Norbert Kriebel Director, Consulting Forrester Research Measuring the Business Value of IT – Managing IT as a Business

Theme IT Services - outsourced, out-tasked, selective sourced, offshore, managed service, hosted... ~ ~ ~ How Do I Manage and Measure IT as a Business Service?

Agenda  European IT Services Trends  IT Value Communication  Establishing and Justifying Business Value  Applying Total Economic Impact

Forecast: Europe's IT Services Spending By Region, 2003 To 2008 From TechStrategy® Research: Exploiting Europe’s IT Services Growth, November 2003

Established Patterns Of Outsourcing Spending Remain In Force From Tracking Europe’s Outsourcing Stampede, May 2004

Midsize Deals Dominate As Continental Countries Loom Larger From Europe’s Outsourcing Momentum Shifts Its Country and Industry Focus, September 2004

Established Patterns Of Outsourcing Spending Remain In Force From Tracking Europe’s Outsourcing Stampede, May 2004

From Europe’s Outsourcing Momentum Shifts Its Country and Industry Focus, September 2004 Shifting Patterns In Service Types

Germany's IT Services Consolidation Gathers Pace  More than any other national market in Europe, Germany features the practice of large enterprises maintaining a free-standing subsidiary specializing in IT services -- the outsourced internal IT department.  Two recent developments have signaled the beginning of a wholesale review of the future of these firms -- one which will have a significant impact on the broader IT services market in Germany. »HP announces the acquisition of Triaton from ThyssenKrupp. »Ruhrkohle puts its IT services daughter company up for sale. From Germany's IT Services Consolidation Gathers Pace, March 2004

Shifting Goals  Value/Cost Management Replaces Cost Cutting »Cost management needs tools and a methodology. Cost transparency to be as important as the reduction of development and operational costs. »Cost transparency will extend its reach outside of IT. The business will also recognize the need for cost transparency regarding its consumption of services delivered by IT organizations.  Increased Focus on Business Metrics »Establish internal benchmarks for key measurements »Build a business case »Include benchmarking clauses in Outsourcing agreements »Build the appropriate processes for measurement and reporting

Agenda  European IT Services Trends  IT Value Communication  Establishing and Justifying Business Value  Applying Total Economic Impact

Emerging Technology Vendor Discrete IT Vendor Investor IT Sourcing Market – Early to Late 90s IT Service Provider Enterprise IT Organization IT Service Provider

IT Driven Decisions Enterprise Change Around Decision Process – Increasing Collaboration Line-of-Business Driven Decisions CollaborativeDecisions

Enterprise Line of Business Enterprise IT Organization Investor IT Sourcing Market – 2002 IT Service Provider Discrete IT Vendor Emerging Technology Vendor IT Service Provider Investor IT Service Provider IT Service Provider

Investor IT Sourcing Market – 2002 IT Service Provider Discrete IT Vendor Emerging Technology Vendor Enterprise Line of Business Enterprise IT Organization IT Service Provider

Agenda  European IT Services Trends  IT Value Communication  Establishing and Justifying Business Value  Applying Total Economic Impact

Getting the Budget “Our model for IT governance revolves around one thing: Shrinking the size of the total IT pie while growing the amount we spend on strategic initiatives.” — A financial services CFO of IT

Successful Projects Potential Failures 1/3 2/3 75%75%25% Budget devoted to operations Budget devoted to new projects Only 8.33% of IT budget is known create new value Past IT Project Performance

TEI Value Analysis - Aligning IT and Business Objectives Business Needs IT Solutions Value Goals (CSFs) Stakeholders Products/ Applications/ Services Features Benefits Key Performance Indicators What metric can we use to indicate progress toward the goals? Strategies/ Tactics What we see happen

Align Metrics with Outsourcing Model

Sample IT-Value Balanced Score Card From The Balanced Scorecard For IT: Value Metrics, November 2004

Agenda  European IT Services Trends  IT Value Communication  Establishing and Justifying Business Value  Applying Total Economic Impact

TEI – The Basic Model Costs Benefits Flexibility Indirect Benefits Technology Strategic Intent IT & BU Technology “Options” Cost to Change IT & BU Budget Allocation IT & BU Accountability Direct Benefits IT & BU Technology Opportunity IT & BU Accountability

TEI – Risk Costs Benefits Flexibility RiskRisk Uncertainty Impact of Assumptions Impact of Assumptions Accuracy vs. Precision Accuracy vs. Precision Common Risk Factors Market Risk Market Risk Management Risk Management Risk Vendor\Technology Risk Vendor\Technology Risk Project Size\ Cost Project Size\ Cost Cultural Risk Cultural Risk Training Risk Training Risk

What is TEI – The Basic Financial Model Costs Benefits Flexibility IT BU RiskRisk TotalEconomicImpact Benefits - Costs Costs = ROI % Standard ROI IT BU ROI using TEI Methodology (Benefits + Flexibility) R - Costs R Costs R IT ROI % BU ROI % Net ROI % =

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