Expert to CIOs: Be the 'CFO of IT'

Between utility computing and offshore outsourcing, it's a pretty safe bet that the data center of tomorrow won't look like the data center of today. What can CIOs do to prepare for the inevitable evolution? In this interview, Tom Pisello, founder, CEO and president (basically "The Man") of Orlando, Fla.-based Alinean LLC, a company that develops tools to measure IT value and ROI, talks to SearchCIO.com about which current trends merit attention -- and what CIOs should be doing to stay ahead of the curve.

Since an IT budget is a terrible thing to waste, for which technologies should CIOs be socking away? We recommend

that CIOs take a value chain management approach to their budget planning, aligning the business goals with the IT investments. That way, they can be sure that the plan will have the desired strategic and tactical impact on the bottom line. The steps include:

Examining the company and peer's financial and key metric performance with business leaders to determine pain points and competitive weaknesses.

Aligning project plans with these pain points.

Calculating the cost/benefit, ROI, risks and strategic benefits of all proposed projects.

Analyzing all projects head to head to select the highest-reward, lowest-risk plans which align with the corporate strategy.

Predict the three-year impact on [the] IT budget and corporate financials to help optimize, communicate and sell the plan to executives.

Repeat the process on a regular basis to report card the realized value of IT.

What current trends -- tech or non-tech -- do you see having the biggest impact on tomorrow's data center?
Budgets are still tight, and the data center is still a place where CFOs are demanding that CIOs do more with less, and that current investments be maximized before any new investments are improved. Three areas will be the focus of investments:

  • Continued consolidation of servers and storage to minimize the assets and associated TCO needed to deliver services.
  • Outsourcing of commodity services such as managed computing services/utility computing or outsourcing of development and service desks overseas.
  • Enterprise application integration, which will enable an organization to get more from their current ERP investments.

What kind of impact will utility computing, another hot trend of today, have on tomorrow's data center?

The business case for utility computing is solid, with some direct cost savings (3% to 5%), but more significant gains in service levels and availability (20% to 50%). Most organizations are better at delivering the services and are typically not good at managing outsourcers, so this is a risk. Management needs to change from providing the service to managing the service provider, which sometimes isn't easy to do. Also, some of the savings gained by reallocating resources will mean having to let current folks go to hire the strategic resources to replace them, which has a hidden cost.

Overall, we're a big fan of this approach. IT investments can be viewed in a hierarchy of needs (a.k.a. Maslov), whereby the commodity investments are outsourced and the company focuses resources and investments on the differentiating higher needs, which today is business process optimization, and soon will be business intelligence and knowledge capital management.

What kind of a role will offshore outsourcing play?
Offshore outsourcing is seen as a method to extend IT budgets by using lower-cost resources to do more with less. But the outsourcing usually requires different skills of the team and requires more thorough specifications and stronger project management versus implementation. There are also hidden costs and risks, such as the ability to effectively specify, translate and meet requirements and security. This is being used today as a quick fix for many projects, because resources are not available to do everything in-house. Some of the projects are well suited for outsourcing, while others with less-defined requirements, higher security and IP needs should be kept in-house. What should I be avoiding? Are there any traps I may fall into?
Doing nothing to move the organization toward lower costs or higher business impact is a huge risk. Cost cutting has cost data centers dearly, and many people within the organization are going around the data center to get the things done that they need. The CIO needs to be proactive in repositioning the data center and IT from a cost center into a profit center for the business. If the economy bounces back and CIOs begin to tap more freely into their checkbooks, how could that affect the data center? I've heard analysts and vendors alike say that so many things will change when the uptick begins. How do you see IT changing once the economy gains some muscle?
IT will remain under a new level of accountability for some time, so even though the constraints may be lifted, the accountability and skepticism will remain. Because IT has not been able to officially be increased, but the demand has, business units have created shadow IT projects and budgets. Those have increased to as much as 20% of the official IT budget in some organizations. This trend away from centralization of the budget to the business units, officially or unofficially, will continue to be a management challenge for the CIO. Are there any current trends that will not live up to their potential or promise and simply sizzle out?
Of course there will, but they're hard to predict. For an individual company, it pays to do the analysis and business case for each proposed solution -- and to be prudent. Development projects and payback periods should be kept short -- six months or less from approval to deployment -- and six months or less for the payback period. Personal analysis is key to [being] sure that the solution will reap rewards, regardless of the broader market trends. Can you see a day when an IT department is totally outsourced?
Only if it is a commodity and doesn't add strategic value. If the CIO cannot elevate IT from a cost center into a profit center, this is a risk. The biggest way to prevent this is to, as a CIO, perform a makeover and become the 'CFO of IT,' utilizing business planning, portfolio management, ROI and IT value programs to get on par with the other business unit leaders in the company.

Tom Pisello is the ROI guy for SearchCIO.com. If you'd like to ask him a question, click here.

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Click here to check out Tom's answers to other questions posed by SearchCIO.com members.

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Article: On-demand is an exercise in utility

If I'm a CIO in 2003, what should I be doing now to make sure I'm on top of things in, say, 2006?
Implementing an IT governance program, rather than having one dictated upon the CIO, is the most important initiative. Once the IT governance is in place, the CIO can talk the language of the executives and the CFO and get back some lost ground. This also moves planning from a black art to a science of ROI -- which is well practiced and used by the other business leaders in the company.

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