what you think.

Twitter: @MylesSuer

(2) (2)

Discussion
Would you like to comment on this content? Log in or Register.
redrockbrokers
redrock brokers 0 Points | Wed, 07/17/2013 - 12:43
Comment has been flagged as Inappropriate.
myles.suer
Myles Suer 143 Points | Thu, 08/30/2012 - 18:30

Thanks Steven,

It think that IT organizations need to--regardless of cloud--move away from counting beams and attaching these piece part costs to customers. IT organizations need in order to have a business discussion to allocate costs to entities that the business understands--business services, end-to-end applications, programs, and infrastructure services. Only by taking this step can a discussion be had about where to invest or not to invest.

 

saromero
Steven Romero 1 Point | Wed, 08/29/2012 - 18:22

Myles, great article. I agree with the speaker’s conclusion that "IT finance needs to move from being financial accounting—bean counters—to CFOs of IT." And yes, "in this new role IT finance needs to be involved in creating concrete business recommendations." But I don't agree with the implied notion that this need is simply born of the potential for IT organizations to now move from a central IT model to a cloud provider model.

"Bean counting" has never been an acceptable financial management model for IT. The bean counting model is simply the result of the longstanding problem of the business neglecting to govern information technology. This lack of IT governance set the foundation for epidemic lack of process and accountability in many IT organizations - and one of the greatest process deficiencies is in the financial management of IT. I discuss this at length in a book I published more than a year ago and for the sake of keeping this comment relatively brief, I posted an excerpt on my blog today. http://www.itgevangelist.com/blog/2012/8/29/the-need-for-sound-it-financial-management.html

Those rare IT organizations with sound information technology financial management mechanisms are already fulfilling the "IT CFO" role. They are well positioned to enable the business to make central IT vs. cloud provider decisions. This said, I do acknowledge that the advent of cloud computing does indeed provide the burning platform for advancing IT financial management capabilities.

Thanks for a thought-provoking post.

Goddardd
Doug Goddard 123 Points | Wed, 08/29/2012 - 19:10

Hi Steven, I agree with your comments on the excellent work in ITIL on the topic of financial management and service economics. Would be interested in knowing why you think Cloud computing will advance the capabilities? I would be surprised if Cloud providers are any more organized on this front than outsourcing vendors or internal IT and shared service organizations. Consequently, I imagine they will struggle to provide the level of cost data required, for example, or more importantly, the ability to allocate cost data across very complex client and vendor heirarchies -- for demand management, ROI analysis, revenue recognition and other purposes -- that are in a constant state of flux. However, I suppose that depends on the size of the cloud service contract and how complex the volume measurements are defined and priced. 

saromero
Steven Romero 1 Point | Wed, 08/29/2012 - 20:20

Hi Doug, I should have been more clear. I did not intend to suggest cloud providers would advance IT financial management capabilities. I meant to suggest that the advent of cloud computing will potentially drive IT organizations to improve their financial management capabilities. Though I agree cloud providers will not necessarily be able to provide "cost data" - they will be able to provide "pricing." The business will be considering the price offered by the cloud computing providers when they ask IT, "How much would YOU cost?" If IT is to have any chance of providing a defensible answer, they will need some level of financial management discipline and capability.

Goddardd
Doug Goddard 123 Points | Thu, 08/30/2012 - 16:14

Thanks for the clarification Stephen. The Cloud should promote the idea of the services life-cycle and it certainly fits into the emerging model of multi-sourcing, which is reshaping the outsourcing industry. I assume you were talking about the public Cloud since one can certainly gather cost data on private Clouds and of course, Cloud pricing is a cost from an end consumer perspective. I specialize in the automation of IT governance systems of which financial management plays an enormous role and some of the Cloud venders I have discussed this issue with lately don't seem to be any more organized than most of the outsourcing vendors. In the outsourcing community, one seems to find the expertise on some contracts but not on others. In my experience, one finds it in organizations that are strong advocates of IT governance and have adopted an ITSM framework like ITIL. Those efforts are often hindered by trying to use spreadsheets to do the work, or the contract ABM team is held back by internal standards that don't actually work. However, on the client side, things are even more dismal, for they often have nothing at all. That is a pity really, since multi-sourcing is even more difficult to govern than single sourcing, and there are certain natural advantages an internal service provider has. For example, it ought to be easier for an internal provider to setup an activity based costing system that measures ROI, than for an outside provider to do the same. Cost is only really relevant in the context of value creation or revenue generation, which ought to add an edge to the internal story.

myles.suer
Myles Suer 143 Points | Wed, 08/29/2012 - 15:07

Thank you. This is why we have spent so much time building a solution at HP that allocate costs to a level of indenture that the CFO of IT could move from counting and moving beans to assisting with IT strategy.

jdodge
John Dodge 1460 Points | Wed, 08/29/2012 - 14:59

I think you hit the nail on the head with the following: "Our speaker’s conclusion was that IT finance needs to move from being financial accounting—bean counters—to CFOs of IT. In this new role, IT finance needs to be involved in creating concrete business recommendations."

pearl
Pearl Zhu 90 Points | Tue, 08/28/2012 - 16:11

At the era of Cloud, IT need becomes service provider, also running IT as business, more dynamic IT finance is needed for faster project planning & delivery, and ROA-Return on Agility could be another interesting KPIs to dig deeper. thanks. 

adelineylin
adelineylin adelineylin 1 Point | Tue, 08/28/2012 - 06:39

ve from planning new services to offering them as they become available. This moves internal IT from longer term to shorter term projects. Simply put, IT finance needs to be help the service manager figure out the catalog. This catalog must include products competitive with internal offerings. And internal costs need to compared against Amazon or Rackspace. Cu

myles.suer
Myles Suer 143 Points | Mon, 08/27/2012 - 14:41

This makes sense to me completely.

Goddardd
Doug Goddard 123 Points | Mon, 08/27/2012 - 13:33

I think the general intuition is rich with possibility but there is a huge amount of detail required to fill out the concept. Organizations interested in it would benefit from reviewing what leading organizations have done in IT governance processes, such as financial, demand and service portfolio management, over the last 10+ years. They point directly at the essential structures of this new vision for internal IT. Currently, most of that expertise is spotted throughout large outsourcing vendors, even if not generally available from them. Very few organizations possess the knowledge internally. However, with the shift to multi-sourcing and commodity Cloud services, it is becoming necessary for them to gain the knowledge internally. Either that or they need to find an external vendor to manage the multi-sourcing world for them.