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Managing the demand for IT infrastructure

Infrastructure functions can reduce costs and improve service delivery through better demand management.

The top priority in 2014 and beyond for many IT infrastructure leaders is to reduce their operational costs through efficiency gains. By doing so, they can meet tight budgets at a time of economic uncertainty and fund new investments without requiring increased budget allocations. Based on 50 discussions with Fortune Global 500 heads of infra-structure, it’s clear that one key initiative to improve the cost and delivery of IT services is to adopt a more commercial-style model of interacting with internal business partners, such as application-development teams, lines of business, and support services.

We often see frustration between IT and business partners because the partners don’t have the means to understand clearly the cost drivers of the IT services they use and therefore find it difficult to influence their infrastructure expenditure. As a result, some organizations struggle to manage demand for IT infrastructure, which includes all the hardware, software, and operational support required to provide application hosting, network, and end-user services.

To save costs and prepare for adoption of next-generation infrastructure technology and hybrid-cloud models, leading organizations are adopting commercial-style demand and service management that has two key characteristics. The first is a standard services catalog with clearly priced offerings that can be consumed on a price-times-quantity basis. Such a catalog requires creating bottom-up unit costs for each service based on a detailed bill of materials. This means that unit costs should be an aggregation of all the components making up the service and not an arbitrarily stipulated cost mostly based on averages and allocations. The second characteristic they share is that roles have been established for IT to interact with business partners in a more commercial way-including roles for product managers who can define standard offerings and solutions and architects who can help developers combine the right mixture of them to meet a business need.

These changes are tough to make. But if an organization can introduce a new model for demand and service management, it can usually realize 10 to 20 percent cost savings. While these changes are well aligned with deployment of next-generation infrastructure technologies such as private-cloud platforms, several of the efficiency benefits, including shorter provisioning time, can be achieved with legacy infrastructure as well. The savings come, for example, from reduced tension between IT and business partners, leading to less costly service-level agreements (SLAs), as well as from steering demand toward lower-cost standard platforms and simplifying IT procurement.

Attributes of effective demand and service management

A commercial IT infrastructure organization is based on several essential building blocks:

Well-defined services should be described by a strong, comprehensive service catalog that presents a range of infrastructure offerings defined by functionality, service levels, and unit costs. The catalog should include five to ten services in each service area: for example, databases, application platforms, and web platforms, covering 80 to 90 percent of infrastructure requests and costs. As many services as possible should be delivered through a self-service portal with automated provisioning. A service catalog could also include external services, such as public-cloud computing.

Detailed pricing, including a bottom-up price model with granular cost drivers such as type of server, storage, software, and labor required to maintain the service, must be linked to demand choices, and measurement of consumption by business units should be automated as much as possible.

Accurate cost allocation with automated reporting allows organizations to clearly present consumption and cost data to business partners so they have the information they need to manage and improve their own cost structure, for example, by choosing a lower SLA that results in lower IT costs.

Supply-and-demand metrics and benchmarks should be normalized for differences in SLAs. For example, the service catalog could enable SLA-adjusted benchmarking with external cloud providers and offer practical business rules for when additional internal services are required-such as when higher security is needed to meet regulatory requirements for sen-sitive data.

A service-oriented organization is necessary and should include a product-management team to incorporate unmet business needs into future service offerings, forecast demand, and manage capacity.

Supporting processes and tools are essential and include work flows and utilities (for example, to automatically collect usage across the infrastructure at a fine-grained level), demand-management processes and new role descriptions (for instance, service owner, delivery owner, service financial analyst), demand-forecasting models, consumption reporting, and cost-transparency tools that can compile usage, cost, and price metrics across services and provide aggregated views across customer units.

Reference Website :
http://www.mckinsey.com/Insights/business_technology/managing_the_demand_for_IT_infrastructure?cid=other-eml-alt-mip-mck-oth-1404

September 15, 2014

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