Recently I had dinner with a couple of health plan CFOs, both of whom voiced the same perspective on their IT spend. Neither was upset on the amount of their spend; however they were confused on what their organization got for the expense and what they should be spending on IT. It's a consistent theme I am hearing more and more often in statements like, "I do not know if it is too much or too little, I just do not understand what it should cost, or what I am getting for this much expense".
In today's business environment, with IT intertwined into every aspect of the insurance industry, virtually every part of the business depends on technology capabilities. While technology can impact and empower the business, it is also expensive, and that price tag can become an issue when business leaders are not getting the right level of reporting from IT to understand the cost and value.
A service management approach is needed to better understand the value and services the IT organization provides. Unfortunately, many IT professionals believe an ITIL (Information Technology Infrastructure Library) is all the service approach that is needed. While ITIL can be a very good tool and methodology for the IT organization, it's not the correct approach for explaining IT services to the business units. IT organizations need to transition to a service-based organization that explains their services and expenses in a manner the business leader understands. Organizations should work through the service journey to arrive at a better place in understanding the services they consume from IT and the cost to produce those services. This does not necessarily have to end in "charge back" to the consuming departments. A much more valuable goal is to increase communication between the IT service organization and the business components (the consumers of IT services); leading to clear Service Level Agreements (SLAs) and performance expectations. Services management should always be defined to reflect the services from the consumer's perspective.
[Previously from Shields: Defining C.A.L.M. Architecture Strategy for Insurers]
This adoption journey takes time. Time to define the services, time to build the service reporting mechanisms and time to implement meaningful services dialogue between IT and the business units. However the journey is worth it as relationships naturally improve with understanding and communication. As priorities, constraints and limitations are discussed and understood, both the service organization and the consumer organizations can improve. Often organizations attempt to implement SLAs too early in the journey. This adoption path should start with service understanding. During this time the organizations are discussing the services provided and consumed, the drivers of the services and the service metrics that are meaningful to both organizations. In the beginning, maybe budgeted unit cost should be calculated and discussed.
The next step on the adoption path is "service objective". During this phase, organizations better define the needed service objectives and better refine the service level metrics associated with the service. Cost may now be calculated quarterly and discussions should begin to examine how and what it takes to meet improving objectives.
At this stage, organizations can begin to build meaningful negotiated SLAs. Once those are in place, the dialog between the service provider and consumers should be much more partnership focused on how to improve the organization, services and lower cost. The value of these discussions will be exponential as the business faces challenges and changes. Only after reaching this stage can meaningful service level agreements with true performance metrics and costing levers be defined and shared.
Organizations fail in the transition to a service management approach for several reasons. One reason is because they fail to think in the terms of the consumer. If the services are not what consumers purchase, it will be difficult to get engagement and meaningful dialog. Having the services at a descriptive enough level is an art that will take time to develop and settle on the proper level for your business. A second reason why companies fail in the transition to service management is by jumping into SLAs too quickly. It takes time to understand what should be the proper service levels and performance metrics. The consumers and the service providers need to engage and seek understanding before diving into SLAs. I have seen this approach fail miserably by having organizations guess or assume what service levels are needed.
If the CFOs I talked to had an IT organization that implemented a Service Management approach to their business, the CFOs would have better understood what they got for their money. With today's dependence on IT and with the cost management emphasis, the dialog on services and cost is critical to better understand the priorities and to truly understand what it costs to operate the business.
About the author: Gerald Shields is Practice Director, Healthcare IT for The Nolan Company. Gerald has over 30 years' experience managing enterprise scale IT functions, with a focus on enabling the business through effective automation. At Aflac, he served as CIO and in senior IT management for over ten years, and is a respected thought leader and innovator in the areas of IT management systems, technology strategy, and mobile technology.