The CIO as the Strategic Service Broker

Blog-postbyChristian Verstraete,
HP Blogger
Thu, 03/31/2011 - 12:17

Cloud Computing is THE thing we need in IT these days. But frankly, how does it fit in the evolution of the business? What value does it add?

Let’s focus on the role of the CIO. He or she is asked to increase agility, reduce cost and make new technologies available. But many companies use 70 percent of their IT budget for operations, keeping the environment going. They only have 30 percent available to improve processes, transform the environment and innovate. So, something drastic is needed, and that’s where virtualization, automation, standardization and, ultimately, the cloud plays a role. The goal is to create enterprises that are always connected, where information can be found in a heartbeat, that can make decisions rapidly and that are able to adapt their business processes and ways of working quickly. We at HP call that the Instant-On Enterprise.

These trends require the CIO to transform him/herself into a “strategic service broker.” What do I mean by that? Let’s take a business process, let’s say order entry, and let’s think about what it comprises. Order entry consists of a number of steps that are executed sequentially or in parallel. Each of those steps consist of an elementary function, some of which are performed by people, others by computers, and some by an interaction between the two. When the order entry process changes, most often it is because steps are re-ordered, new steps are added or removed.

Now that we have a computer literate workforce (gen-Y), could we provide them with graphical environments to develop and maintain business processes, using a repository of “steps”? And could we make the IT department responsible for providing the steps? That’s precisely what “service oriented architecture,” in short SOA, was promising.

With that in mind, the CIO is now responsible for  providing the business with the appropriate steps (which I will call “services” going forward) to do their business. It first requires proper governance between the business and IT to know what the required processes are and to establish their lifecycle. Once the CIO knows which services he needs to provide, he can choose the delivery mechanism, and here he has three possibilities:

  • The service can be delivered by the legacy applications. Often however, Web service technology is used to shield the traditional environment from the user, allowing the application to be migrated/transformed without affecting the user.
  • The service can be delivered by applications he/she has migrated to a private cloud.
  • The service may be provided by a cloud service provider (e.g. a SaaS provider) and seamlessly proposed to the user.

Our cloud offerings provide the infrastructure and software to run and manage such integrated environment. Through their modular nature, functionality can be built-up over time, starting with simple automation for example, and leading to shared services, billing etc. at a later stage. The core piece of this vision is the service catalogue and user portal through which the user identifies which services he/she wants to use and accesses them.

So, what is the benefit for the CIO to become a strategic service broker? There are multiple ones:

  • It gives him an environment in which he/she can evolve towards a cloud environment, reducing the cost of running and managing the infrastructure and applications. Using the IT infrastructure more efficiently (moving from an average of 10-15 percent utilization to 30-35 percent), not only reduces the needed assets, but also floor space, operating expenses and energy consumption. So, that helps the CIO reduce cost.
  • By exposing functionality through services, the business can choose which services to use at what moment in time and is able to transform business processes very quickly. This drastically improves the enterprise agility, while making the dialogue between IT and the business easier as responsibilities are clearly delineated.
  • By reducing the operating costs, as described in the first point, more budget is available for innovation and transformation.
  • By combining internal and external sources, the company can focus on developing the services that differentiate them from their competitors while sourcing non-differentiating services from service providers. This will work as long as compliance to legal requirements can be guaranteed.

Companies definitely need to look at cloud. But know it will take time to transform the existing IT assets. It’s important companies can manage the hybrid delivery they will have for the near future.

I would like to hear your thoughts.  Do you believe the CIO will become a strategic service broker in the future?

Make a comment
Subramanian LS
0 Points
Tue, 04/05/2011 - 10:05

The CIO is an Ostrich in absorbing the cloud comuting paradigm.The CIO better wake up else his role will be taken by the CXO/COO.

 I do not see the CIO become a strategic service broker in the future, rather I believer that the CIO role merged with Business operations led by the COO/CXO.

John Dodge
1526 Points
Tue, 04/05/2011 - 13:11

Thanks for the comment, LS. I take you are not a CIO-:)

My take is where the CIO uniquely contributes in terms of innovation, agility and transformatiobn, they will endure. Companies that are in perpetual consolidation mode might take a swing at the CIO. For the next couple of years, IT will have to evaluate and manage cloud migration. I am not sure if accounting or business operations have the knowledge or skill to do that.

And companies will continue to need app developers, especially for mobile. But your suggestion that the COO could take over CIO duties is well taken.  

John Dodge
1526 Points
Thu, 03/31/2011 - 18:20

I agree with your last point about the "hybrid environments" as legacy apps migrate tp the private and public cloud.   

CIOs have been services providers (or brokers) for a long time, providing those order entry decision-makers (I'd call them clerks, but that would sound horribly dated!)  with functionality they need to 1) do their jobs, and 2) efficiently provide a service that is competitive.

How is a services catalog (a good idea, for sure) different from a software or applications catalog?   

Doug Goddard
123 Points
Tue, 04/05/2011 - 16:57

"How is a services catalog (a good idea, for sure) different from a software or applications catalog?   "

A service catalogue may contain individual services that combine hardware, operating system software, custom services, off-the-shelf solutions, different layers of support, pricing schedules geared to different parts of the world, complex cost allocation rules, including shared costs. To me one of the main benefits of a service catalogue, in addition to being one of the elments of viewing IT assets as investments, is getting a solid understanding of where the IT dollars are being spent now.  That is assuming the catalogue is detailed enough and the service providers, internal or external, are capable of delivering the raw data. That information is what provides transparency into the  IT "investments" for caclulating the ROI on those assets. Along with other service strategy processes it clearly identifies where future investments ought to be made.

Christian Verstraete
429 Points
Fri, 04/08/2011 - 06:35

I can only agree with you. The whole concept of a service catalog is that its services can consist of many service elements. We all know that to install (the new term being provision I suppose) an application we may need presentation servers, application servers, a database server (which may have to be a  physical machine for lack of support of virtualization by the software) etc. What you want is, in one click, get everything appropriately set-up. The service catalog provides the reservoir of those workflows. In our implementations the measurement of where cost goes is not included in the service catalog but rather handled through a metering, crosscharging, billing function. Whether that function is just used for consumption reporting or for actual crosscharging depends on the implementation. But for sure, it's key to understand where the IT dollars are being spent. Many thanks for your comments.

Doug Goddard
123 Points
Fri, 04/08/2011 - 13:54

" In our implementations the measurement of where cost goes is not included in the service catalog but rather handled through a metering, crosscharging, billing function."


You are correct Christian. It is more of a relationship than an intrinsic component of the catalog. I'm used to mapping the catalog services to client chargeback heirarchies, tax jurisdiction rules, revenue recognition heirarchies on the vendor side, or whatever heirarchy the context demands, hence the comment.

Christian Verstraete
429 Points
Fri, 04/08/2011 - 06:40

Your point on the conflicts of interests is an important one. When deciding to broker services it is absolutely critcal to put an appropriate governance model in place. This governance decides which services are being brokered and serves the body that builds consensus. Both business and IT should be included in the governance model. This may actually be the subject of a future blog. Many thanks for the hint.

Doug Goddard
123 Points
Fri, 04/08/2011 - 02:36

Mark my understanding is P&G's GBS is a shared service organization so it would be a very good example. I'm not certain if the author of the thread is referring to the technical concept of service brokering exclusively, web services and that sort of thing, or the more human activity of facilitating the delivery of services. If GBS is a shared service organization then presumably they would have at least tried to put together a service catalogue, since cost reduction is a major motivation behind shared services and service catalogues are one way of opening up the competition for delivering those services. There are at least 5 or 6 different delivery vehicles. The competition ought to lead to lower costs and help prevent the misalignment of interests you warned against since everyone, internal and external, understands what the deliverables are. However, service catalogues are very difficult to put together. I remember working on three large outsourcing engagements where the vendor and the customer were the same. There wasn't a single service in any of the contracts that was identical to the other, including the names, and the contracts all took off in different directions as the changes started pouring in.