Larry Godec, senior vice president and CIO at Santa Ana, Calif.-based First American Financial Corp., oversees an IT budget of $100 million, half of which is pegged to infrastructure. He has watched this budget grow continually since he joined the title insurance company 10 years ago. As business divisions piled on projects, IT infrastructure naturally increased; but it was opaque exactly how ever-multiplying components connected to those divisions. When he was named CIO of the $4 billion global business in 2010, he made IT cost transparency a priority, if only to avoid another painful budget meeting.
"I could see the frustration in the CEO's face. He told me he couldn't comment on whether we were spending too little, too much or just the right amount on IT because he had no a way of putting any of these costs in a business context," Godec said.
Godec oversees a staff of nearly 900 people, half of them located in India. He is responsible for delivering IT products and services to 15,000 First American employees. An operation of that size requires IT financial management, or technology business management (TBM), as he calls it. "If you were running a $100 million company, wouldn't you hire a CFO? So, how come CIOs don't have a CFO?"
Running IT as a business -- as an enterprise within the enterprise -- is not a new mandate for CIOs by any means; but an economic recession and the cloud computing revolution has pushed IT cost transparency to the top of the CIO agenda.
"It's all of a sudden becoming a necessity," said Forrester Research Inc. Principal Analyst Jean-Pierre Garbani, who specializes in predicting and analyzing IT disruptions. "If you want to go to cloud and alternative sources of computing, you've got to have a good idea of your current costs. Is it cheaper to do it internally, or in the cloud or in an internal cloud? You've got to control your costs first."
That is why so many CIOs are pursuing IT chargeback as a way to increase IT cost transparency, Garbani said. The vendors are right there pushing too, he said, with BMC Software Inc., CA Inc., IBM and Hewlett-Packard Co. pursuing IT management software. But controlling IT operating expenses is not easy, he said, and involves not only paying vendors and charging customers, but also tracking the time of the people who do the job. Moreover, most IT organizations are not set up to do chargeback, and that leaves CIOs the option of using information sources, such as their company's general ledger, to gain insight.
TBM tool for IT cost transparency
Using TBM software from Bellevue, Wash.-based Software-as-a-Service provider Apptio Inc., American Financial's Godec is unraveling the firm's tangled IT investments, starting with its First American Software Technology, or FAST, proprietary title and escrow system. His goal is to take all of the firm's infrastructure costs, map them to its applications, then map the applications to the business processes they support.
"We are about halfway down that timeline," Godec said. "The hard part came when we started taking a look at all our servers."
During a massive consolidation -- from 30 data centers across the country to its core facility in Santa Ana -- that was done under tight time constraints, documentation got short shrift, Godec said. "So, when it came time to load all this data in Apptio, unfortunately or fortunately, I guess, we found out that we don't know what is running on about 20% of our servers."
Even before the mapping is complete, however, the Apptio tool has uncovered eye-opening inefficiencies and anomalies -- "aha moments," Godec likes to call them -- from test-development quality assurance costs that are out of control compared with production and disaster recovery outlays, to those mysterious servers. "I told the [chief technology officer], I want to see 10% out of your budget, because of the things we are learning," Godec said. He is making the software "pervasive throughout the entire IT staff," from app development to the corporate project management office.
Technology business management is new frontier for CIOs.
Larry Godec, CIO, First American Financial Corp.
Once he ties applications back to the business process and business owners, "I can start having meaningful conversations with them," Godec said. Apptio's software uses a costing engine to track actual IT consumption, and offers a suite of applications for billing customers, tracking vendors, measuring performance and so on. The software's inference technology, for example, can analyze the effect of a 20% cut in costs on the quality of a service to a business unit; that allows productive conversations with business leaders, he said.
Godec's goal is eventually to go into the budget cycle with zero dollars and let the business divisions leaders justify what they think the company should be spending on technology.
"Technology business management is new frontier for CIOs," Godec said. "We've got cloud computing and all these great things we should all be looking at, but without TBM I don't know how you are going to be able to justify moving something to the cloud unless you've got transparency on the cost of that particular application or function." Working closely with the CFO has been key to the new approach, he said. To ensure IT cost transparency, he has let go of the IT finance group that reported to him.
"I just turned that over to corporate finance and said, 'Find whoever you want, have them work with me and my direct reports, and you manage IT finance. I have nothing to hide; and if I am missing something from a finance standpoint, you tell me.'"
Let us know what you think about the story; email Linda Tucci, Senior News Writer.