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The Politics of IT Service Valuation

Don’t value services based on the customer, but on enterprise risk, writes ITSM Watch columnist Hank Marquis of Enterprise Management Associates.
Feb 15, 2008
By

Hank Marquis





ITIL has entire sections dedicated to explaining in exquisite detail how IT services create value. Unfortunately, ITIL neither makes it easy to understand, nor gets it quite right. Understanding how to value IT services is something that is pivotal to competitive advantage. Essentially, it’s a question of politics.

Establishing the value of an IT service is of critical importance to any IT service provider. Only by establishing the true value of an IT service can the IT provider correctly know how to allocate and balance limited resources in ways that benefit the enterprise. The answer to IT cost control, quality improvement, business alignment – indeed to competitive advantage from IT – is resource allocation based on IT service value. The question is how to best establish measurable and objective (empirical) IT service value.

“ITIL Says … “

ITIL claims that delivering IT services that are fit for purpose (utility) and fit for use (warranty) creates value, and is the basis for valuing IT services and setting service strategies. This concept is difficult to grasp without actually having the books, reading them, and then translating them into an action plan. Such is the nature of ITIL and all “big frameworks”—by necessity they cannot be prescriptive. Even so, this is insufficient guidance.

At issue is if an IT service provider cannot allocate and reallocate resources as required based on value to the enterprise (not customers), then there is little chance that such services may be provided or supported properly. In fact, we all probably know many examples of “over supporting” because some “loud” customer or user got his or her way. There are just as many examples of “quiet” customers suffering because he or she was not vocal enough.

Making resource allocation decisions politically may be an expedient thing to do for some IT managers, but in the end, the entire enterprise suffers. Any amount of “gold plating” tips the seesaw and takes resources away from other needy areas. Given the current economic climate few enterprises can afford to squander precious IT resources this way.

The “value = utility + warranty to customers” equation ITIL presents probably makes more sense if you are an enterprise whose primary products are IT services. However, for traditional IT organizations this equation is a bit difficult to internalize. Left to ones own interpretation, one could think this means, “If we in IT do what we said we were going to do, we create value.” Nothing could be further from the truth.

IT service value is less a function of service performance (utility + warranty) and more a function of risk acceleration—increasing or decreasing the ability of the enterprise to satisfy its end-customers needs with its products. This means you can only value an IT service from the point of view of the entire enterprise and in the context of a value chain. A simple value chain or business model looks like Figure 1., with value flowing from the employees of an enterprise to end-customers of the enterprise in the form of products:

Employees > Enterprise Products > End-customers

Figure 1. Enterprise Value Chain

Imagine that your enterprise is Colorado Concrete Company, or Cococo, which sells all sorts of concrete products. Cococo employees produce, sell, or deliver concrete products to end-customers. Some employees are in mixing and mining operations: blasting, loading, trucking, etc. Others work in sales, marketing and dispatching. Still others support those producing, selling, and delivering products, for example, Human Resources, Finance and IT.

IT supports its customers (that is, all other Cococo employees) who produce, sell, and deliver concrete-related products to end-customers. The value chain now looks like Figure 2:

IT Services > Customers > Enterprise Products > End-customers

Figure 2. Enterprise Value Chain with IT Services

Imagine that Cococo IT offered a “radio dispatch” service; one cannot direct trucks with tons of rapidly hardening concrete to a specific job site without some form of quick and reliable two-way communications. The enterprise would consider radio dispatch critical to the dispatcher and driver because should the IT service falter, the enterprise stands to incur costs or risks from customer churn, lost profits, increased costs, and even reputation, good will and perhaps environmental impacts.


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