Over the years, many enterprise IT departments have toyed with the idea of recovering costs via chargeback. But, as too many have found out the hard way, relying on spreadsheets, standard accounting practices, and metrics like cost pools doesn't work very well.
The layer cake of technical dependencies and shared services that make up IT today is too complex, too opaque, too interconnected, and too interdependent to accurately allocate back to the business consumer using the corporate general ledger. So when the consumption of a shared resource like storage increases (and the IT costs of providing that resource go up), it is nearly impossible to accurately allocate those costs back to the business units that are driving the increase.
This leaves IT and the business wrangling over costs and allocations and not focusing on what matters: the value technology brings to the organization and its customers. Before adopting TBM 18 months ago, these were some of the challenges facing Great-West Life’s Information Services (IS) department.
"Our previous chargeback framework incorporated server, storage, network, laptop, and desktop costs into one big bucket,” said Deanna Johnson, Director, IS Reporting and Analysis. “It was essentially a black box of technology costs that the business didn't necessarily understand. So, no one could really get a handle on why a specific cost was increasing or what they could do about it."
Since adopting TBM, Great-West Life has a different story. The IS team has not only achieved their goal of developing a more granular and transparent chargeback mechanism—they’re embracing TBM to fundamentally transform how IT and the business work together to get the most value out of technology investment.
"Using Apptio’s Bill of IT as a chargeback mechanism, our business units are able to better understand the IT services they're consuming. It empowers them to ask questions and understand if their consumption aligns with their strategy going forward," said Jeremy Muzyka, Assistant Manager, IS Financial Management.
Transparency into IT’s price model has allowed the Great-West Life’s technology teams to work with business units to review the infrastructure footprint of various applications. This has had a large impact across the organization. One business unit, for example, completed a review of their infrastructure consumption and was able to optimize their use of certain services to realize a reduction in charges of approximately $7M.
“Some business areas have been able to realize significant savings by engaging in large application rationalization efforts,” said Muzyka. “One area was able to realize a reduction in charges of about $2.5 million over the past 18 months. In 2018, due to efforts that they've taken in the first part of the year, they've reduced their annualized charges by about $4 million.”
In addition to Bill of IT, Great-West Life has implemented Apptio’s suite of solutions, including IT Planning, Cost Transparency, and SaaS Insights O365. The team is now in the process of implementing Project Financial Planning.
The TBMA team has trained and provided Apptio access to over 200 users across Canada and Europe. The efficiency gains have been tremendous. This includes real-time consolidated expense budgeting, the elimination of over 500 spreadsheets, automated reporting enhancements allowing for the redeployment of FTE hours, and an approximate reduction of 50% TBMA time dedicated to preparing and reviewing results.
But efficiency gains are just the tip of the iceberg.
Building service orientation by understanding business needs
Beyond a renewed chargeback model, adopting TBM has helped Great-West Life strategically align IT service delivery with business direction. Great-West Life is working to run IT more like a business, by adopting a services-oriented delivery model. This has allowed IS to focus on Great-West Life’s customer-first business strategy of driving top-line growth, rather than arguing over bottom line dollars.
"What made us successful in this transformation was going out to our business stakeholders and asking them, 'What do you need to be able to better understand your IT costs?'" said Kelly Copp, Assistant Manager, IS Financial Management.
Great-West Life initially conducted voice-of-the-business surveys to uncover how well IS's costing and chargeback models were working, as well as to understand perceptions of IS overall so pain points could be addressed at the same time. The discussions focused on understanding rates and demand, accountability for IT spend management, costing methodology, transparency, and the effectiveness of IT reporting & processes. The result was the implementation of a chargeback system that produces reliable unit costs and service rates, creates transparency, provides analytical modeling, and establishes a governance strategy—ultimately enabling the business and IS with the cost and consumption information required to make informed decisions on IT investments.
"Understanding the voice of the business was key to setting objectives for what we wanted to accomplish and deliver," Kelly elaborated. "The fact that we went out to our business units and brought them along on the journey helped us secure adoption and buy-in."
Understanding the voice of the business was key to setting objectives for what we wanted to accomplish and deliver.
Assistant Manager, IS Financial Management, Great-West Life
Without the cost transparency provided by the TBM taxonomy and Apptio's reporting capabilities, these conversations would not be possible. Now, with a sound chargeback model in place, there are fewer debates on cost sharing details, saving countless hours of executive time. Instead, IS is able to help the business units make informed trade-offs between the technology they have, the technology they want and, most importantly, the technology they need to achieve business goals and meet customer requirements.
Using cost recovery to fund innovation and shape demand
TBM and the new chargeback framework have also enabled a shift in IT capital spending from run-the-business to change-the-business initiatives. This includes increasing investments in transformation areas such as innovation and enterprise agility.
Great-West Life’s new pricing model is set up to recover all IT costs (including distribution of any over/under recoveries), drive consumer demand, and fund initiatives. There is flexibility in the model to allow for normalization of pricing due to year-over-year fluctuations in cost.
To fund Great-West Life’s many digital innovation projects, IS adds the necessary investments to things the business units need to operate day-to-day, such as desktop, storage, and computing costs. These funds are then reinvested in innovation initiatives that deliver benefits across all business areas. Some of these initiatives include: rolling out Office 365 to 16,000 employees, migrating to cloud-based voice and video communications, replacing telephone handsets with softphones, modernizing the business contact center infrastructure, deploying converged and hyper-converged infrastructure for compute, storage and networking, and adopting hybrid cloud.
Additionally, Great-West Life’s service pricing includes costs for other shared services like compliance, service management, cybersecurity, monitoring, and networking needed to support everyone's technology usage. To make this transparent to the business units, IS uses Apptio to set prices and the TBM model to demonstrate how these costs travel from the general ledger up to the business unit's P&L statement. The goal is to show them not only changing costs but why the costs are going up or down.
“With full cost transparency, we’ve been able to identify things like overprovisioning of server capacity that are driving IT charges upwards year over year. Our ability to shift to a new funding model where new services and investments are funded by IT rather than the business units themselves, gives IS the ability to manage the investment of technology and capacity more efficiently," said Rolf Oswald, AVP of Program Management Office.
"Cost optimization initiatives have resulted in lowering operating costs for some services, offsetting the expense of standing up new capabilities. With the knowledge and insight of where consumption costs are driving up operating expense, business units can now make informed decisions to help guide investment towards new service initiatives or improved service levels.”
Using Apptio’s Bill of IT, Great-West Life is able to provide both price and consumption information to help business units understand how their use of IT decisions impact their IT charges.
"Just to reinforce the subtleties of this," said Tim Nickerson, Chief Technology Officer and TBM champion, "if I go back three to five years, the conversations at budget time would be along the lines of 'Why are our storage costs increasing?' And we'd say, 'Well, business consumption is up, growth is up.' And they would say 'Yeah, but can't you do it cheaper?'
"Fast forward to where we are now. When we sit down with the business, the questions become ‘why are my storage consumption rates so high? Can we talk about that?' That may sound like a subtle difference but it's a huge change in what I would call ownership and attitude. It means being able to engage in a real discussion about cost savings rather than it being solely an IT problem."
Enhancing business alignment and value
With the new chargeback model fueling more robust conversations about consumption and demand, Great-West Life expanded their TBM office and established a Business Relationship Management team to further drive the dialogue.
“Our team is really a bridge between IT and the business,” said Melvin Baranyk, Director of Business Relationship Management. “We act as a liaison between Service Owners and Business Partners to develop a common language to understand IT cost and consumption, allowing for enhanced insights to cost drivers and strategic choices that are available.”
Over time, the conversations have become more strategic, focused on ensuring business value is obtained from investments and understanding how IT can best support business strategies and capability needs going forward.
“Based on the conversations we’re having with the business, we’ve developed technology and service roadmaps that ensure alignment with future business direction. These roadmaps are developed and shared with the business to ensure technology and service capability maturity aligns with their expectations,” said Baranyk.
The company’s Digital Workplace program is a prime example of how new technology and business services are being implemented to support the business as it moves to a digital and mobile workforce. This initiative includes the rollout of Office 365 along with a comprehensive set of collaboration tools, Windows 10, video conferencing, and persona-based workstations.
“It’s been a truly collaborative implementation,” said Baranyk “We did a lot of foundational work to identify future business capabilities and then used this to inform a robust Digital Workplace program that’s giving our workforce the tools they need to be efficient and effective in the digital age.”
The future of TBM at GWL
Since adopting TBM 18 months ago, Great-West Life realized benefits ranging from improved coordination with the business to enhanced accountability for cost and consumption of IT services.
"It’s been a tremendous journey. TBM has helped us transform how we work so that it truly reflects the needs of the business," said Nickerson. "They want more detail, more information, more ability to make decisions about technology. Today, we’re able to deliver that and we’ve seen the results in cost optimizations, strategic synergies, and improved value out of our technology investments.”
TBM has helped us transform how we work so that it truly reflects the needs of the business.
CTO, Great-West Life
The Great-West Life team is now exploring how TBM can continue to mature their service delivery model and fuel business growth. This includes using TBM to accelerate organizational transformations such as the adoption of cloud, rationalizing applications, and optimizing costs. Focus will shift from historic to predictive analysis—providing more forecasting and ‘what-if’ analysis.
"At the end of the day, we're leveraging TBM to transform how we deliver technology services to the business. The business is then leveraging our IT to reinvent the business of insurance,” said Nickerson. “It’s a powerful combination that’s enabled us to foster innovation and unlock the power of technology to deliver solutions for our end consumers."