IT Added Value Model
The IT value model is based on the relationship between transparency, in both costs and volumes, and added value. The model presented below, describes four stages that an IT organization has to pass through on its way to maximise business value.
IT added value model
1. Black box
The first stage is the black box. This stage is characterized by:
- Incomplete understanding of the relationship between IT costs and IT products;
- Steering on P&L of the organization;
- Internal processes (ITIL / COBIT, etc.) not in order;
- Insufficient understanding of the in-use volumes (servers, workstations, databases, applications, etc.);
- The IT user is not aware of which services are consumed and what service levels are delivered here.
Discussion between the IT organization and its customers is characterized by the fierce conversations about high costs and low quality without giving evidence (feelings overwhelm the facts).
2. IT Cost Management Model
The second phase involves creating transparency of costs and volumes. Activity based costing (ABC) is of great help in this stage. The ABC phase is characterized by:
- Transparency in the relation between costs and products within a standardized model;
- ITIL / COBIT processes are not only defined but also used;
- There is an asset register implemented, called Configuration Management DataBase (CMDB), with a reliability of over 80%;
- A product catalogue is available to users, with transparent insight into the products purchased or expected to be used.
More information about the possible use of Activity Based Costing in your IT organization
3. Business Process Embedding
The third phase involves aligning IT products with business processes. The linking of IT products to business processes is a necessary condition to measure added value of IT. IT is an enabler for the business and does not have its own profit. In the business itself the result of the IT activities becomes. This phase is characterized by:
- Continuous improvement. This means that the IT department works in a structured and efficient way to support the business. An example is Agile development. Agile supports the business in prioritizing demands which than are built by IT in a very short time-to-market, without causing large incidents.
- More steering is created on the relation between cost and quality. For example: combining the cost of the incidents with the cost of the application.
- Developing a bonus or penalty system for behavior. If there are many well-trained key users are the number of incidents will decrease. The decrease in the number of incidents eventually leads to a reduction in maintenance costs.
- Cost allocation for business will no longer be based on IT products, but based on business processes. For example: charging on number of bills printed.
4. Performance Dialogues
The last phase in the model is that of Added Value. In this phase, the IT organization and the business are seamlessly connected and work together to develop new products. IT will thus make a visible contribution to the result of the company. The question is whether or not there is room for a separate IT organization. Most probably the larger part of the IT organization will be absorbed into the business. The level of absorption will depend on standardization of data center capacity and applications, and the importance of information creation. This phase is characterized by:
- Full IT business alignment. The provider model is released. Because IT is fully integrated in the business processes internal SLA’s become obsolete.
- Throughout the organization track and trace systems are in place, which can be easily followed. The business feels responsible for tracking and tracing.
- IT has become an enabler of innovation. Because of the IT department’s in-depth business knowledge, the IT organization is capable to support the business with fast and cheap business intelligence.
- The impact of IT is evident in business performance measures such as balance scorecards and performance management frameworks.