How Innovative Technology Leaders Apply Business Acumen To Drive Value

2. Getting Started
This media-rich book authored by the TBM Council combines videos, interactive graphics, and
the TBM Index where you can measure and compare key performance metrics with other CIOs.
Please touch the video above to learn how to interact with this book, and gain the most out
your experience.
Getting Started
HOW TO USE THE BOOK

3. Getting Started
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4. Meet the Council
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TOUCH THE PHOTOS TO INTERACT
Meet the Board of Directors and Officers of the TBM Council. You can also
meet Principal members of the Council and see demographics of other
readers. Touch on any photo to read their biography and meet the
leadership team.
Getting Started

5. At the height of the global recession that began in 2008,
business technology leaders were at a turning point.
Faced with the conflicting mandates of spend less on
technology and drive greater business productivity, we
found the traditional approaches to managing IT were no
longer adequate. Although each of our situations was
different, we struggled to collaborate with our business
partners to make fact-based decisions about cost and
quality tradeoffs, to drive the right levels of investment in
our projects and services, and to maximize the business
value from every dollar invested in IT.
Fundamentally, our management approaches lacked the
necessary business acumen. Our business partnersi
managed their businesses one way, and we managed
ours another way. We spoke different languages. They
talked about cost and quality and we talked about
technical constraints and service levels. When new
market opportunities appeared, they justified the
investments to go after them. We said no to new projects
far too often because we had dysfunctional funding
models.
We formed the TBM Technology Business Management
Council to deal with this challenge. Rather than each of
us trying to solve the problem on our own, we got
together to share and discuss innovative approaches.
The theme was always the same: how can we create and
Getting Started
Foreword
4

6. leverage transparency internally and with our business
partners to optimize our costs, balance the supply and
demand for our services, and drive more investment in
business productivity and transformation?
In this book, we share our perspectives on Technology
Business Management, a prescriptive and applied set of
practices for CIOs and their teams to maximize and
demonstrate business value. The videos, interactive
infographics, and interconnected surveys of the TBM
Index provide a rich learning experience for you. We hope
you will not only learn the principles of TBM but also how
to apply them.
We recognize there is no substitute for conversations with
other practitioners of TBM. What makes this book unique
is it is a core part of a collaboration platform that
connects you to us — a community of your peers who are
learning about, adopting, and using TBM. We encourage
you to connect and participate. Ask questions. Share your
own observations and lessons. In doing so, you will have
a better learning experience but you will also help us
evolve the practice of Technology Business Management.
5
Getting Started

7. 6
CHAPTERS INCLUDED
1. The New Business Model of IT and the Forces Shaping It
2. Position Your Organization to Manage Your Supply and Demand
3. Understand and Benchmark the True Cost and Performance of Your Services
FUTURE CHAPTERS
4. Provide Transparency to Link Service Delivery with Business Outcomes
5. Execute Demand-Based Planning to Gain Greater Efficiencies and Alignment
6. Optimize Services and Suppliers for the Best Cost for Performance
7. Rationalize Your Portfolios to Sustain Value Creation
8. Innovate to Drive Growth and Strategic Business Advantage
9. Transform the Business by Enabling Agility
Drive a Performance-Based Culture10.
Chapter Summaries

8. Chapter 1
The New Business Model
of IT and the Forces
Shaping It
Executive Summary
Over the last decade, the value equation of business
technology has changed dramatically as the result of several
forces that are beyond our control as technology leaders. In
this chapter, we share the lessons we’ve learned in adapting
to these forces, giving rise to a new paradigm for maximizing
the value they deliver to the business: Technology Business
Management (TBM). We introduce four decision-making
capabilities that help us more efficiently run our businesses
while balancing our investments in growth and business
transformation. Built upon transparency, TBM complements
our existing key initiatives (such as IT service management, IT
governance and modernization) and applies to virtually every
enterprise, regardless of your maturity or business model.

9. As technology leaders, we are relied upon to both run and grow
our businesses. This dual role is nothing new. There has always
been a tension between our investment portfolios of running and
growing — and transforming — the business. This is important
because we are judged — and we judge ourselves — by how well
we strike the appropriate balance between these competing
portfolios. Investing poorly likely puts our business at a
competitive disadvantage, alienates our business partners, and in
turn, limits our tenures, compensation and career paths.
The investment triangle of run, grow and transform (see next page)
forms the business value equation of enterprise technology.
Unfortunately, forces beyond our control have permanently altered
this equation, leading to a seachange in the skills and methods we
must employ to strike the right balance.
Let’s first consider how these major forces have permanently
altered this value equation. Then, we will look at a new
management paradigm that is needed to counter them.
Section 1
The Business of Enterprise
Technology Has Changed
8
The Business of Enterprise
Technology Has Changed
Chapter 1
Section 1

10. The Economic Crisis and Regulatory
Expansion Constrain Innovation
The global recession that began in 2008 has made a
lasting impact on business technology spending. Average
IT budgets fell in every region except “emerging Asia”ii
and there continues to be downward pressure on many.
According to recent Network World researchiii, only a fifth
of businesses have budgeted more for IT in 2012 than
they did last year, with the majority (39%) keeping
budgets flat.
It’s not just flat or declining budgets that have an impact
on the value we deliver. It’s how we deploy those
budgets. Since run-the-business spending is often fixed
and non-discretionary, budget cuts generally come from
our change-the-business initiatives first.
While we often try to optimize our run-the-business
spending to free up budget for more strategic priorities,
the recent tightening has made this more difficult for two
reasons:
• Over the past several years, we became much more
efficient and productive, making it much harder to find
additional optimizations. Many of us have had to admit
we’ve cut to the bone, there’s no more to give. We’ve
got to find ways to optimize our demand instead.
9
Touch each category to see how each affects your investment portfolio.
Interactive 1.1 The Technology Investment Triangle

11. • At the behest of our CFOs, many of us postponed
expenditures on equipment and software to preserve
cash. Now hardware and software refreshes, which are
mostly run-the-business costs, are eating into potential
grow/transform investments. In fact, from the second
quarter of 2009 (when the recovery began) through the
third quarter of 2011, 94 percent of capital outlays in the
United States were used to replace aging high-tech
equipment, machinery, and buildings. Only 6 percent
was spent on business expansion.
To make matters worse, the ever-increasing regulatory
burden (i.e., mandatory expenses) puts growing pressure
on our run-the-business costs. The costs to comply are
rarely classified as grow or transform. And since most
regulations mandate additional reporting from the
business, they disproportionately consume our
technology budgets. Whether it’s complying with IT-
focused provisions (e.g., PCI DSS, HIPAA, data privacy
acts) or business-focused regulations (e.g., Sarbanes-
Oxley, anti-money laundering statutes, environmental
laws, changing tax code), information technology is
needed. This drives up the run-the-business part of our
investment triangle.
Cloud Computing and Consumerization
Loosen Your Grip on Technology
Spending
The cloud has fundamentally altered our relationship with
the lines of business. More than ever before, we face real
competition. Where outsourcing decisions in the past
were usually made by us, our business partners are
increasingly making decisions to selectively outsource
services such as infrastructure and software to the cloud.
Even when we’re able to retain control over sourcing
10

12. decisions, the cloud has
altered the expectations
of our business partners.
Here is why. Cloud
providers market directly
to our business partners
who are savvier than
ever about technology.
As a result, our business
partners expect to order
services at a published
price over the web. They
want near-instant access
from almost anywhere.
They want an intuitive
application with round-
the-clock support. If we
can’t meet these
expectations, they are more willing than ever to build the
business case and source those services directly through
the cloud. This disintermediation of the IT supply chain
creates a number of challenges (e.g., integration,
security, administration) which cause unintended
consequences for our overall investment portfolios.
Public cloud computing
introduces other challenges as
well. For example, it means we
must be able to make apples-to-
apples comparisons between our
external services and internal
ones. Consider end-user support
for end-user software. Many
SaaS providers do not provide
level 1 support to end users; they
expect their customers to do so.
In this case, the retained cost of
providing level 1 support should
be included in any comparison of
on-premises software to a SaaS
solution.
Embracing consumer
technologies — the
consumerization of IT — also affects our decision
making. Our business partners and end users often
compare the purchase price of consumer-grade PCs,
laptops, internet service and so on to similar but
commercial-grade products and services that we
provide. The disparities in price and quality along with
11

13. the inherent diversity of products and services increase
the cost and complexity of running our business.
This loss of control often translates into poor business
and technology decisions. Adopting public cloud services
or consumer technologies without a clear understanding
of their total costs, including retained costs, can spell ruin
for our run-the-business budgets. Furthermore, shadow
IT can impair our ability to execute a cohesive technology
strategy and enterprise architecture initiative, hindering
agility and impairing business alignment. Cloud and
consumerization are not inherently good or bad, but our
decisions to adopt them must be based on facts.
Business Growth and Competition Drive
Demand Faster than Efficiency Gains
Increasing demand for our services, projects, and
infrastructure often stems from business growth. The
corresponding investments we make, properly classified
as grow-the-business, are welcomed by our business
partners. Such capital investments in new capacity often
drive down our unit costs (by spreading fixed investments
across more units), which help keep our run-the-business
spending in check.
By taking advantage of continuous cost/performance
improvements (e.g., due to forces described by the laws
12

14. of Moorev, Koomeyvi, Bellvii, and others), hardware
refreshes can help reduce our run-the-business costs.
New hardware is generally cheaper to buy, power, cool,
and maintain than older hardwareviii. However, these gains
have barely kept pace with the growth in demandix.
We may now be at a tipping point. According to Dr.
Howard Rubin, efficiency gains have offset demand
growth by about 18% per year. However, he believes
these gains will be more than offset by increased demand
in the coming years.
Rubin cites efforts to protect revenue, tap into new
revenue sources and markets, leverage new channels and
support new devices as reasons for this geometric growth
rate.
Increased demand is not just an issue of quantity. In order
to innovate and compete, we often build or cobble
together leading-edge technologies that are more
powerful, complex and integrated. Creating these
services may be viewed as growth or transformation, but
they create a run-the-business “hangover” that is usually
greater than the cost of running traditional or
commoditized technologies.
While these forces apply upward pressure on our run-the-
business costs, increased global competition is driving
greater accountability for growth and innovation. To be
successful, we need to foster transparent conversations
with our business partners to make collaborative
decisions about cost and quality…and about supply and
demand.
13

15. Value Is in the Eye of the Beholder
Each of the forces we described above affects our investment portfolios —
and our value equation — in different ways. Some drive up our run-the-
business costs while others exert greater pressure for growth and
innovation. How these affect the value we deliver depends on the
expectations of our business partners.
The MIT Center for Information Systems Research defines value as
“delivering performance on a dimension that stakeholders find important.
The performance dimension may be monetary, such as revenue or profit, or
nonmonetary such as customer satisfaction or process reliability. However,
delivering performance on an unimportant dimension has no value.” XII
A free marketplace has a built-in mechanism for handling the innate
subjectivity of value: cost (or price). Cost helps bring supply and demand
into equilibrium. If a product or service is free, demand is potentially
infinite. However, putting a cost on our services starts to shape both supply
and demand. Our business partners begin to understand how the cost of
technology affects their cost of revenue. They will decide how much
service they need, at what level of quality, and help us minimize waste.
They will tell us when cost exceeds value. Cost is a very important signal.
Section 2
14
Chapter 1
Section 2
Value Is in the Eye of the Beholder

16. This does not mean we all must charge back for our
services. Many of us are not ready to take this step; for some
organizations it may never be needed. However, we need to
enable value-based conversations with our business
partners. Since value is subjective, we need to frame our
discussions in quantitative terms that our business partners
understand. Cost transparency helps us do this.
Transparency of quality is also important. This means clearly
defining and communicating our services and their quality
(e.g., through service- and operational-level agreements,
security ratings, etc.). It also means measuring and
communicating the quality of service delivered.
Once the cost and qualityxiii of our services is known, how do
our business partners assess value? In general, they
compare our costs and quality against three factors:
1. The cost and quality of third-party alternatives: Our
services should not cost more than similar-quality
services from third-party providers, including the cloud.
Since it is often difficult to perform apples-to-apples
comparisons of services, the perception of cost and
quality is important. Competitive providers often do a
good job of marketing their services, making them
appear better or cheaper than what we are offering.
2. The cost and quality of internal alternatives: Our
business partners may own and operate their own
technologies, including both applications and
infrastructure. In certain operating models (e.g.,
decentralized IT organizations), the lines of business
often own a large part of their technologies. The cost and
quality advantages of greater scale may encourage our
businesses to move to a shared services model, but only
if and when we address political roadblocks. A clear and
unbiased comparison of costs and quality helps us
overcome such objections.
15

17. 3. The business outcomes enabled by our services:
Innovation is the engine of growth, both to our top-line
revenues and to our bottom-line profit. The growth
supported by our services must justify the
investments in them.
As technology leaders, we manage the cost and quality of
our services. Our business partners are the best judge of
business outcomes. What we need, then, is a decision-
making framework for collaborating on cost, quality and
business outcomes.
16
Video 1.1 The Benefits of Technology Business Management

18. Technology Business Management (TBM) gives us a decision-making
framework for maximizing the value from our technology investments.
The framework relies on our foundations of financial and operational
data, our service delivery people and processes, and our relationships
with our business partners. It defines the disciplines that are essential to
optimizing our costs so that we invest more in growth and agility.
We provide a guided tour of the TBM Framework in this book. In the
remainder of this chapter, we introduce you to each component. We also
introduce the TBM Index with a diagnostic for you that follows the
structure of the framework. By answering a set of questions about your
organization, you will get a baseline of how your organization is currently
applying Technology Business Management principles. The diagnostic
also benchmarks your organization against your industry peers.
In each subsequent chapter, we discuss each component of the
framework in greater specificity. You will learn about the options you
should consider when applying TBM, along with the pros and cons of
each. Extending from the baseline diagnostic, we present additional
questions in each chapter based on those options. The answers to these
questions will provide actionable findings based on recommendations
from TBM Council members and other experts.
Section 3
17
Chapter 1
Section 3
TBM: A Framework for
Maximizing Value

19. While your decision-making framework may be different
than the TBM Framework here, it should center on driving
collaborative tradeoff decisions internally and with your
business partners based on facts and metrics. Tradeoffs
are essential because we must find ways to drive greater
value without spending more time, money or resources
than we already have. Even if our budgets grow, the
ability to maximize value through tradeoffs helps us stay
lean and ready for tougher times. But what kind of
tradeoffs can we, and should we, be driving? To answer
this question, let’s start our guided tour in the center of
our framework with the decision-making capabilities.
Run the Business More Cost Effectively
There are four types of decision-making
capabilities that help us maximize value
through tradeoffs. The first two help optimize
the cost and quality of services in order to run
our business more cost-effectively.
First, we optimize our cost for
performance. To get the right quality for the
best possible price, we must balance our
cost, quality and risk based upon the needs
of our business partners. Balance is the
operative word, as reducing cost is not
always the right answer. Indeed, sometimes
our business partners are willing to pay
more for better quality.
Clearly there are two sides of this tradeoff. On
the cost side, we must consider our total cost
of ownership (TCO), not just our acquisition
18
Diagram 1.1 TBM Framework

20. costs (a small part of the TCO for most services or
technologies). Where possible, we must reduce waste
and increase the utilization of our services, technologies
and other assets. We
must also understand
our unit costs, since
the volume of our
services and
technologies will vary
based on business
conditions. Our
challenge is to create
a total cost structure
that optimizes unit
costs given the
volume fluctuations
of our business
cycles. This
demonstrates
business maturity,
which fosters the
trust of our business
partners.
On the other side, we have performance. Here we refer to
the various qualities of a service or technology for which
we pay. These include the warranty qualities of availability,
security, and fault tolerance and the utility qualities of
features and functions (i.e., business efficacy, fitness for
purpose). In many cases, we can reduce our costs simply
by reducing the
quality of services or
by increasing the
associated risks.
Such decisions may
be appropriate, but
only when
considered in the
context of potential
business outcomes.
Cost and
performance
tradeoffs address
only part of our
efficiency challenge.
We must also
rationalize to
sustain value
creation. Over time,
our portfolios of services, applications, technologies,
infrastructures and suppliers become more complexxv. By
driving up our costs and hindering agility, portfolio
complexity cannibalizes innovation. To sustain our
19
Diagram 1.2 Run-the-Business Capabilities

21. capacity to create value, we must identify when, where
and how to simplify, modernize, or consolidate our
portfolios and their resource components. We must
appropriately trade
diversity and
complexity for cost
reduction and
simplicity.
To make those
decisions, we must
first understand the
consumption of our
resources. Any
decision to alter a
portfolio has an
impact on
consumers. We must
understand who is
being affected and
how. We leverage
our insights into
consumption, cost
and performance along with more strategic
considerations, such as supply risks, enterprise
architecture and vendor lock-in, to create properly
balanced portfolios.
Improve Our Ability to Change the Business
Running our business more cost effectively increases our
capacity to change our
business. Not only
does it free up budget
for growth and
transformational
investments, but it
helps us demonstrate
credibility to our
business partners.
Credibility is as
essential to our
success as the
capacity to spend on
innovation.
Change-the-business
investments are those
that help us grow
revenue, exploit new
ways to reduce costs,
or fundamentally improve the way we do business. They
help improve the top or bottom lines of our income
statements. While our run-the-business decisions can
improve our bottom line by optimizing costs, they mostly
20
Diagram 1.3 Change-the-Business Capabilities

22. do so by changing the way we deliver our technology-
enabled services. For the purposes of our discussion, we
define change-the-business investments as those that
improve our business processes or decision-making
capabilities.
We focus on two types of decisions that improve our
business. First, we innovate to grow and compete by
balancing our investments across a portfolio that is
governed with our business partners. Our portfolio of
investments may include run-the-business investments,
but we often strive to maximize our investments in
business growth and strategic advantages.
Innovation largely stems from the projects we undertake.
Unfortunately, we often make portfolio decisions based
on limited visibility into the total investments being made
in our projects and services. Many tools give us insight
into the hours being spent, the status of our projects, and
our human resource capacity. However, we need to make
decisions regarding our total investments, including the
impact of projects on our longer-term run-the-business
spending. Here we make investment tradeoffs based on a
clear appreciation of the investments being made.
Next, we must be prepared to transform our businesses
by enabling agility. Transformational opportunities
generally come along infrequently and unexpectedly,
usually driven by market and technological changes that
occur outside of our walls. Because these opportunities
are difficult to predict, our businesses must quickly
respond to take advantage of them. Agility makes this
possible.
Business leaders consistently describe agility as a key to
success. We enable agility through several tactics. We
21
Video 1.2 TBM Provides Value Management

23. create cost structures that represent the right balance
between flexibility and efficiency. We make investment
decisions quickly, backed by the facts, and we enable
more of our people to do the same. We give our business
partners informed choices in the services they consume
so they can quickly respond to changing market
conditions. We move quickly to exploit the right market-
based innovations such as mobile, cloud, collaboration,
and services-oriented architecture. Once again, tradeoffs
are essential. However, agility stems from the speed and
confidence of making those tradeoff decisions.
The Role of Transparency
Our decisions depend on bidirectional transparency
between us and our business partners. Transparency
provides the visibility we need to make optimization
decisions internally. Transparency with our business
partners enables us to collaborate on tradeoffs. And
transparency of business demand enables us to plan with
greater fidelity and safely reduce excess capacities. Most
importantly, transparency builds trust. We have a new
motto for today’s technology leaders: be transparent or
be gone!
In our experience, few business technology executives
argue with the need for better transparency. Most of our
business partners demand it. Instead, many of us don’t
know how to get there or what to do with it. Transparency
is a sensitive matter. We can be too transparent, hiding
the forest with the trees. We can reveal confidential
information. We can report bad data and destroy hard-
won trust. We can reveal problems but lack the tools for
solving them. TBM addresses these concerns.
22

24. Building the Foundation
TBM starts with positioning our organizations — our roles,
responsibilities, and processes — to manage the supply
chain of IT. This does not mean we must all reorganize for
TBM. Instead, we must first understand who plays what
key roles in managing our supply and demand. For
example, who is responsible for defining our services?
Who sources service components and manages the
performance of our suppliers? Who works with our
business partners to discuss their consumption and
understand their demand profiles? Who translates
business demand into actionable IT plans?
The names or reporting structures for these roles is less
important than how we arm our people to make
decisions. Leaders in these roles must be given the facts
and the decision-making framework to manage supply
and demand by collaborating with our stakeholders.
The Core Disciplines
Building upon this foundation, TBM delivers meaningful
perspectives for us to make collaborative decisions with
our business partners. TBM provides an accurate picture
of our costs and performance by the dimensions we need
to manage, such as our services, applications,
technologies, projects, data centers, suppliers, and
consumers.
Getting the right perspective depends on transforming
much of our data, especially financial, asset and
consumption data. We have important tools for this, such
as activity-based costingxvi and the bill of materials for our
services. We must consider the data that is needed or
recommended for such a transformation, how data quality
affects our decision making, and the methods for
23
Touch each element of the supply chain to understand the
benefits related to IT services and projects
Interactive 1.2 The Supply Chain of Business Technology

25. improving our data over time. Building on top of this
foundation, TBM provides bidirectional transparency
between us and our business partners. On one hand,
TBM shows our business partners how much they
consume, how much everything costs, and at what levels
of quality. On the other hand, TBM helps us assess and
translate the business demand for services into
technology plans.
We have several options for creating transparency with
our business partners. For example, we can provide cost
transparency based on actuals or by using published
rates (prices). We can provide a shadow bill of IT (or
showback) or charge back for our services. We can
implement a hybrid model. Each approach has
advantages and disadvantages. In comparing and
contrasting different models of transparency, we can
decide on an approach that is best suited for our
business.
We also have several options for planning with our
business partners. Consider budgeting, a central
component of planning. Many of us budget from a
baseline, such as our prior year expenditures. However,
some of us are moving to zero-based budgeting that
reconsiders each line item based on the needs for next
year’s business. This is more complex than baseline
budgeting, but promises greater fidelity. In evaluating
these alternatives, along with other, more advanced
approaches to demand-based planningxvii, we can select
an approach to planning that improves the value we get
from it.
Continuous Improvement
Each of these decision-making disciplines helps us drive
greater value. However, our value potential depends on
the degree to which we can exploit them. Rarely do we
possess all of the people, skills, data, tools and processes
24
Diagram 1.4 The Core Disciplines

26. to fully exploit TBM, especially
at the start. In order to both
sustain and improve value
creation, we must leverage our
governance processes and
execute roadmaps for TBM
that help create and drive a
performance-based culture.
The TBM Framework illustrates
the necessary elements of a
performance-based culture. In
addition to governance and
TBM roadmaps, the framework
addresses change
management such as training,
the socialization of TBM,
marketing your IT services,
and the proper operational
cadence for TBM decision
making.
25
Video 1.3 The Board Explains the TBM Framework

27. Technology Business Management is built to be universal. Since it is
both applied and prescriptive, it has been tested and adapted by
enterprises of many shapes and sizes. These include a rapidly growing
list of organizations, including companies in nearly every industry; with a
few million dollars in annual technology spend to many billions; and in
the Americas, Europe and Asia-Pacific. TBM has been applied by both
traditional IT organizations and product operations groups whose spend
is often described as “cost of goods sold” (COGS)xviii. Technology
organizations of different maturity levels, operating models and delivery
models employ TBM xix.
Your organization is likely practicing many TBM principles already. For
example, you may be providing cost transparency to your business
partners or using business demand models to build your IT plans and
budgets. But how does your organization compare to your industry
peers? How well have you adopted the practices recommended by the
TBM Council?
Section 4
26
Introducing the Technology
Business Management Index™
Chapter 1
Section 4

28. The Technology Business Management Index™ will help
you answer these questions. The TBM Index™
benchmarks and assesses how you and other technology
leaders improve value by applying business acumen to
your decision making. Following the structure of the TBM
Framework, the TBM Index employs an interactive survey
found in this book and through the Council website.
Structured in four main parts (see graphic on next page),
the TBM Index offers you several benefits including:
• Compare your organization’s application of
business practices against those recommended by
the TBM Council.
• Benchmark your practices against your industry
peers.
• Use the TBM Index as a basis for conversations
with other TBM Council members.
• Discover which TBM practices correlate with IT
metrics, such as run- vs. change-the-business
percentages or IT spend as a percent of
revenues.
Providing these benefits is an important goal for us.
However, we have another very important goal for the
TBM Index.
The Research Goal and Structure of the
TBM Index
The research goal of the TBM Index is to provide an
industry-validated benchmark on the state of Technology
Business Management. This will help us understand the
degree to which TBM is being practiced by each industry,
geography, IT operating model, and so on. In turn, we will
be able to be more prescriptive in our recommendations
to TBM practitioners.
Furthermore, the TBM Index will allow us to correlate
specific TBM practices and principles to the value
delivered by business technology providers. To do this,
the TBM Index is structured into four main parts, starting
with a baseline diagnostic and later introducing questions
and tools to assess outcomes.
27

29. There are many potential conclusions to be drawn
from this research. For example, we will try to
answer the following questions:
• How does cost transparency correlate to
increased change-the-business spending?
• Does zero-based budgeting result in fewer
budget variances throughout the fiscal year?
• Does providing greater service choices and
tiering result in more satisfied business
stakeholders?
• How does the value of TBM maturity vary by
industry, geography and operating model?
• At what size of company or business
technology organization is TBM most needed
to create satisfied business partners?
While strength of correlation does not prove
causation, it gives TBM practitioners greater
confidence that the investments they make in
Technology Business Management will result in
the benefits they need.
28
The four surveys that construct the TBM Index (Right)

30. 29
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31. Executive Summary
Implementing Technology Business Management (TBM) often
accompanies a broader transformation of an IT organization.
For many, this transformation positions the IT organization to
be a better service provider and business partner. In contrast
to many cost-centric IT organizations, these organizations
build foundations on a unique value proposition, services
aligned to that value proposition, and clear roles and
responsibilities for optimizing their services portfolio by
balancing supply with demand.
In this chapter, we will discuss how to position your
organization to manage the supply and demand for your
services. We will focus on several core components of your
TBM foundation, including your technology business model,
how to define services and assess their unique business
value, and the key roles your people must play to manage
your services as a portfolio.
Chapter 2
Position Your Organization
to Manage Your Supply
and Demand

32. Build Your Foundation Based on
Value
The Technology Business Management framework is built on a
foundation that positions our technology organizations to manage supply
and demand. This foundation defines our technology business model,
the services we provide, and the roles and responsibilities that are
essential to optimizing value. But to define any of these, we must
carefully define our value proposition.
Many technology leaders, corporate leaders and business partners
mistakenly assume their technology organization’s value proposition
should mirror their corporate strategy. For example, many assume that if
the corporate strategy is cost leadership, then technology should be
delivered cheaply; or,
conversely, a product
leadership strategy
justifies enormous
investments in highly
custom technologies
and services. This line
of thinking is overly
simplistic, imperils
corporate strategyi, and
stems from failing to
31
Diagram 2.1 The Foundation of TBM Positions
to Manage Supply and Demand
Build Your Foundation
Based on Value
Chapter 2
Section 1

33. understand or communicate how technology will help the
business succeed.
Instead, our value proposition must clearly articulate how we
will enable our business to execute on its corporate strategy.
Value proposition and corporate strategy are linked; but they
are not the same. Best price (corporate strategy) does not
mean cheapest IT. Best product does not mean custom
applications. In other words, our technology is a means to an
outcome, not the outcome itself.
To better understand the connection between corporate
strategy and value proposition, we share examples throughout
this chapter from DIRECTV (see example at right), Xerox, The
Clorox Company, and Inteva Products.
Why is our value proposition so important to our Technology Business Management foundation? Because the value we
promise to deliver drives both our technology business model and how we define our services. It refines what we expect from
our TBM-related decision making and defines what constitutes success or failure for our technology organizations.
Create a Unique and Compelling Value Proposition
There is hardly anything more important for the success of any enterprise than its unique value proposition. More than mere
messaging, our value proposition answers important questions about why we exist and the services we deliver, such as:
32

34. • Why should my business partners source
services from me as opposed to doing it
themselves or buying from an external service
provider?
• What must I keep in-house as opposed to sourcing
externally? (Or, what is core and what is context?)
• What value should our services reinforce? What will
make them unique and compelling?
• How should I communicate the value our services
deliver?
Creating a unique value proposition (or unique selling
proposition) has been described extensively in business
literature, especially for marketing professionals. The
details for creating one are beyond the scope of this
chapter. However, there are some important differences
between creating a unique value proposition for a
company as opposed to one for an IT organization. To
understand these differences, let’s begin by considering a
simplistic value chain (Diagram 2.2, Pg.34) for a
technology-enabled business process.
In our value chain, business value is built in four layers. We
start with resources we procure and provide, such as
hardware, software, and facilities. We deliver technology
services by adding value through expertise and labor. We
deliver business services by packaging, delivering and
supporting business applications and offering additional
value through consulting, training, application
development and so on. Finally, we deliver business
capabilities that generate revenue, reduce costs, increase
productivity or otherwise improve corporate performance.
Of course, not all of us execute all four layers of this value
chain; our business partners often deliver parts of it.
However, the value chains for technology-enabled
business processes create or enable revenue and if done
efficiently, help deliver a profit.
Now consider the services you deliver. Where do they fall
in this value chain? If you’re like many business
technology providers, you probably offer services that fall
into several segments. This is what makes it so difficult to
define your unique value proposition. The simplest way to
start is to focus on the segment where you have the best
opportunity to deliver the highest value to your business.
This will help you define your unique value proposition.
Many IT leaders fail to deliver unique value – or if they do,
they fail to accentuate and articulate this uniqueness. For
example, it’s not enough to deliver technology services
cost effectively; many cloud and other external service
33

35. 34
Diagram 2.2 Technology Business Model Archetypes

36. providers are equally cost-effective (or perceived as such). Your value proposition must be truly unique.
Being part of (i.e., internal to) your business provides an advantage for delivering value. You may possess real or
perceived strengths in safeguarding your customer data. You may be in a position to deliver the end-to-end services your
business needs. You may be able to build and support differentiated business applications based on a more intimate
knowledge of your business and customers. If you have these advantages, you should use them to define your unique
value proposition.
Ask your business partners these questions to reveal a little bit about your value proposition:
• Why do you source services from my organization and not a third party?
• Why not build or source your own technology-enabled services and applications?
• What do we provide that you cannot get elsewhere? What is unique about the services we deliver?
• How do we help you execute on your corporate
strategy?
• Do you consider us a business partner or a service
provider?
If your business partners struggle to answer these
questions, or if they believe they are forced to rely on your
organization, spend the time to develop or refine your
unique value proposition. Need help? You probably have an
expert business partner with a vested interest in you
getting it right: your chief marketing officer (CMO) can help
you better define your unique value propositionii. We
provide recommended resources below.
35

37. In looking at our own business technology organizations and those of
other companies, we’ve identified business models that vary based on
business value and organizational focus. Indeed, these two elements are
highly correlated: a mostly internal focus of a technology organization
results in an emphasis on managing assets and cost and creates little
unique business value; a more external focus (even to the point of
external customers of the business) stems from delivering business
services and capabilities and therefore greater unique value.
To illustrate, refer to Interactive 2.1 (Pg.37). At the top you’ll find a
business model archetype based on delivering the complete value chain
described above. This archetype, what we call Business Driver, is often
beyond the scope of a traditional business technology organization (i.e.,
an IT department). Exceptions include technology product and service
providers where the technology function is integral to the customer
service organization; think Facebook, Google, Yahoo!, and
Salesforce.com.
36
Your Technology Business Model
Depends on Your Value Chain
Chapter 2
Section 2

38. As we move down, we encounter archetypes that conform to
more traditional organizations. Since our models are based on
their value chains, the other models comprise various parts of
the Business Driver value chain. Let’s discuss each of these,
starting with the Expense Center.
Expense Center
The Expense Center archetype is characterized by a lack of
service orientation, as the move to defining and delivering
services accompanies greater customer focus. The
expense center IT organization is the least connected to
business demand and is usually funded as a percentage of
revenues, based on headcount, or through a baseline
budget adjustment. These approaches poorly reflect
business needs. The expense center model for IT is
inappropriate for any corporate strategy. It is the vestige of
an era when technology was less crucial to corporate
strategy.
As its name implies, an expense center IT organization is
focused on cost containment. This leads many to assume it
is the right model for a company with an operational excellence (or price leadership) corporate strategy. After all, cost
leadership is tantamount to market leadership for these companies. However, investing more in technology solutions
often helps reduce the cost of products and services due to productivity gains.
37
Interactive 2.1 Technology Business Model Archetypes
Touch the archetype labels on the left to see the differences
between each business model.

39. Take cost leader Wal-Mart. This retailer’s technology
business model is best described as a value partner. For
this retail giant, cost leadership often results from
outspending competitors on business technology. For
example, Wal-Mart was the first retailer to build its own
satellite network, at the time (1987) the largest private
satellite communication system in the world, giving the
retailer a distinct advantage in managing its inventory and
supply chain. The retailer continues to make dramatic
investments in IT to support its “every day low cost”
strategy. It is this strategy, and the linkage of services to
unique business value, that justifies Wal-Mart’s investments
and drives its technology business model. Wal-Mart clearly
demonstrates that an expense center model is
inappropriate for a cost leadership corporate strategy.
Gartner’s research shows the fallacy of an expense center
orientation that seeks to reduce “cost per” relationships
(above). Gartner shows that instead of setting IT spending
as a percentage of revenues or dollars per employee,
business technology leaders must educate their business
partners by defining “IT services explicitly in business
terms. Executives can then make informed decisions about
the right level of spending based on the cost of these
business services and the value they deliver.” This aligning
of spending to services is only possible when adopting a
services orientation at some point in your value chain.
38

40. Service Provider
The Service Provider archetype is characterized by the
introduction of the service portfolio and creation or
assignment of service owners and business relationship
managers, all of which we will explore later in this
chapter. Service providers often focus on the maturity of
service management processes (e.g., ITIL) in order to
define and deliver services efficiently and at the
promised level of quality.
Despite rhetoric to the contrary, service providers often
operate at arm’s length from their business partners,
relying on the business relationship manager to
understand the business partner and their required
outcomes. This orientation can operate like a vendor-
customer relationship. Service owners define and deliver
services and business relationship managers sell them,
negotiate service levels and set expectations, review
performance on a regular basis and make adjustments
as needed.
The service provider model is well-suited for most
shared services organizations. Since they must serve the
needs of multiple business constituencies, the service
provider model works well to deliver standardized
services at the right (and clearly specified) levels of quality and cost.
Indeed, businesses that choose a shared services approach
generally do so to improve operations, something the service
provider model supports.
In the service provider model, projects and other change-the-
business investments are often restricted to technology services,
such as new applications, which may be driven by transformational
or other high-value business initiatives. However, the role of the
business technology organization is often limited to the technical
aspects of those projects or investments. Delivering greater value
only comes from greater customer intimacy — by shifting your
organizational focus more externally to your business.
Value Partner
The Value Partner archetype is characterized by a change in the
service owner and business relationship management roles that
reflect a more external focus of your organization. The shift to value
partner depends on earning the credibility of a trusted business
partner. In this model, the term “business partner” is more than
semantics; it is based on a partner-oriented relationship. In our
experience, credibility is earned through the following:
39

41. Creating a governance program that
enables you, your line of business
leaders and your corporate leadership to
review, discuss and manage the IT
investment portfolio alignment to
business goals and/or capabilities.
Clearly differentiating your technology
services and articulating their value and
business performance through a regular
review process involving your business
relationship managers.
Delivering professional services such as
application development, information
security reviews, business application
design (planning), business process
analysis, enterprise architecture and
others. These demonstrate that your
organization knows your business and
not just its technology.
Meeting other core requirements such as
performance and capacity, competitive
unit costs, and expedient problem
resolution.
In other words, making the shift to value partner depends on delivering
elements that are largely in your control as a business technology leader.
In delivering these well — and demonstrating your unique value
proposition when doing so — you will earn the credibility to deliver other
business services and to help drive and fund business innovation.
40
Video 2.1 Xerox IT Transforms from Service Partner to Value Provider

42. Business Driver
The Business Driver archetype could be considered the one
that is not IT. These organizations truly are the business.
This model is only possible when the products or services
delivered to customers are largely based on your business
technologies. If your company provides software, platform
or infrastructure as a service in order to generate revenue,
you are operating in this business model. If your business
unit provides technology-based services to your external
customers, you are a business driver.
It is very unusual to see a traditional brick-and-mortar
institution with the majority of their business technology
delivered under this business model. However, it is not
uncommon to find business units within brick-and-mortar
companies that are business drivers. For example, the
online store of a brick-and-mortar retailer represents a
business driver. Even an investment bank whose services
rely heavily on technology may fit this model. The business
unit of an aircraft manufacturer that provides online flight
scheduling services is a business driver. In these cases, the
services of these technology organizations demand such an
intimate relationship between business process owners and
technology decision makers (e.g., service owners) that their
organizations may be indistinguishable.
Most business driver technology organizations started out
that way. They were created in-house and are led by a
CTOv, not a CIO. These CTOs often have much greater
technology budgets than their CIO counterparts. However,
with the emergence of the cloud we have begun to see CIOs
be given responsibility for their company’s external
“technology-as-a-service” business. This only occurs when
the CIO has proven his or her ability to run IT like the
business.
The business driver model is included here because
Technology Business Management is equally applicable to
business driver organizations. There are many CTOs on the
41

43. TBM Council representing organizations that are not
considered IT. Moreover, they often provide excellent
examples of practices that should be, but often are not,
applied by more traditional IT organizations. Their
services-orientation and clearly defined unique value
propositions are good examples.
Which Model Is Right for You?
From what you’ve read, you might assume that the best
model for you is the business driver or the value partner
model. We will avoid labeling these as better or best and
instead focus on the ramifications of each model.
As we stated above, the expense center model is
inappropriate for any organization that wants to be a
valued part of the business. Time and time again, expense
centers are forced to evolve or they are replaced. This
trend started with outsourcing and has accelerated with
the cloud. The competitive intensity in our markets means
our investments in technology must distinctly help us
execute our business strategies. Expense center providers
rarely do this.
For expense center CIOs or VPs of IT, the service provider
business model is an excellent start for delivering greater
value. By adopting a services strategy, developing a
service portfolio and a unique value proposition, and
creating roles for service owners and business relationship
managers, your organization will become less
dispensable. However, this may only be one step in the
right direction. Service providers are increasingly at risk of
being replaced in whole or in part by external providers.
There is an exception where technology organizations are
built for the purpose of delivering technology services.
Common with large organizations, especially global banks,
42

44. CTO-led technology organizations often provide hosting
services and shared applications to their lines of business.
Their business value stems from being more cost-effective
than external service providers while delivering high-
performance and specialized (e.g., via security, privacy)
technology services. These organizations often operate like
a cloud provider, even billing the lines of business based on
actual or planned consumption of shared technology
services. Sometimes they deliver services to third-party
customersvi.
Value partner is the least dispensable model for a traditional
IT organization. At this level you are demonstrating
customer intimacy and business acumen that, in turn,
create unique value. Value partner CIOs have earned a seat
at the table with their business partners. They have also
demonstrated they can run other shared services, beyond
those that are considered technology-driven, such as
procurement, human resource management, and even legal
services.
Many businesses rely on providers that operate in more
than one business model archetype. For example, lines of
business with the global banks often maintain their own
CIO-led IT organizations that build and support their own
applications, hosting them on infrastructure provided by
their CTO-led technology services organizations. This
provides the advantages of economies of scale and
specialized services with the business knowledge needed
to support business processes. Some of these
organizations also provide technology-enabled customer
services, characteristic of a business driver archetype.
Does this mean we can adopt a hybrid model, with one
business technology organization adopting two or three
business models? Yes, but examples of this are uncommon.
Value partners often outsource many of their technology
services — or create a separate organizational unit — so
they can focus on the customer intimacy that distinguishes
the value they provide. Business drivers rarely take on the
business services that are characteristic of the value
partners. Even when CIOs are handed the cloud business of
their brick-and-mortar businesses they often maintain
largely separate organizations for business service delivery
and the execution of business processes.
43

45. Which business model archetype
applies to your organization?
Interactive 2.2 will help you
decide. For each row, select the
box that best describes your
organization. As part of the TBM
Index, this infographic gives you
the opportunity to compare your
selections to those of your
industry peers.
To interpret your selection of
these five characteristics, look for
misalignment. If your organization
is a service provider, for example,
your unique value proposition,
service portfolio, organizational
alignment, transparency
processes and funding model
should align to the characteristics
shown in the service provider
column. If they do not align, seek
to understand why, as variances
may prevent you from being
effective in your chosen business
model.
For each row, select the attribute that best describes your own organization.
Interactive 2.2 The Service Portfolio Activity Map
44

46. As with competitive vendors in the marketplace, we must carefully define
our portfolio of offerings, i.e., our services. The services we choose to
provide and the way we deliver and support them determine our value to
the business. Moreover, they drive our resource and skillset requirements
and, in turn, our cost structure. A poor choice regarding one service
affects our capacity to deliver others.
Many business technology leaders struggle to define their services.
Perhaps this should be expected when so many are evolving from an
expense center model focused on technologies. Sometimes the struggle
stems from a failure to grasp the basic concepts of IT service
managementvii. At other times, technology leaders think bottom-up (i.e.,
starting with the assets or resources you own) as opposed to top-down
(i.e., starting with your business capabilities).
Does TBM rely on you having defined your services? Not entirely. The
disciplines of TBM, such as understanding and managing true cost and
performance or providing transparency to change business behavior,
have been adopted by organizations that have not developed a service
catalog. These organizations often manage their investments by
dimensions other than services and business capabilities such as:
45
Maximize Business Value with the
Services You Deliver
Chapter 2
Section 3

47. • Business applications, which approximate
business services;
• Core infrastructure and technologies, such as
servers, storage, networks and data centers; and
• Projects, such as software development and other
capital improvements.
Many of the decisions to optimize costs, rationalize
portfolios, innovate and improve agility apply well to these
types of objects. However, it is often difficult to link those
decisions to business outcomes without a services
orientation.
For our discussion, we will refer to five types of technology
and business services, as shown and defined in
Interactive 2.3 (Pg.48). You may have other types of
services defined for your own organization.
This taxonomy raises a couple of important questions.
First, how do we distinguish business process automation
from delivering business applications? Business process
automation — and business services in general — are
characterized by improving a business process. Simply
delivering and supporting a business application fails to
accomplish this goal. Indeed, almost any technology
provider, with little or no knowledge of our business
processes, can deliver and support an application.
Instead, consulting with our business partners,
understanding their processes, and driving continuous
improvement provide business value. When continuous
improvement is delivered as an integral part of delivering
and supporting a business application, we have business
process automationviii.
Second, what’s the difference between a technology
(resource) and a technology service? A resource is a
procurable, such as a technology, an application, a third-
party service, or labor. Resources provide value and can
be delivered as a service or as part of a service by adding
value through the following activities:
46

48. • Designing and Packaging the service, including
service composition and negotiating and
documenting service levels with your business
partners or other consumers;
• Sourcing the service and/or components in a way
that strikes the proper balance of cost, quality and
sourcing-related risks;
• Costing and Pricing the service so you can
optimize unit costs and advertise your rates to
your business partners to influence their demandix;
• Assessing Demand for the service by collaborating
with business partners and translating business
plans into resource requirementsx;
• Supporting and Monitoring the service to ensure
your business partners and end users receive the
agreed-upon value and remain satisfied; and
• Billing or Charging for your services based upon
the negotiated prices (rates) and the levels of
consumption or other factors.
Use the service portfolio activity map (Interactive 2.3) to
clarify which types of services your organization provides
and how you provide them. For each box, tap to select
between “not performed”, or “performed”.
Using the infographic, evaluate your services using the
technology-enabled value chain. Here, a value partner will
show proficiency at all levels and across all activities while a
service provider will show less proficiency across business
services. You should easily spot discrepancies — potential
issues that inhibit value delivery.
47
For each type of service (row), select whether or not your
organization performs the activity listed at the bottom. Descriptions
for service type and activities are shown by touching each item.
Interactive 2.3 Service Portfolio Map

49. Assess Service Value based on Your
Corporate Strategy
As noted in the first chapter, the MIT Center for
Information Systems Research defines value as
“delivering performance on a dimension that stakeholders
find important”.xi Considering what we’ve discussed
previously, the performance dimension your stakeholders
find most important is helping the business execute on
its strategy. Begin by assessing your services based on
that dimension.
In order to keep things simple, we recommend a
qualitative approach to business value assessment of
services. In our approach, your services fall into one of
three unique business value categories — differentiator,
advantageous and essential — which are defined in
Interactive 2.4 (page 50). We’ve assumed that you do
not provide unessential services, or that they are a very
small part of your portfolio.
Most organizations offer services of each category. It is
unrealistic to think we can deliver only differentiators, as
many of our companies’ competitive advantages are not
a product of our technology-enabled services.
Sometimes they have more to do with the design and
quality of products (e.g., Apple), the strength of the brand
(e.g., The Coca-Cola Company), the efficacy of the
supply chain (e.g., Wal-Mart) or the skills and knowledge
of employees (e.g., KPMG). Our services may be
essential to exploiting these advantages, but they may
not be unique by themselves. This is to be expected.
Furthermore, our business partners are bound to request
services that do not support the competitive advantage
of our business. For example, a collaboration service
may not directly support a competitive advantage, but
our business partners may insist that we provide such a
service.
It is paramount that we must invest in each of our
services based on contribution to our corporate
strategies. For this, we must manage our services as an
investment portfolio.
Manage Investments in Services
as a Portfolio
The discipline and techniques of portfolio management
have been applied to many kinds of investment
portfolios, including those of financial instruments (e.g.,
stocks, bonds, and options), a firm’s products and
brands, and a company’s vendors and suppliers.
48

50. The goal of a portfolio manager is to maximize the
collective benefits of our investments while managing risk
through diversification. For example, financial portfolio
managers purchase a variety of investments to yield a
certain return at a certain level of risk; product portfolio
managers invest across mature but lower growth markets
and less mature but higher growth markets to balance
profitability and growth; and vendor management chooses
vendors and suppliers to optimize economies of scale
while minimizing supplier and supply chain-related risks
(e.g., supplier bankruptcies, geo-political issues, etc.).
If we view and manage our services as an investment
portfolio, what trade-offs are we trying to manage? After
all, many of the services we deliver are dictated by the
needs of our business. We do not have the option of not
providing or not investing in many of our services. In this
way, service portfolio management is very different from a
stock portfolio: a hedge fund manager chooses his or her
investments without regard to delivering services as part of
a greater value chain.
In contrast, the IT service portfolio manager creates a
model for deciding how to invest in each service. Using
such a model, he or she asks the following questions
about the portfolio of services:
• What business value do we expect from each
service? How does each service fulfill our unique
value proposition and contribute to our corporate
strategy?
• For differentiator services, what are the goals of our
continued investments? Should we increase or
decrease our investments in each of them?
49

51. • Are our services cost-effective? What changes can we
make to improve the economics of delivering services?
• Should we rationalize essential services to free up
investments for new services or improve others
(or lower the cost of the portfolio)?
• Should we outsource certain services or certain parts of
our service?
Furthermore, the portfolio manager works with our business
partners, process owners and/or business relationship managers
to identify services that are needed to satisfy new business
requirements.
The service portfolio investment matrix (Interactive 2.4) helps to
quickly assess a portfolio, communicate with business partners,
and drive investment decisions. With this approach, services are
rated according to their unique business value, as discussed
above, and their financial performance. This categorizes services
into one of four primary investment categories (divestment
candidates, subsidizers, loss leaders and top performers), each
with a different implication for future investments.
Once completed, the matrix intuitively facilitates investment planning. When used during value-based conversations with
our business partners, such as through a governance body, it helps identify services that are consuming large investments
but are failing to deliver unique business value. Service portfolio managers can use the matrix to define investment goals. In
general, we make decisions to move services up and to the right in the matrix, shrink the size (investment level) of those
50
Interactive 2.4 The Service Portfolio Investment Matrix
Touch each quadrant of the investment matrix to
learn about the types of services that fall into them.

52. that cannot be moved, manage demand
for unessential services and retire
services that are not driving value.
The service portfolio matrix also
facilitates more strategic decision
making. In evaluating new reference
architectures, for example, the matrix
illustrates its impact on services in the
portfolio. A modernization effort should
lead to more cost-effective service
delivery and potentially business value
improvement. Furthermore, long-term
initiatives can be broken down into
phases to show their impact on a year-
by-year basis.
As we discussed earlier, classifying
services according to unique business
value is largely qualitative. Financial
performance, on the other hand, is
more-or-less quantifiable, depending on
the TBM tools employed. For example,
the following tools help us manage the
financial performance of our services:
51
Interactive 2.5 Service Portfolio Matrix
Touch each service on the investment matrix to learn about the types
of decisions recommended for each.

53. • Activity-based costing of our services to
understand their unit costs and degree of
efficiency (e.g., return on assets)
• Unit cost benchmarking internally over time and/or
against industry peers
• Comparing the cost of services to similar ones
provided by external service providers
• Comparing cost recovery (e.g., chargeback or
showback) against service total cost of ownership
(TCO)
To use the matrix, two additional attributes are needed
for each service: their demand profile and their lifecycle
stage. Growing or declining business demand is
indicative of business adoption and also has
implications for capacity requirements. It is also
important to identify services that are in the pipeline (in
the process of being developed or deployed) and those
that are being retired, as these indicate potential
changes in available funds.
The tools employed to understand financial
performance depend, in large part, on the decisions we
make regarding our business model, our approach to
transparency and planning, and other aspects of TBM.
We will discuss these tools and techniques for demand
management in subsequent chapters, along with a
more robust discussion of portfolio management in the
chapters on the decision-making capabilities of the
TBM framework.
The service portfolio investment matrix is an important
tool. However, its impact on business value depends on
our ability to make and execute the decisions it
facilitates. In other words, managing our investment
portfolio depends on our people.
52

54. Defining a compelling and unique value proposition for our organization,
choosing the right technology business model, and establishing a model
for managing our service portfolio is up to us and our executive team.
These things must be driven from the top down, but they depend on
distinct roles in our organization that may not exist if we haven’t already
made the transition to service provider or value partner. We will discuss
the most important roles here.
Manage Your Supply with Service Owners and
Service Portfolio Management
Our service ownersxii are like the product managers of a software
companyxiii. They are accountable for the success of their services,
beholden to key performance indicators set by the IT service portfolio
manager and our executive management team. Good service owners
deliver successful services by:
Optimize Your Team to Manage
53
Optimize Your Team to Manage
Supply and Demand
Chapter 2
Section 4

55. • Understanding their markets — i.e., their
customers and their potential customers;
• Creating clear value propositions for their
services;
• Monitoring their service alternatives, what
might be considered their competition, but
must also be considered potential sources
of service for the business;
• Rationalizing the technologies, such as
applications, used to deliver their services;
• Building different service level packages, or
tiers of service, to cost-effectively meet the
distinct needs of our business partners;
• Managing the costs, budgets and financial performance for our services and service level packages; and
• Setting prices or rates that are communicated to service consumers.
Service owners are responsible for the entire lifecycle of the service. Without a lifecycle perspective, service owners will
struggle to apply the portfolio management discipline, especially when it comes to making or recommending investments
in new services, introducing new service packages, and retiring services.
Generally, service owners are not service managers. They are not responsible for the day-to-day operation and support of
our services. They work with service managers, application owners, tower owners and others to ensure their services are
performing according to expectations and commitments. Furthermore, service owners are responsible for improving the
54
Diagram 2.3 Service Owners Improve Financial Performance

56. financial performance of their services, in essence moving services to the right in the service portfolio matrix. They are also
responsible for right-sizing our investments in those services (i.e., changing the size of the bubble).
Service portfolio managers work with service owners and business relationship managers to manage the service portfolio.
Together, they set the services strategy to deliver on the organization’s unique value proposition and support the company’s
strategy. Our service portfolio managers must also define the key performance indicators (see following table) by which we
measure service performance in order to manage our portfolios.
55
Key Performance
Indicator
Description
Service Level
Achievement
Performance against service-level agreements that have been negotiated with business partners. These often
include service availability, incident response times, bug fixes and enhancements, security and compliance, etc.
End User
Satisfaction
Percent of end users reporting satisfaction with the service. This is often measured through periodic end-user
surveys.
Unit Cost
Reduction
Reducing the per-unit costs of providing the same (or essentially the same) service over time. Unit costs should be
reduced due to improved efficiencies, economies of scale and other factors. Major enhancements may require a new
baseline for unit cost reduction.
Management of
Service Budget
Delivering service at a total cost within the quarterly and annual budget for the service. This requires that the budget
be set or translated into a service-oriented budget, which is often different than the budget managed in the general
ledgerxiv.
Service-Level
“P&L”
The difference between the cost of providing a service and the amount recovered from the business or when
compared against third-party benchmarks such as external service providers or industry peers. This can be applied
when both charging back for service delivery and when performing showback.
Investment Portfolio
Alignment
The ratios of spending in services according to business-aligned classifications. This requires classifications of
services and other investments (e.g., projects) according to your global business capabilities, business strategies
and/or other targets.
Table 2.1 Types of Key Performance Indicators for Service Owners and Service Portfolio Managers Source: Apptio, Inc. Used with permission.

57. Manage Your Demand with Business
Relationship Managers and Business
Process Owners
Once services are defined and owned, there is nothing
more important to linking the supply of those services
with business demand than the role of the business
relationship manager. While service owners and service
portfolio managers are accountable for the success of
what we deliver, business relationship managers help
make our business partners successful and satisfied with
our services. They fulfill this role by:
• Liaising with business partners to understand their
needs and their business plans
• Working with service owners, enterprise architects,
business process owners and others to define and
propose solutions to new business problems
• Communicating the business value and the cost of
services in the portfolio (or, more specifically,
catalog)
• Assessing and negotiating the business demand for
our services
• Identifying and addressing service-related issues
by working with service owners, service managersxvi,
enterprise architects and others.
Business relationship managers are like the account
managers of a services vendor (and are sometimes called
account managers or client relationship managers): they
listen to their customers (our business partners),
understand their business plans and pains, and propose
solutions. They also wield the service catalog and identify
the need for new services in the pipeline. In this regard,
they influence our supply.
56
Video 2.2 The Proper Role of Business Relationship Managers

58. They are also authorities on demand patterns. They serve a critical demand management function by prioritizing what is
most important from our business partners, communicating the cost of service choices, and helping close or defer low
value requests from the business. They operate with their IT hats on by being mindful of supply-side constraints, and with
the goal of ensuring customer success.
Business process owners also play a key role in demand management. They are a different kind of business partner than
those who own a line of business. They often reside in a shared services organization and are responsible for the design,
implementation and improvement of common enterprise processes and are accountable for achieving promised benefits.
Together, our business relationship managers and business process owners define business value and manage demand.
They are best positioned to understand business plans and pains and position the right solutions. It may be counterintuitive
to make these roles responsible for defining value, but value is
a function of business need. These roles form the bridge
between business processes and our services, and are
essential to delivering value. In this way, they are responsible
for the business value and demand dimensions of our service
portfolio matrix.
Since their processes are usually high-value and differentiated,
business process owners should be paired with the owners of
services that support their processes. In many cases, this is a
one-to-one pairing of the two. In this case, service owners
may interact little with business relationship managers. Thus,
pairing your service owners with process owners may provide
the needed supply-and-demand linkage between your
services and the business.
57
Diagram 2.4 Business Relationship Managers and Business
Process Owners Manage Business Value

59. IT Finance Must Facilitate Our Business Decisions
Many organizations have an IT finance role. Traditionally, this role creates and manages the IT budget within the parameters
set forth by corporate finance. This role may also own the IT asset management and procurement functions, responsible for
approving purchases and recording new assets, dispositions or changes. For many organizations, this role has mostly been a
controller function.
58
Key Performance
Indicator
Description
Service level
Achievement
Performance against service-level agreements for all services provided to a business partner.
Business Partner
Satisfaction
Percent of services for which the business partner’s end users are reporting satisfaction.
Business
Planning
Percent of services provided to a business partner for which there is a documented business plan, including demand estimate.
Business Partner-
Level “P&L”
The difference between the cost of providing services to and the amount recovered from a business partner. This can
be applied when both charging back for service delivery and when performing showback.
Project
Performance
Execution of projects against project plans for the business partner. This includes projects that are delivered under
agreements with the business partner, such as those included in professional services offerings.
Economic Value
Added (EVA)
Total profitability from the operations of a business unit from the perspective of the shareholder. Can be employed only
if EVA measurements are supported by corporate finance.
Table 2.2 Key Performance Indicators for Business Relationship Managers and Business Process Owners Source: Apptio, Inc. Used with permission.

60. To enable more meaningful decision making, the IT
organization needs a CFO of IT — a true financial advisor
for business decision making. IT leaders and our business
partners need financial analysis in order to optimize our
investments. For many organizations, this will require
upgrading skillsets and tools. We must employ many of
the same techniques that CFOs employ — activity-based
modeling, business intelligence, portfolio analysis, cost
restructuring and opportunity cost management. Indeed,
these techniques are essential to Technology Business
Management. We will begin to discuss them in the next
chapter.
In this way, the role of IT finance is evolving by providing
more value-added analysis. This does not mean everyone
will have a finance function within their IT organizations.
Many will rely on corporate finance for this function.
Regardless of our organizational model, corporate finance
and IT must align, work from the same source data, and
employ consistent approaches to making financial
decisions.
Other Supply-Side Roles Are Evolving
Service owners and business relationship managers are
essential roles for managing the supply and demand for
our services. We focused our discussion on these, as they
often do not exist in organizations that have not made the
shift to delivering services. However, we see other supply-
side roles evolving with the shift to Technology Business
Management.
Take technology procurement. In the shift to delivering IT
and business services, a category management approach
for sourcing from third parties is often more effective. With
category management, the procurement function pivots
its focus from vendors to the needs of the internal service
providers. Its goal is to maximize the value of a product or
service category to the organization by managing total
cost of ownership (TCO), risk, operational performance
and so on, not just the purchase cost and quality of a
technology. The shift to category management often
occurs with better insight into the downstream impacts of
sourcing decisions on the services being provided. For
example, when the true TCO of a category of hardware is
known, decisions must often be made that span suppliers
and contracts. Category planning and execution becomes
essential to service performance.
59

61. We also see capacity management evolving. This occurs
because once services are defined and their bills of
materials (BOMs) are well known, business plans can be
translated much more accurately into capacity plans. As
the costs of capacity-related decisions (e.g., excess
capacity) become clear, service owners can work more
closely with capacity planners to more cost-effectively
balance capacity-related risks with capacity-related costs.
As a result, capacity planners will become more service
centric.
Finally, enterprise architecture is becoming much more
TCO-aware. Once they have the tools for understanding
the TCO-related impact of their standards, along with
service owners holding them accountable, enterprise
architects will alter their decision-making approach. As
trade-offs between the benefits of proposed architecture
standards and their costs become clear, architects and
their constituents are able to understand not only the
impact on the enterprise but the impacts to individual
services. This, combined with better demand planning,
helps the organization measure the real benefit of
architecture changes.
60

62. This chapter has focused on the foundation of the Technology Business
Management framework. We’ve discussed our unique value propositions,
technology business models, services and service portfolios, and foundational
roles and responsibilities, all of which are essential to TBM. These elements of
our foundation enable us to practice the disciplines of the framework:
understanding and benchmarking true costs and performance, delivering
transparency to change behavior, and planning with greater confidence.
The foundation we’ve
described also directly relates
to the decision-making
capabilities of the TBM
framework. You should be
able to see how service
owners and service portfolio
managers help optimize run-
the-business investments by
optimizing the financial
performance and levels of
investment in our services.
These decisions help optimize
61
Build the TBM Disciplines and
Capabilities on Our Foundation
Diagram 2.5 Our Foundational Roles Enable our RtB/
CtB Optimizations
Chapter 2
Section 5

63. cost-for-performance and rationalize to sustain value
creation.
You should also understand now how our business
relationship managers and business process owners help
drive change-the-business investments. In managing the
business value dimension of our service portfolio matrix
along with our service demand profiles, these roles help
innovation to grow, compete, and transform by enabling
agility.
Taking the Next Step
With the tools provided in this chapter, spend some time
to create or clarify your unique value proposition and
create a plan to deliver the right services; it takes time to
get them right. In fact, our value propositions and our
services will continue to evolve; there is no final version.
Meanwhile, bear in mind that TBM applies to three of the
four technology business models. The essential ingredient
is your services. If you currently operate as a service
provider, or are working on becoming one, TBM will
provide essential tools for defining or refining your
services and pave the way for delivering greater value.
If you run a value partner organization, evaluate the
alignment and clarity of your roles and responsibilities. Do
your service owners understand their role in optimizing
the financial performance of their services? Have your
service portfolio managers created an effective model for
making investment decisions? Have you paired your
service owners and business process owners so they
decide on trade-offs that optimize their business
processes?
62

64. If you’re a leader in a business driver organization,
assess the ability of your product managers (i.e., service
owners) to optimize financial performance. In many
cases, product managers are bound to revenue goals
but lack the accountability and tools for managing TCO.
By optimizing transactional costs and the consumption
of shared resources, your service owners can often help
avoid or delay major fixed investments, such as data
center expansions.
Ultimately, the ability to drive the right decisions
depends on our decision-making tools. Our next three
chapters will describe in detail how to adopt the TBM
disciplines that provide these tools.
63

65. Chapter 3
Understand and
Benchmark Your True Cost
and Performance
Executive Summary
Earlier in the book, we established that value is a function of
the cost, quality and business outcomes of what we deliver.
To maximize value, your managers need clear and effective
levers for managing these variables. In our world of limited
resources, the IT shops that deliver the most value are those
that root out waste, make the necessary tradeoffs of cost and
quality and direct resources to the services or projects that
maximize profit or create a competitive advantage.
In this chapter, we discuss the levers needed to optimize cost
and performance. We will show how to create a more
consumption-driven accounting model of your costs and
resources. In turn, this will give you data you need to
collaborate with your business partners on the investments
you’re making, use a bill of IT to shape demand and assess
business demand to create a more meaningful IT plan.

66. In the latter part of the 17th century, Isaac Newton began a series of experiments
on light. His goal was to understand the fundamental nature of light and why it
behaves like it does. Newton wasn’t satisfied with what his unaided eyes revealed,
but he lacked the tools needed to determine the true nature of light. To give him
new perspectives, he created
innovative optics such as the first
refracting telescope and multi-
prism arrays.
Optics work by transforming
light. They bend, reflect and
refract light to help us see clearly
and give us otherwise impossible
perspectives. Car mirrors let us
see behind us, microscopes
magnify the very small, and
camera lenses allow us to
capture moments and share
them around the world. In doing
so, optics provide us the
perspectives we need to make decisions in our daily lives.
65
Chapter 3
Section 1
Understanding Our True Costs and
Performance Depends on Our Optics
Diagram 3.1 : Understanding True Costs and
Performance Empowers TBM Disciplines and
Decision-Making

67. We depend on a different kind of optics to make decisions
about our technology investments. Our optics include our
resource consumption and demand models that bend,
split and combine data much like Newton’s multi-prism
arrays did with light. With the right models, our decision-
making system provides valuable perspectives through
dashboards, reports, KPIs and other metrics.
In this chapter, we will show how to build consumption-
driven cost and resource models to provide the
perspectives our people need to make smart tradeoffs.
How an Accounting Model
Empowers a Transformation
We are not the first to discover that our accounting models
often distort our perspectives. Nor are we the first to
undergo a revolution in accounting and the way in which
we manage outcomes. Beginning in the 1970s, the
manufacturing sector made fundamental changes to their
cost models. In turn, those accounting changes
empowered management approaches and design
techniques that completely transformed how they
delivered products.
What led to the accounting changes? Foremost,
manufacturers automated more work with robotics and
computing. They equipped their production personnel with
more advanced tooling to boost productivity. By making
production even more capital intensive, automation shifted
more of the production cost from direct labor to overhead,
an indirect expense. It also added new costs into the
overhead, such as the engineering, support and
maintenance of equipment. Suddenly, capital and
overhead dominated manufacturing’s cost structure.
Traditional cost accounting methods proved insufficient.
They relied too heavily on direct costs, especially labor.
Accountants would allocate overhead (e.g., facilities,
66
Figure 3.1 New Optics are Needed to Transform a
Corporate Accounting Model Comprised of GL Accounts
and Cost Centers

68. utilities, equipment, management labor and supplies) to
products based on the amount of labor and other direct
costs. The more labor-intensive the product, the more
overhead they would allocate to it. This approach
distorted the true cost of products where automation (an
indirect cost) both reduced labor (the primary direct cost)
and consumed a greater share of the total.
For many manufacturers, the solution was activity-based
costing (ABC). Instead of allocating overhead directly to
products, ABC assigns overhead first to manufacturing
activities such as inserting a rivet, soldering a wire,
applying a quart of paint, performing a test or fixing a
defect. The cost of each activity includes the direct cost of
labor and materials and the indirect costs of equipment
depreciation, facility leases, utilities and more. The cost of
a product is the combination of its activity-based costs.
This proved to be a powerful change. Not only did it create
more accurate product costs, but it also provided levers
— the activities — that plant managers, engineers,
designers and cost accountants could pull to change the
cost of a product. For example, automotive engineers saw
the true cost of, say, a dashboard. They discovered the
impact of dashboard designs that required more
assemblies. More assemblies (activities) not only added to
the build cost of the dashboard, they increased inspection
time (another activity) and the number of defects (more
activities). Activities drive costs, and this became apparent
with ABC.
ABC helped transform manufacturing by empowering
decision makers. It enabled new approaches, such as
Design for Manufacturability and Assembly (DFMA), which
considers the impact of a product’s design on the
manufacturing process. ABC helped many firms adopt
Total Quality Management (TQM) by exposing the true
cost of testing for and fixing defects and revealing the
impact of their decisions on quality. ABC helped spur Lean
Manufacturing by encouraging process engineers to
eliminate or reduce non-value added activitiesi.
The impact of this change was dramatic. Because these
methods were first adopted by Japanese manufacturers,
they helped shift the balance of manufacturing strength
from the United States and Germany to Japan. Companies
like Toyota redesigned production using these new
insights, creating their own production systems (e.g., the
Toyota Production System) and becoming global cost and
quality leaders by the end of the 1980s.
67

69. How can we use accounting to empower our own transformation and
improve value? This depends on the roles we have in our organization
and the decisions we expect our people to make. As we discussed in the
previous chapter, fulfilling our unique value proposition depends on roles
such as service owners, service portfolio managers and business
relationship managers. These people simultaneously manage the value
of our services, the business demand for them and their financial
performance.
Rarely is our financial accounting model sufficient for these roles. Our
financial model is designed first for external investors and lenders. It
sacrifices important perspectives for the sake of making our financial
statements comparable with those of other companies. While our
financial accounting is sufficient for those external audiences, internal
decision makers routinely need a different perspective.
To understand this better, assess how well your current model arms your
managers to balance cost and performance, rationalize portfolios,
innovate better and improve business agility – the decision-making
capabilities of the TBM framework. Over the next few pages, we will
discuss what is needed for each of these types of decisions.
68
Chapter 3
Section 2
Arm Your People with the
Right Perspectives
Chapter 3

70. Optimizing Cost for Performance
Optimizing the cost-for-performance ratio of our services
depends on tradeoffs we must make at every layer of our
value chain. Our service owners are most responsible for
these decisions, collaborating with business relationship
managers, vendor
managers and others on
both sides (supply and
demand) of our services.
Our service owners make
cost and performance
tradeoffs when delivering
services. As illustrated by
our Service Portfolio
Activity Map in chapter
two (Pg. 44), service
delivery activities include
designing and packaging
our services, sourcing
their components,
costing and pricing and so on. These activities are like
those taken by a manufacturer to deliver products to the
marketplace. Similarly, our service owners can make
decisions during each activity to eliminate waste, find more
cost-effective alternatives for service components, and
smartly trade cost for performance.
Our new accounting model must help our services owners
see eye-to-eye with their suppliers and consumers, often
represented by vendor managers and business relationship
managers. On one hand, our service owners need a
supply-side view of their
services. They must see the
direct costs of their services,
such as application
development labor or the
invoices for outsourced
services. They also need an
appreciation of their indirect
costs, such as the shared
infrastructure they consume to
provide their services.
On the other hand, our service
owners need a demand
perspective. For those of us
delivering services, our business
partners think in terms of the services we provide, not
about infrastructure or software. Our service owners and
business relationship managers must communicate the
value and cost of the services being delivered, understand
69
Video 3.1 Using Cost, Consumption and Utilization
Data to Provide Levers for Optimizing Costs

71. the business demand for those services and translate
anticipated demand into an efficient resource plan.
In Interactive 3.1, we describe several essential
perspectives our service owners need for trading cost for
performance (and risk). Some of these enable
optimizations that can be made unilaterally and some
facilitate tradeoff discussions with others.
Open the Interactive graphic. Then rate how well your
accounting model provides the data required for each
perspective. This will help you evaluate how well your
current model arms your managers to make important
tradeoff decisions.
If you’re like many business technology leaders who are
beginning the TBM journey, you may find that your
accounting model fails to empower the cost-for-
performance tradeoff decisions. In this chapter, we will
focus on how to create the right model. Then in chapter
six, we will provide a more comprehensive set of cost-for-
performance tradeoff decisions.
Rationalizing Portfolios to Sustain Value
Creation
Rationalizing our portfolios helps us focus our scarce
resources on our most critical services, technologies,
infrastructures and vendors. It simplifies what we manage
and deliver. To rationalize our portfolios, our portfolio
managers must understand the cost, performance and
consumption (demand) of their portfolio constituents.
Nowhere is this more important than our portfolio of
services. Working with our service owners and business
relationship managers, service portfolio managers help
70
Interactive 3.1 Rate Your Perspectives for Managing Service
Cost for Performance

72. optimize our services and decide when new services are
needed and existing ones should be retired. They make
decisions to trade resources between the services in our
catalog and those in our
pipeline (in
development). They
drive our service
rationalization process.
To do this, we
recommend a decision-
making framework such
as the Service Portfolio
Matrix (Pg. 51)
introduced in chapter
two. This framework
triggers actions such as
the review of poorly
performing services or
the decision to retire a
poorly consumed
service. The primary
factors we review to trigger these actions are cost-for-
performance, unique business value and business
demand. Our service portfolio managers do not manage
these factors for our services; they create the decision-
making framework and monitor it for changes. A rise in
cost, a decline in performance or value, or a change in
demand should trigger a review.
Our business relationship
managers work with our
business partners to evaluate
the business value of our
services, the Y-axis of our
service portfolio matrix. In
determining value, they should
apply criteria established by
our service portfolio managers.
They may use surveys to do
so, but business value is
usually a subjective
measurement. Regardless of
how we measure the business
value of our services, it should
be reviewed at least annually
or when we change our
business plans or modify our
services.
With the right accounting model, we can systematically
measure the financial performance (our X-axis) and
demand (a third dimension of our model) for our services.
We already described how the right accounting model
71
Interactive 3.2 Service Portfolio Matrix Plots Financial
Performance, Value, Investment and Demand for our Services