CIO Vacancy: Must Bring Own Crystal BallBuild Shared Services: If a time machine that takes you back a year is invented, the most profitable use is probably gambling – Leicester City at 5000-1, some powerball tickets, etc. But selling it to CIOs planning shared services IT budgets could be a close second. Each year, technology leaders try to scry the viability of their roadmap, reliability of suppliers, and the variations in internal demand. And combine it all into a shared service catalog that doesn’t overrun the budget by millions or send their internal divisions scrambling for shadow IT solutions outside of the CIO’s purview. Most fail unless they have the right crystal ball – and that’s where we come in.
Even Having Shared Services is an AchievementIt takes a high organizational maturity level to even contemplate true shared services — which balances the economies of scales of centralized IT with the responsiveness and customization of decentralized purchasing. Most companies only go a few rungs on the ladder of allocating costs to internal divisions:
1. Decentralized buying – IT is operated by each division separately, with inconsistent coordination and limited scale
2. Centralization without allocation – IT is funded out of a general budget, with little responsiveness to end-users
3. Political allocation – costs for IT are split based on backroom negotiations, with no incentive for frugality
4. Business metric allocation – costs for IT are split based on revenue or headcount, likewise encouraging overspending
5. Showback – one of the above, plus users are shown how their usage contributed to the cost, counting on organizational processes to control cost
6. Chargeback – users are charged proportionally to the services they actually used, but can be faced with surprise overruns
7. Full shared services – chargeback plus a service catalog that provides cost certainty for the future. At this level, the internal IT organization acts much as an outsourced provider would – with a price list, SLAs, and internal controls
Even the Best Run Into TroubleWe have worked with pioneers of shared IT services over a decade ago, and have continued to work with cutting-edge industry leaders through today. No matter how mature their organization, it still runs into problems that are, at their base, caused by lack of visibility:
1. Budgeting for change – steady state solutions work well, but outsourcing in-house services, moving from co-lo to managed hosting / cloud, updating networks / telecom solutions, etc. bring disruption that doesn’t allow CIOs to forecast the impact. As a result, some have major cost under-recovery while others avoid necessary change in fear of disruption it brings.
2. Keeping up with demand – last minute sourcing is the bane of well-run organizations. We’ve had buyers that could get rates almost as good as our SPY INDEX process when given 6 months – but pay twice market rates when given 3 weeks’ notice or less in light of an unexpectedly successful product launch.
3. Dealing with underutilization– as bad as an excessively low forecast is, the impact pales in comparison with overestimating uptake – where users demanded that co-lo and network capacity be provisioned worldwide only to scale down or cancel their plans.
4. Competing with the market – while the internal organization has a house advantage vs. external providers in attracting internal buyers, it’s not always a blank check. If internal solutions offer the wrong price-performance tradeoff, divisions have a strong incentive to buy elsewhere on the sly – creating their own shadow IT function. The success of many IaaS providers in the enterprise is often a direct result of some failure of responsiveness or value on the part of internal shared services organizations.
5. One-size-fits-none standardization – we’ve seen an enterprise build out a top-5 network and peering fabric for a few power users and spread the cost across the majority that would have been perfectly happy buying budget bandwidth at 1/5th the cost. We’ve seen others drop e-mail servers into premium low-latency locations. Either way, a lack of fit to purpose results in excessive costs and unhappy customers.