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Tag Archives: VMware Chargeback Manager

Shifting from ‘Free Services for All’ to ‘Gold/Silver/Bronze Service Bands’

The art and science of leveraging VMware’s IT Business Management solution to manage demand

By: Pierre Moncassin

Here is a real-life customer challenge that I encountered at a workshop with a global pharmaceutical company. The challenge boils down to the question: How do you use tiered service offerings to manage demand in a culture where users are used to receiving only ‘gold plated’ services?

The team I met with is a central IT function delivering centralized, cloud-type services to multiple lines of business distributed globally. Each line of business tends to provision its virtual infrastructure independently, based on project-specific requirements. Many projects are business critical (or at least linked to substantial revenues), so teams tend to ask for the highest service levels offered without really thinking about lower service level alternatives. In absence of a mechanism to charge business units for their consumption, teams opt for the ‘gain’ of highest service offerings.

In the past, the IT organization tried to temper demand by standardizing its offering on a few median-specification offerings while requesting more justifications for the high-specification services. This approach encountered some success, and I believe it was going in the right direction because it shared the “pain” of higher IT costs.

However, in the absence of a use-based-on-consumption cost allocation method, their users still prefer high-end, or non-standard, configurations with a higher internal cost. And they will keep doing this as long as they experience all gain and no pain.

The solution is “simple” in principle: The IT organization needs to “share the pain” and cross-charge users according to chosen usage and service levels. But ‘simple,’ of course, does not mean ‘easy.’

Given the complexity of the effort and the potential pitfalls it can encounter, let’s break down the process for getting cross charging into place into three discrete steps:

Step 1 – Start with the Essential Tools: Deploy VMware’s Chargeback Manager

Okay. I said it. You need a new tool.  Spreadsheets just don’t work over the long term. VMware Chargeback Manager enables accurate metering of the cloud-based resources being used. Beyond that, it offers pre-defined cost models that make it easier for consumers to be billed according to their usage (with a range of allocation methods).

In addition, Chargeback Manager establishes a stepping stone to VMware’s IT Business Management – the comprehensive solution for managing IT budgets for the cloud. But, for now, let’s assume that you have introduced Chargeback Manager just so that each resource has a cost and an associated ‘bill of IT’ to the consumer (whether internal or external). Is that enough in itself to manage demand?

In my view, there is an implicit, but critical, additional assumption when presenting consumers with the ‘bill of IT:’ that the bill will show items that the consumers will a) clearly understand, and b) appreciate for their quality.

To compare, for example, with a restaurant service, clients would not normally expect an itemized bill showing a breakdown of heating, water rates, and raw ingredients (meat, vegetables) measured by weight. They expect to be charged by dish. But beyond accepting the costing model, they also have an implicit quality assumption. They expect that:

  1. Dishes must meet a minimum quality standard, or they will simply leave
  2. There is some link between the price offered and the quality of the dish

If these tacit assumptions about price/quality are not met, chances are that the customers will never come back (or in the case of a private cloud, move on to a public cloud provider).

Step 2 – Offer Tiered Service Categories

Similarly, charging for internal cloud-based services also needs both a well-defined ‘menu’ (i.e. a catalog of services) and a clear relationship between services and price.

In earlier blogs, we commented about the importance of standardizing cloud services and the trade-offs that this implies.

Standardization is a pre-requisite for charging, as this defines the ‘menu’ of services offered. It also underpins economies of scale and automation – which make the costs of cloud services attractive in the first place.

However, the introduction of a ‘price tag’ for services means far more than an accounting figure. It means a cultural change – introducing a buyer/seller relationship between the IT organization and the business units. The natural response for the ‘buyer’ side is to focus on price. This is why the IT organization needs to respond – like any experienced retailer would – with a focus on both price and quality of service.

A popular way to communicate service quality is to offer tiered service categories (e.g. ‘bronze/silver/gold’ with associated price bands).  These price/quality levels can be then published in the service catalog.

Step 3 – Facilitate Cultural Change Through Communication

Introducing tiered service categories will have ripple effects throughout the IT organization and beyond, as it will foster – and perhaps enforce – a service-oriented attitude. Externally, it will shift the image of the IT organization from a cost center to that of a commercially-focused service broker.

It’s a cultural change that can’t be left to chance, however – so I highly recommended that this should be supported by a communication management plan.

In an earlier blog, I shared some ideas for making your communication plan as effective as possible. But I want to emphasize a couple here that can help speed your move to a tiered service approach – and mindset.

Internally to the IT Organization, we want to empower the Tenant Operations teams not just to deliver the best possible service (as a matter of course), but also to manage end-user expectations. In practice, a workshop such a Cloud Operations’ Service Definition Process Optimization can go a long way in helping these internal IT teams crystalize their thinking around what to promise their users by way of IT services: setting the foundations for clearly-understood, two-way agreements between themselves and their ‘consumers.’

When it comes to communication with the end-users (consumers), I’d recommend thinking in terms of a sales campaign (whether pitched within the same company or not) that emphasizes both short term and long term ‘wins’:

  • Short-term ‘wins,’ such as increased control over their provisioning spend, and clearly-defined service quality underpinned by written service levels
  • Long-term ‘wins,’ such as being more closely involved in the service definition process – i.e. having more say in how services will be adapted to their evolving needs.

The Way Forward: Service Differentiation Beyond ‘Gold/Silver/Bronze’

The global pharmaceutical company I was working with is already embracing many of these concepts, and has introduced a tiered service model at the infrastructure component level (e.g. server, storage). That, in turn, has paved the way for further service development: once the tiered service approach has full adoption, the next step will be to expand the model towards the application level – offering numerous opportunities to add further value for consumers. The tiering model can be extended even further, to more complex application-related services, such as continuity management, database services, etc.

This ‘win-win’ perspective is at the core of the Cloud Operation’s approach to managing demand: it is not about taking capacity away from end users – instead, it’s about offering a more informed range of choices with a clear trade-off between cost and quality. Given the right choices, even the most vocal consumers will rethink picking the ‘gold-plated’ option every time.

Summary – Key Steps to Manage Demand for Cloud-Based Services:

  • Introduce Chargeback Manager to establish a robust foundation for service costing
  • Link service quality to service prices – think like a retailer
  • Offer a simple, tiered range of choice to consumers
  • Differentiate the end-to-end services, not the service components
  • Facilitate cultural change with a communication plan (internal and external)

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