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Managing the Shift to a New Model for IT

In a previous post, I painted a picture of a new world in which CIOs act as service brokers, figuring out the best way for them to deploy services, whether internally or externally. In this new world, the CIO essentially oversees a “rental market,” in which services aren’t bought with expensive capital outlays, but rented with operational budget. Such a scenario begs the question of what impact such a “rental market” has on the way IT delivers technology.

The first thing the CIO needs to do is get “rogue IT” – the scenario in which line of business personnel are going to SaaS vendors or Amazon Web Services (AWS), whipping out a credit card, and setting up computing services without IT’s knowledge – under control. “Rogue” describes this behavior perfectly, because end-running the IT organization has integration, security, and compliance implications that at the end of day translate into business risk. CIOs need to make their business partners understand that IT has to be the gateway to ensure privacy and quality and compliance. But CIOs themselves need to understand that in the cloud era IT’s monopoly on offering IT services is over.

Even though you might be able to offer the same service, IT must recognize that in some cases – say, for cost or time to market reasons – it might be better to procure a service from a partner rather than to build it and manage it internally. Your job is to manage the contracts, taking responsibility for the technical and enterprise issues you’re responsible for. In a world where third-party services will play an increasingly important role, this critical management function is the key shift from rogue IT.

In this scenario, IT becomes a strategic sourcer of technology – essentially a facilitator or broker to help the business get applications up and running quickly while still maintaining its crucial role for security and compliance. This requires IT to beef up its muscles in disciplines such as contract management and governance beyond risk and compliance. It may also require that IT figure out how to retroactively apply controls to applications that the LOBs have already brought in. And there are probably more of them than you think. When VMware’s IT department went through this process, it initially thought we had approximately 20 SaaS applications – it discovered about 70.

A New Model for IT

There are no traditions for this new rental market. It’s like the wild, wild west. It will involve new roles and new structures, new relationships between LOBs and IT. I’ve seen some customers spin out their IT group and rent services back to the company – kind of like outsourcing, except there is no independent outsourcing vendor. It’s the spin-off’s responsibility to deliver services in the most cost-effective way possible, whether that’s through internal IT, outsourced IT or SaaS options.

LOBs benefit from these new arrangements. Before, they were essentially taxed for IT, paying up to 20 percent of their budget for shared services such as IT and human resources, without any clear visibility as to what they were getting for their money. In this rental market, where IT is constantly in competition with cloud providers, IT has to provide better transparency as to the true cost of its services to enable comparison with externally sourced services. In addition, as IT’s customers increasingly come to expect a consumption-based pricing model, metering is needed to demonstrate actual usage by the LOBs. The result of this greater transparency is greater efficiency all around.

That level of transparency may sound highly unorthodox to some CIOs, but consider the case if you were running IT like a business with your own P&L, as opposed to a best guess allocation of costs to your customers. Some of your services could be revenue generating, for example, by providing hosting to other companies, even those that might be considered competitors. A few banks I have visited in EMEA and Australia have been offering such services to smaller banks for years; the smaller banks save money and the bigger one has a revenue stream. In fact, I’m seeing this strategy adopted across industries and regions. It’s a powerful driver of greater IT efficiency and agility. Reason is, when IT sells its services externally, competitive pressures ensure it must deliver new services faster and provide value more cost-effectively.

Implementing a New 80/20 Rule

Transparency is what you need to adapt successfully to the new model for delivery of IT services. Cloud – IaaS, PaaS, SaaS – is fundamentally changing service delivery. It’s now more about an order-to build service model as opposed to a lengthy and costly build-to-order. Rather than wait for the LOB to request a service then build it out, IT organizations are creating pre-defined catalogs of services for each type of user or common request. When the LOB orders something from the catalog, it’s instantly provisioned on demand.

So where does transparency fit in? Without transparency into the costs and actual usage of your services you cannot make fact-based decisions on whether to source your services internally or from the external rental market. To compete cost-effectively with cloud providers you need to implement the 80/20 rule – standardize your service offerings so that your catalog addresses 80% of your workload needs.

More and more, I see companies instituting a new position of cloud operator or administrator, which acts like an IT product “service” manager to the line of business. Regardless of the title, this important role is tasked with making decisions about what types of services are needed, which ones to offer in the catalog and where they’re sourced or hosted. The decision may be to source the service internally, or, if it’s just a pilot project, the admin may create a short-term AWS account. It’ll be that person’s job to determine the best strategy. With such a system in place, it’s easy for IT to direct special attention to the 20 percent of business demand that still needs customized services.

As you standardize and automate services that represent 80 percent of your requests, they begin to take up less time and effort. You free up more money to invest in customization where it can help the business. Don’t do it just to save money – think about it as a reinvestment effort. Eventually, you can spend 20 percent of your time on tactical issues and 80 percent of your time on strategic issues. You may not ever get to those actual numbers, but that’s not a bad goal.

The upshot: IT gets more efficient, and the business gets better service.

Ramin Sayar is senior vice president and general manager of VMware. He blogs regularly about the ongoing challenges customers face in a changing IT world.