Operating Models

Context and Challenge

Today, more than ever before, the rapid pace of change, introduction of disruptive technologies and a hyper-competitive business environment are putting new challenges in front of CIOs. On the one hand, IT is moving from an enabler role to that of a business partner - CIOs are expected to partner with their business to lead their company’s technology enabled business innovation – the so called “Digital Transformation” – treading into newer areas like M2M, social media, cloud computing, real-time analytics and mobile computing. On the other hand, organisations need to continue to “Keep the Lights On” - guaranteeing flawless quality of service from the increasingly complex and expensive to maintain legacy information systems, plus secure the ongoing development projects related to the business roadmap. Combined with the projection that IT budgets will mostly remain flat or shrink in the near future, it becomes clear that CIOs need to overhaul their business model and positioning in order to find sustainable cost savings that can be re-invested on innovation projects that bring tangible business value.

The challenges going forward require CIOs to take a fresh look at both their IT portfolios (“what is being managed”) and their operating models (“how it is being managed”) in a holistic manner and put in place an organisation that is characterised by sustainable efficiency, agility, predictability & business value driven investments.

It goes beyond traditional measures like the use of offshore locations, IT and business process improvements and portfolio modernisation initiatives because the lack of coherence across individual initiatives mean that a lot of the efficiency gains expected from them are often offset by the increase in the number of hand-offs and the complexity of the legacy application landscape itself.

Simply put, the goal of an Operating Model is to set up a cycle within the IT department - based on the same budget; the model should reduce run costs for the legacy by rationalising

the applications (the ‘what’)and industrialising the IT delivery model (the ‘how’), thereby increasing the quantum of investments earmarked for innovation & modernisation initiatives that are tightly governed to ensure they deliver tangible business value and in turn decrease the run costs.

One size doesn’t fit all

Since one size does not fit all, Operating Models need to be based on the application portfolio characteristics (stable vs. dynamic; integrated vs. non- integrated, etc). Each Operating Model should be created with its own “Delivery Pattern” covering aspects such as organisation, roles, team composition, lifecycle, testing approach, processes and tools, KPIs and governance; and needs to be designed to maximise operational efficiency.

 There are three Operating Models that can co-exist in an IT organisation

1. A collection of stable application where the drivers are standarised process & tools; service catalogues & SLAs; and mutulisation of resources. The key focus is on quality of services.
2. A Collection of dynamic applications where applications undergo frequent changes, and the drivers are: consolidation by technology for critical mass & mutualisation of resources; input / output standardization; re-use; and agility. The key focus is on time to market.
3. Service centres for integrated applications sharing strong functional dependencies, where the drivers are demand regulation; extension of lifecycle activities up / downstream; release management; and integration (end to end integrator). The key focus is on end to end responsibility.

Benefits of tailoring your operating model

Operating Models are the building blocks that allow you to consolidate suppliers & unlock the benefits of industrialisation & economies of scale; moving from T&M contracting to fixed price contracts. The specific nature of applications managed within each Operating Model helps you delineate the boundaries of the contracted work packages, and govern based on the expected results – including the savings targeted.

1. It allows you to rapidly get an independent, unbiased view of your application portfolio and organisation characteristics
2. It aligns IT spending to business value delivered, reduce risks & sharpens application portfolio management
3. It bring in sustainable IT efficiency improvements quickly and drives operational excellence
4. It improves the alignment of HR capabilities to company plans and builds a more agile IT organization
5. It sets a good base for supplier consolidation & manage outsourcing contracts through clearly defined perimeters
6. Bottom line: it can bring in TCO reductions for the organisation