Masters of IT Economics Volume 1 / Issue 1 How Three Visionary IT Executives Improved IT Economics to Realize Greater Value 67841co_book 11/5/08 6:30 AM Page 1 Managing IT Economics is an art. Managing IT Economics is about getting more value out of IT. It involves balancing cost and risk trade-offs. Meeting the endless demand for services with a finite set of resources. Supporting business objectives to drive profitability, growth and competitive advantage, while running a fiscally responsible IT organization. Becoming a Master of IT Economics requires visionary leader- ship, business savvy and new approaches for changing the cost- value equation. On the following pages, senior IT executives from New York City Health & Human Services, GE Money and AXA Tech share their strategies, results and recommendations for improving IT Economics. 67841co_book 11/5/08 6:30 AM Page 2 Q A with Ahmed Abdelmoteleb, CTO GE MONEY AUSTRALIA AND NEW ZEALAND 2 Kamal Bherwani, CIO NEW YORK CITY HEALTH & HUMAN SERVICES 6 Antonio DiCaro, CTO AXA TECH 10 Summary 14 Masters of IT Economics 1 67841co_book 11/5/08 6:30 AM Page 3 Ahmed Abdelmoteleb Chief Technology Officer, GE Money Australia and New Zealand As part of the General Electric family, GE Money, also known as GE Consumer Finance, is the personal finance provider of choice for over 130 million people worldwide. GE Money has a global presence across 55 countries. In Australia and New Zealand, GE Money serves over 3 million customers. Career Highlights • 10+ years in financial sector • Joined GE, 2003 • Transferred to GE Corporate in U.S. as Global Infrastructure Manager, 2004 • Degree in Engineering — Computer Systems Personal Interests • 4-wheel driving and exploration • Being healthy and active with family and friends Masters of IT Economics 2 67841co_book 11/5/08 6:30 AM Page 4 Q. A classic economic principle is leveraging economies of scale to drive down the cost of production — how does this apply to your experiences? A. In the late ’ 90s, GE Money in Australia and New Zealand grew primarily through acquisi- tions. As with a lot of companies that are active in M&A, our primary focus was on integra- tion projects. About five years ago, GE Money continued the growth agenda with more of an emphasis on organic growth. As a result, we’ve become more focused on delivering a higher- quality IT service. We first engaged our Six Sigma quality organization, something at which GE Money excels globally. Also, through the help of our GE corporate parent, we’ve been able to take advantage of economies of scale and our global talent resources. We have made our organization much more efficient by consolidating our facilities and data centers, rationalizing redundant appli- cations and improving our processes across the entire organization. One example of an IT process where we’ve really become much more efficient is provisioning servers. In the past it could take 34 days to provision a new server. We leveraged our global relationships with partners like CA and HP, who helped re-engineer our processes and better leverage our investments to reduce our provisioning effort to six days. That’s a savings of over $12,000 every time we provision a server. Our new streamlined process involves publishing offerings through a service catalog, a workflow that automates the approval process and back- end integration to our inventory and soon our financial systems. This process now frees up more time for us to deliver a better outcome for our customers. Q. How do you ensure technology investments are aligned with business strategy? A. Every technology investment we make is discussed at a senior executive level with great interest from our CEO and CFO on returns and alignment with our business strategy, both locally and globally. For example, virtualization is an area that we are investing in. But, for us, virtualization is not only about saving cost. It’s about adding agility so we can more quickly deliver a business requirement and ultimately a customer outcome. When we’re working with a business unit to develop a new service offering, we need to be able to quickly determine whether the application being developed runs better in a Windows, Linux or Sun environment, and we want to test multiple versions of operating systems, hard- ware and software. To take this heterogeneous approach, you’re going to need management that can handle that. If our primary goal were to deliver an application in the least expensive way possible, we’d standardize the platform that applications can be developed on. Instead, we leverage built- for-purpose, nonstandard platforms, so our business can be more agile and our services more innovative. Q. I understand you’ve instituted a formal IT Governance process. What were the main drivers and what benefits have you seen? A. In the past, most of our technology investment decisions were being made as part of the project execution process. But what we found was that when you have hundreds of developers Masters of IT Economics 3 67841co_book 11/5/08 6:30 AM Page 5 “If our primary goal were to deliver an application in the least expensive way possible, we’d standardize the platform that applications can be developed on. Instead, we leverage built-for-purpose, nonstandard platforms, so our business can be more agile and our services more innovative.” Ahmed Abdelmoteleb Chief Technology Officer GE Money Australia and New Zealand Masters of IT Economics 4 67841co_book 11/5/08 6:30 AM Page 6 unable to continue coding because they are held up waiting for a purchasing decision to be made — this is not conducive to making sure the right decisions are made. So, we introduced a formal IT Governance committee that I chair. Now we can make technol- ogy decisions faster and ensure alignment with both our GE corporate standards and business strategy. Our Enterprise Architecture team is also engaged in this process, so they can make the right recommendations, taking into account our long-term requirements. Our governance process has also given us broader visibility into IT costs, investments, risk items and compliance issues — we might identify, for instance, that across a series of projects we’re spending a lot of money on an infrastructure element that doesn’t directly support our strategy, and we can make an informed decision about it. Q. What steps can a CIO take to begin instilling a service-focused culture? A. Turning a culture around generally involves turning your processes around. But this is clearly easier said than done. At GE we must first apply our Six Sigma LEAN methodology to ensure that we have an optimum process. It’s also important to set realistic goals and build the foun- dation that will help you improve your processes. We’re believers in ITIL,® but there are some assumptions ITIL makes, and to successfully implement ITIL requires a level of maturity that many organizations don’t have. For example, if you don’t have the right monitoring tools in place or if you are organized too deeply into silos, you won’t be able to make the necessary process improvements. My view of service management nirvana would be where you know when a particular valued customer is having difficulty with an application, you’re automatically alerted and informed what to do to fix the problem. But before you can even think about attaining this nirvana, you need to have the basics in place. You need to monitor the application performance from the customer point of view, you need to have built your application so that it can respond in cer- tain ways when thresholds are crossed. You will also need to have open lines of communication across the groups responsible for the different divisions within IT. At GE Money, we have built a dedicated team that is focused on the delivery of services end-to-end. This team has greatly helped improve collaboration and has helped us build a service-centric culture. Q. To what degree does your IT management strategy change when the broader market economy changes? A. No one is immune to market and economy changes, especially what’s happening currently at a global level. But this is the time when it is most important for us to help manage the busi- ness to balance our commitment to provide shareholders with acceptable returns and our customers with competitive products and services. We put a lot of emphasis on transparency and making sure that the business executives have insight into both our costs and the value being delivered. There is widespread understanding of the cost savings we’ve realized in the past four years. So even now, when the economy is taking a downturn, we haven’t faced pressure to significantly further cut operating expendi- tures beyond what we are already doing as part of normal business. We will continue to look closely at balancing our commitment to provide our shareholders with acceptable returns and our customers with competitive products and services. Masters of IT Economics 5 67841co_book 11/5/08 6:30 AM Page 7 Kamal Bherwani Chief Information Officer, New York City Health & Human Services NYC HHS is a domain that comprises nine city organizations, which focus on social services, criminal justice and health. In 2008, Mayor Michael Bloomberg announced a groundbreaking new system, HHS- Connect, that will link more than a dozen city agencies so that caseworkers can share client information without compromising confidentiality. Masters of IT Economics 6 Career Highlights • 20+ years in technology • Has been the CIO of three diverse NYC agencies focusing on public health, housing and construction • CEO and Chairman of Relativity Development, a global technology investment firm • CIO of Bridas Corporation, a global energy firm Personal Interests • Motorcycle enthusiast • Traveling with his family 67841co_book:67841co_book 11/5/08 11:58 AM Page 8 Masters of IT Economics 7 Q. IT has a classic economic supply and demand problem — infinite demand and limited supply. How do you address this challenge? A. The keys to managing demand are having a consistent methodology for prioritizing projects and basing decisions on the potential for a project to meet agreed-upon organiza- tional outcomes. As new projects are requested, I meet with the business executive spearheading the project and we agree to the expected outcomes, including the projected timeline. Typically there is both an expected cost savings and a “mission effectiveness” outcome. For instance, we might set a goal for how IT can contribute to an organization’s goal to reduce homelessness year- over-year. No new project enters our pipeline until we have gone through this exercise. We make decisions about which projects get funding based on the expected value. Then, we continue to evaluate projects and reprioritize spend even after projects are under- way. We have created a formula to measure the Net Present Value of all of our in-flight proj- ects. We compare the cost to finish a project against the expected return of the project. And because this changes as the project is executed, it’s important to reevaluate this every two to three months for each project. Q. Too often it seems that IT is seen as a cost center and not an enabler of business objectives. How can CIOs change this perception? A. In many organizations, the IT organization has a credibility problem. The perception is that projects take longer and cost more than planned and it’s unclear what value is delivered. The first step to building credibility is to prove that you know what it costs to manage ongoing oper- ations. Project and portfolio management can help you make better timeline and cost projections. If you have bad news to communicate — that costs are going to be higher or timelines longer than expected — don’t wait to tell the business executives. Communicate early and often. The sooner you close the gap between what people expect and what they are going to get, the better. Financial transparency is also important for establishing credibility. Everyone should be on the same page about where IT spend is going. Finally, don’t forget to take credit for past successes. Often the true value of a new service offering isn’t fully realized until years after it is launched. Q. What are your strategies for reducing costs without compromising service? A. I look at IT across three different parameters: Governing services, managing services and securing services. Increasing automation can help you realize operational efficiencies across all three of these parameters. For instance, in the realm of IT Governance, you can realize cost savings by automating the way work moves between various project teams. For management, I focus on virtualization and automating data center tasks like provisioning servers and storage. Service desk is another critical area for cost savings, especially if you 67841co_book 11/5/08 6:30 AM Page 9 Masters of IT Economics 8 can help users help themselves with knowledge tools, a self-service interface and automatic password reset. For security, I focus on centralizing logging and event correlation. If you have good centralized data, you can manage threats with a relatively small staff. Q. What role does innovation play in improving IT Economics? A. Innovation is extremely important in our efforts to support organizational goals. One of our major initiatives is called HHS-Connect — it’s a massive effort to bring online health and human service interactions that have typically been handled over the phone, through the mail or in person. The in-person, paper-based processes are very inefficient and costly. One recent HHS-Connect example involves the process for applying for free or reduced-price school lunches. There are 1.1 million schoolchildren in New York City, and 75% of them apply for the school lunches each year. With an investment of about $900,000 and, in just a matter of months, we launched an online form for applying for school meals in September. If we can get households representing just 10,000 children to use the online forms, the project will pay for itself in under a year. We expect to realize a return of several million dollars over time due to better allocation of funds and the operational efficiencies created by the online process as disintermediation occurs from the paper to the online process. So, this is a great example of a government agency leveraging a modest technology investment to yield great results in a short period of time. It’s the right thing to do for the people we serve, and it’s the right thing to do for us. Q. How do you manage innovation at NYC HHS? A. Establishing an enterprise architecture is essential. Otherwise, every new service offering would be based on a unique architecture. The result would be even greater complexity, and the cost of maintaining these new services would be too expensive. The challenge is that requests for new services and the funding for those services come in a siloed way. It’s up to IT to allocate funds from individual projects to be able to build an enter- prise architecture over time — and to convince business executives of the value of moving to a shared service model. I’ve found that it works best to incrementally adopt an enterprise architecture. A place to start might be with a centralized infrastructure, then establishing a centralized approach for middle- ware, identity and access management, enterprise content management and so on. The order in which you proceed will likely depend on the new initiatives underway. The business objec- tives should drive the technology projects, which should drive your enterprise architecture. 67841co_book 11/5/08 6:30 AM Page 10 [...]... some very ambitious growth and profitability plans Can you discuss those plans and how AXA Tech is supporting those initiatives? A In 2006, AXA Group launched an initiative we call “Ambition 2012” — the goal is to dou- ble revenue and triple profitability in six years Also, we want to become the preferred company in our industry by improving the customer experience AXA Tech is a not-for-profit, wholly... organization are dealing with many of the same issues and that these summits provide a useful forum for sharing ideas to solve these common problems Masters of IT Economics 13 67841co_book 11/5/08 6:30 AM Page 16 Successful strategies for managing IT to deliver more value to the business vary Some executives focus on leveraging innovation and governance to ensure that the right short- and long-term investment... going to continue to focus on going forward The third major contributor to the cost savings was a result of off-shoring some development and data center monitoring functions to AXA Tech India Q When you measure AXA Tech’s success, is it all about ROI? A The success of AXA Tech is not just measured on achieving financial targets We care very much about quality of service We have formal service-level... AM Page 11 “We have created a formula to measure the Net Present Value of all of our in-flight projects We compare the cost to finish a project against the expected return of the project.” Kamal Bherwani Chief Information Officer New York City Health & Human Services Masters of IT Economics 9 67841co_book 11/5/08 6:30 AM Page 12 Antonio DiCaro Chief Technology Officer, AXA Tech A worldwide leader in... business units have deemed mission-critical Q Can you describe how virtualization is enabling you to improve IT Economics? A AXA Tech has been an early adopter and extensive user of virtualization technology We are one of the top five VMware users in the world, with about 5,000 guests on VMware today We’ve saved about 1 million euro annually since 2004 on electricity costs and we’ve been able to increase... During this time, too, we’ve been able to deliver infrastructure services priced about 20% lower than what third-party companies would charge.” Antonio DiCaro Chief Technology Officer AXA Tech Masters of IT Economics 12 67841co_book 11/5/08 6:30 AM Page 15 survey completed by executives at the AXA Group companies who use our services For the objective metrics, we measure the availability of 440 applications... other AXA companies, to provide new services and service new markets I’m pleased to say that two years into Ambition 2012, we’ve been able to scale our infrastructure to support increased demand while keeping our infrastructure costs essentially flat — with only a 2 to 3% increase in infrastructure costs year-over-year Q What results have you achieved and how? A In the first five years of AXA Tech’s existence... able to increase the utilization of some of our servers from 10% to 30% But we’re looking to drive our utilization even higher to about 60%, so we still have quite a way to go In addition to leveraging server virtualization technology, we’ve also begun using network and storage virtualization technologies We’re very interested in some technology CA has developed to automatically provision and deprovision... in a similar situation? A IT people tend to focus first on technology as the solution to a problem 99% of the time, you need to start by focusing on the people, and then focus on the process, and then find the right technology to support the process Some of the things I’ve learned include the importance of setting clear objectives and the importance of providing opportunities for two-way communication... service-level agreements in place with the AXA Group companies we provide service to, with penalties if certain service levels aren’t met Also, every year we rate ourselves based on a combination of objective availability measurements and a customer satisfaction Masters of IT Economics 11 67841co_book 11/5/08 6:30 AM Page 14 “In the first five years of AXA Tech’s existence — from 2002 to 2007— we saved 280 million . Masters of IT Economics Volume 1 / Issue 1 How Three Visionary IT Executives Improved IT Economics to Realize Greater Value 67841co_book 11/5/08 6:30 AM Page 1 Managing IT Economics. a siloed way. It s up to IT to allocate funds from individual projects to be able to build an enter- prise architecture over time — and to convince business executives of the value of moving to a shared. objectives to drive profitability, growth and competitive advantage, while running a fiscally responsible IT organization. Becoming a Master of IT Economics requires visionary leader- ship, business