McKinsey: Managing the demand for IT infrastructure

InsightaaS: McKinsey & Co. is a world-leading management consulting firm. Its flagship publication, McKinsey Quarterly, has been providing insight into key management issues for 50 years. In this article, experts from New York, Atlanta and Silicon Valley examine the steps needed to create a “commercial IT infrastructure organization” that uses a “standard services catalog with clearly priced offerings” as the basis for providing IT services to business units. The article defines six attributes of effective demand and service management, spanning definitions, pricing, cost allocations, metrics and benchmarks and supporting processes and tools, and includes descriptions of how organizations can manage the changes required to adopt a delivery model with, the authors claim, can deliver “10 to 20 percent cost savings”  in the near term. This is not the clearest of McKinsey posts, but it does provide needed insight on a critical subject.

The top priority in 2014 and beyond for many IT infrastructure leaders is to reduce their operational costs through efficiency gains. By doing so, they can meet tight budgets at a time of economic uncertainty and fund new investments without requiring increased budget allocations. Based on 50 discussions with Fortune Global 500 heads of infra­structure, it’s clear that one key initiative to improve the cost and delivery of IT services is to adopt a more commercial-style model of interacting with internal business partners, such as application-development teams, lines of business, and support services…

To save costs and prepare for adoption of next-generation infrastructure technology and hybrid-cloud models, leading organizations are adopting commercial-style demand and service management that has two key characteristics. The first is a standard services catalog with clearly priced offerings that can be consumed on a price-times-quantity basis. Such a catalog requires creating bottom-up unit costs for each service based on a detailed bill of materials. This means that unit costs should be an aggregation of all the components making up the service and not an arbitrarily stipulated cost mostly based on averages and allocations. The second characteristic they share is that roles have been established for IT to interact with business partners in a more commercial way–including roles for product managers who can define standard offerings and solutions and architects who can help developers combine the right mixture of them to meet a business need.

These changes are tough to make. But if an organization can introduce a new model for demand and service management, it can usually realize 10 to 20 percent cost savings…

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