IT Demand Management

Chapter 18 details

The need for demand management is well established in business. Gentle (2007) explains, “In order to manage planning, production, and delivery, any prop- erly run business has to be able to balance orders for its products and services (i.e., demand) with its ability to produce them in terms of resource and scheduling constraints (i.e., supply). Otherwise it might produce too little of what is required, too much of what is not required, or deliver late, or have problems with product quality or customer satisfaction.” Based on this, one might assume that IT organizations, being in the business of fulfilling organizational demand for their services, would have devel- oped mature practices for managing IT demand. Nothing could be further from the truth. In fact, IT demand management has only recently been ranked as one of the top four priorities by IT leaders (Potter 2010).

This lack of attention is explained by the fact that IT managers have been preoccupied with the supply side; that is, delivering products and services faster, better, and cheaper. Concentrating on the supply side makes perfect sense for two reasons: first, it allows IT organizations to concentrate on the things that they can actually control; and second, most IT organizations interpret any role in manipulating IT demand as a political minefield to be conscientiously avoided. As a result, demand management practices have been underutilized. A study by the Hackett Group as reported by Betts (2009) concurs:

IT has traditionally been more focused on how to meet ever-growing demand than on implementing processes to curb that demand and ensure that the high- est value work gets done. As a result, demand management techniques are less mature than other cost control techniques.

What best explains the current interest is that IT demand management offers the means for IT organizations to work more effectively with their business partners. In fact, some see demand management as the next frontier in IT cost efficiency (newScale 2010). They argue that focusing exclusively on the supply side of the equation without visiblity into demand leaves IT organizations unable to perform effective capacity planning. The reality is that better demand management enables better supply management. In order to make good capacity plans, IT must understand the future needs of the business. According to newScale (2010),

Demand management not only helps IT organizations to shape demand, it also helps them plan for demand and respond to changes in demand to meet business needs while controlling their IT budgets. This increased visibility into demand can help ensure more accurate and business-driven capacity planning.

So, after years of squeezing incremental costs out of the supply side of IT only to see those gains disappear into the vortex of mushrooming demands, perhaps it is time to turn attention to the demand side and tackle some key questions such as “How critical is the need for demand management?” If there is interest/pressure for demand management, where is this pressure coming from? What are the key drivers behind the demand for IT services? How does demand management impact the existing business– IT relationship? What are the key steps toward managing IT demand?

This chapter first examines the root causes of demand for IT services, the econom- ics of demand management, and the importance of this issue. It then reviews a set of standard tools recommended for managing demand and concludes with identifying five key enablers vital for effective demand management.

Understanding IT Demand

In order to better understand demand management, the focus group first discussed the root causes of IT demand. One manager suggested that IT demand is driven by two forces in her organization: “IT initiatives that deliver new capability to the busi- ness in support of the broader corporate strategy, and IT initiatives that are required from within to sustain IT’s ability to deliver future work or new capabilities.” She explained, “Although these drivers mostly represent market and investor pressures, IT is also driving change with its own renewal goals after years of underfunding.” Another organization identified “historical autonomy, proliferation, lack of structured architecture and weak standards” as the key drivers of much of her organization’s cur- rent demand for IT services. This particular organization was deluged with duplicate and, in some cases, redundant applications that collectively produced a “black hole” for IT resources.

Clearly IT demand needs to be considered from a development as well as an operational point of view. From an operational perspective, organizations need to “run” the business and this translates into baseline demand for IT. Organizations also need to “maintain” their IT assets and this too represents significant demand for IT resources. From a development perspective, IT is called upon to deliver new capabil- ity to enable the business to remain competitive in the marketplace. So, whether it is a “keep the lights on” or a “new channel to market” initiative, both place demands on (and compete for) available IT resources. One organization simply classifies IT demand as discretionary (i.e., strategic), maintenance (i.e., keep the lights on), and regulatory, which his organization light-heartedly refers to as “I want,” “I need,” and “I must,” respectively.

IT demand management is best understood within an organizational context. First, the need to automate business processes and operations is unrelenting and, once automated, automated processes must be supported on an ongoing basis. Hence, the workload grows proportionally with the demand and increases year over year. Second, at any point in time, the level of IT capacity is relatively fixed, which limits IT’s ability to satisfy demand (i.e., the supply side). Third, one way to increase capacity (again the supply side) is to offload certain tasks to third party suppliers (e.g., outsourcing network management). Most organizations exercise this option regularly in order to satisfy increased and increasing demand. Finally, the only way for organizations to “get ahead” of this dilemma is by proactively managing the demand for IT services. Ultimately this will do a better job of satisfying business needs for IT.

According to a Gartner survey (Potter 2010), 84 percent of IT organizations simply do not have the resources to meet enterprise expectations. This leaves only two possible responses. IT organizations can either “do more with less,” which focuses on supply side activities (e.g., virtualization, data center consolidation, benchmarking, contract renegotiation) or they can “do less with less,” which focuses on demand side activities (e.g., demand management, IT performance management, IT portfolio management, running IT like a business).2 The first approach (i.e., doing more with less) is the quest for increased productivity and the reality is that IT organizations continually pursue enhanced productivity to remove costs from the business.

The second approach (i.e., doing less with less) differs dramatically from the pursuit of productivity and thus introduces a different set of challenges for IT organiza- tions. Implicit within a strategy of “doing less with less” is the notion that perhaps not all of the requests for IT services are vital and that, by rationalizing these demands for IT services, the organization might benefit. So, where the goal of productivity is “doing things right” (i.e., internal efficiency), the goal of demand management is “doing the right things” (i.e., business effectiveness).

This helps to explain why IT organizations have preferred to address the sup- ply side of the demand–supply gap. Certainly, it is much easier for IT organizations to exercise control over the supply side and, in fact, it is their prerogative to do so. But is IT in a position to shape the demand for IT services? According to Potter (2010), this “conjures up uncomfortable feelings among many IT leaders regarding the political process involved with chargeback and the behaviors created by approv- ing or disapproving emotionally charged IT projects.” So, perhaps the reason for the failure to address the demand side of the equation is a reluctance to say “no” to the business. The question is, after years of effort to support the business and to be seen as being accommodating, how does an IT organization tackle demand management whose goal is to question and ultimately rationalize the demand for IT services? As Cramm (2004) asks, “What right does IT have to tell the business what they can and cannot have?

The Economics of Demand Management

The field of economics has used the concept of demand management for years. In its most elemental form, demand management is the “art or science of controlling economic demand to avoid a recession” (Wikipedia 2014a). The notion of demand management has also been focused to control consumer demand for environmentally sensitive goods. The economic notions of demand management that are most applicable for IT organizations, however, are those that apply to the “management of the distribution of, and access to, goods and services on the basis of needs” (Wikipedia 2014a). Here the tools are policies that allocate existing resources according to a hierarchy of neediness and the underlying idea is for “the government to use tools like interest rates, taxation, and public expenditure to change key economic decisions like consumption, investment, the balance of trade, and public sector borrowing resulting in an ‘evening out’ of the business cycle” (Wikipedia 2014a).

This latter view suggests how to approach demand management. Instead of asking IT organizations to act as “traffic cops” and/or imposing sanctions on capital spending to artificially curtail demand, the economics approach is to create a system of policies and procedures coupled with adequate governance to ensure that the allocation of scarce IT services goes to the highest-value opportunities (Cramm 2004). The goal is to capture and prioritize demand, assign resources based on business objectives, and engage in projects that deliver business benefits. But, as is frequently the case, what appears simple conceptually in reality presents a formidable set of challenges. To address these challenges, the focus group discussed three commonly used tools for demand management and identified what they considered to be five key organizational enablers for the effective management of IT demand.

Three Tools for Demand Management

Most articles (e.g., Betts 2009) advocate the use of tools for managing the organizational demand for IT resources, including project portfolio management, service catalogs, and chargeback. These are described briefly with an accompanying explanation of how they work to shape demand.

• Project portfolio management (PPM)—These are processes designed to rationalize and prioritize IT investment decisions based on objective criteria. PPM allows an organization to understand and quantify business needs and the investments needed to deliver software to achieve those benefits (Hotle et al. 2010). With effective PPM, demands for IT resources are vetted in accordance with governance procedures that result in a justified list of IT investments that satisfy the needs of business leaders. IT demand is limited and shaped to the extent that only those projects that succeed in passing through the PPM process are funded. According to Cramm (2004), PPM results in a “multi-year forecast of IT spending that constrains overall demand and results in increased project scrutiny.”
• Service catalog—Here, discrete IT service offerings are associated with a price per unit. As an example, hardware services might include costs for a standard desktop/laptop/tablet configuration and a standard smart phone configuration; application services might include costs for developing a business case, design- ing a solution, building a solution, and/or implementing a solution. According to Young (2011), a service catalog is a “service order- and demand-channeling mechanism intended to make it easier for end consumers to request and buy things from IT.” Knowing what is available and what it costs allows business managers to make informed demands for IT services and, to the degree that these services are standardized, shapes this demand appropriately. According to one manager, this clarification of IT services affects demand by “allowing managers to order from a menu rather than saying I’m hungry.”
  • Chargeback—This is a financial management technique that charges consumers according to the volume of IT services consumed (i.e., operations) or work done on their behalf (i.e., new development). Thus, IT demand is controlled through direct price-based allocation to business consumers as motivation to act rationally and to discourage unnecessary demands. This approach to demand management results in a set of IT investments that are justifiable and affordable by business managers.
  The adoption of these strategies appears to be widespread. As a case in point, the organizations in the focus group have long deployed chargeback and PPM and most are in the process of building service catalogs. The benefits of these three strategies, according to newScale (2010), accrue independently and collectively:
  Best practices for demand management start with defining standardized services, exposing those services to customers via an IT service catalog, controlling and shaping demand through guided self-service, and providing cost transparency through showback or chargeback. The results: great adoption of cost-effective service options, consumption choices that result in lower IT costs, and effective planning to meet business needs and minimize over-capacity.
  While acknowledging the usefulness of these three tools, the focus group char- acterized them as “necessary but insufficient.” They argued that the benefits derived from these tools are often more IT-related than business-related. Focusing on lowering IT costs through self-guided service and minimizing overcapacity makes sense from an IT-perspective but neither of these guarantees that IT investments are focused on the “highest value” opportunities—the ultimate goal of demand management. In order to manage IT demand effectively, these tools must be accompanied by mechanisms that the group referred to as organizational enablers.
  Key Organizational Enablers for Effective Demand Management
  Members argued that IT demand management is not a single process that an organization can identify. That is, in response to the question “How do you manage demand?” no organization could say “We use this process.” Instead, the group suggested that demand management is a developed organizational capability that results from five key organizational enablers: strategic initiative management, application portfolio management, enterprise architecture, business-IT partnership, and governance and transparency. These key factors work synergistically with the tools previously described to enable effective demand management (see Figure 18.1). Having a successful application portfolio management (APM) initiative, for example, does not guarantee effective IT demand management but the absence of APM would definitely jeopardize the efficacy of demand management. Each of these key organizational enablers is described next.
  strategic initiative management
  Strategic initiative management is the organizational mechanism for prioritizing and funding IT investments at the enterprise level. Although the focus is primarily on large discretionary/strategic investments, as the name implies, this process also adjudicates large infrastructure projects. One organization established a strategic project office (SPO) with a mandate to provide “governance and direction over enterprise-wide project approvals and planning to ensure these investments are aligned with the orga- nization’s core strategies.” With a membership consisting of the head of each line of business plus the head of technology, the SPO meets monthly to review all projects that exceed $1 million, that are unplanned,3 or whose incremental annual operating expenses exceed $500M. The SPO, not only approves these projects, but also directly governs them through their life cycle.
  The effective management of strategic initiatives is a crucial step for overall demand management. Without this capability, organizations are left with no structure for prioritizing IT funding opportunities at the enterprise level that leaves them unable to align their IT investments with corporate strategy. According to one manager, the absence of a strategic initiative management initiative is a “siloed approach which results in ad-hoc decisions, increased cost and complexity, and redundancy of applica- tions all of which increase the overall demand for IT services.” The cost of the legacy environment this creates further restricts the investment in new IT capabilities and innovation. The absence of an effective strategic initiative management capability is a double-edged sword: it drives up the demand for IT resources while reducing the abil- ity to conduct capacity planning to take advantage of a rationalized demand.
  application Portfolio management
  Unlike PPM that deals with future projects, APM focuses on existing applications, trying to balance expense against value (Caruso 2007). These applications may be assessed for their contribution to corporate profitability, and also on nonfinancial criteria such as stability, usability, and technical obsolescence. McKeen and Smith (2010) provide strategies for effectively implementing an APM initiative. The existing port- folio of applications (sometimes referred to as the asset portfolio) must be continually maintained in order to support the organization effectively. This need for continual maintenance creates demand for IT resources. Allowed to grow in response to the needs of separate lines of business, a legacy environment soon becomes highly complex, dif- ficult to change, and expensive to maintain.
  In one organization, it was not until they had instituted an APM initiative that they discovered that they had significant overlap and duplication across applications (e.g., 70 management information systems, 51 order management applications, and 27 regulatory reporting systems). The costs of maintaining this environment were driven up substantially and needlessly. Furthermore, their ability to deliver new applications was jeopardized due to the inherent complexities within the application portfolio itself.
  With an effective APM initiative now in place, this same organization has reduced its technology-related operating costs and realized significant business value through reduced staff and maintenance requirements, reduced cycle times for process execution, a thorough rationalization of their application portfolio with a 40 to 50 percent reduc- tion in size, and realized technology cost improvements through application retire- ment. Furthermore, the organization was able to re-orient their technology cost profile to value creating activities and away from maintenance. Most significantly, resultant savings were applied to new initiatives without increasing the overall IT budget. This example demonstrates how APM can be effective at reducing overall demand as well as reshaping it.
  enterprise architecture
  According to Wikipedia (2014b), enterprise architects (EA) “work with stake- holders, both leadership and subject matter experts, to build a holistic view of the organization’s strategy, processes, information, and information technology assets. The enterprise architect links the business mission, strategy, and processes of an orga- nization to its IT strategy, and documents this using multiple architectural models or views that show how the current and future needs of an organization will be met in an efficient, sustainable, agile, and adaptable manner. Enterprise architects operate across organizational and computing silos to drive common approaches and expose information assets and processes across the enterprise. Their goal is to deliver an architecture that supports the most efficient and secure IT environment meeting a company’s business needs.”
  In this role, an EA is strategically placed to bridge the two worlds of business and technology. According to McKeen and Smith (2008), EAs are “able to take a view across business change programs, assessing their combined business and technical risk, overlap/dependencies and business impact on the staff and customers of an organiza- tion.” Over the years, the role of enterprise architecture has become even more business focused and this has drawn EAs into increasingly senior management discussions. The organizational advantages of this are immediate. It has enabled EAs to influence the demand for IT resources by vetting strategic choices in light of what is possible from a business and technical solution perspective. According to one manager, this allows his enterprise architecture group to “get ahead of the business which helps them to manage IT demand proactively.”

  The ability of EAs to shape demand depends on two leverage points. The first is the establishment of a “future state architecture blueprint” (see McKeen and Smith 2006) that identifies the current architecture, the future architecture, and outlines a current-to-future transition plan. Combined with effective governance and transpar- ency, this mechanism is highly effective at shaping IT demand by ensuring that every- thing aligns with the architectural plan. At one organization, it was their adoption of a common enterprise architecture that tightly integrated business and technology that enabled “informed enterprise-wide transformation planning to drive effective develop- ment across all business units.”The second key leverage point provided by enterprise architecture is the ability to promote enhanced business capability from a top-down perspective. Rather than depending solely on “bottom-up” demand from the lines of business, the enterprise architecture team at one organization was able to identify and champion enhanced business capabilities because of their ability to link the organization’s technical architecture to business strategy. Deploying these two leverage points allows the IT organization to shape demand by aligning new initiatives with the architectural plan and by highlighting enhanced capabilities enabled by the same architectural plan.

  business–it Partnership
  Managing IT demand runs counter to the well-ingrained role of IT—to be an order taker—to do whatever the business needs and whatever is sent its way (Morhmann et al. 2007). For years, the accepted wisdom has been that if the business wants it and is willing to pay for it, then it is not the role of the IT organization to question these decisions. The members of the focus group debated this issue. It was evident that no organization represented within the focus group subscribed faithfully to the “order- taker” role for IT; everyone felt that their IT organization needed to be more proactive in order to be most effective within their organizational service role. However, lively disagreement with regard to the degree of IT “proactiveness” emerged.
  On one side of the issue, a manager adamantly stated, “IT should definitely take a leadership position in managing demand . . . and that IT was well positioned to identify, analyze and recommend potential applications of IT to the business.” At her organiza- tion, the IT executive team had built strong relationships with their business partners over time especially at the highest levels of the organization. Their CIO was a valued member of the executive committee, was requested to present to the board at every meeting for ten minutes (previously the CIO had presented once a year), and carried substantial influence in terms of the future application of IT in discussions about how best to leverage the business.
  At another organization, the relationship between IT and the business was not nearly as well established and lacked the requisite foundation of mutual trust (Smith and McKeen 2010). According to this manager, their IT organization was “struggling with the business to close knowledge gaps in terms of what the business was asking for and what IT was able to deliver.” Some newly formed committees were in the “process of aligning IT with the business to enable prioritization of work across the different business units.” A lack of business strategy and/or a clear understanding of business requirements had led to a vacuum that IT was attempting to fill. Demand management was described as the oscillation between “technology push” and “business pull,” which produced a lot of business resentment. The lack of a mutual trusting relationship clearly hampered the effectiveness of their demand management initiative.

  A third organization suggested that value was driven at many levels within the enterprise requiring alignment between IT and the business leadership on objectives, investments, and outcome. Her organization had articulated three levels of partnership required to effectively shape demand.

• The first level is as a utility partner focusing on table stakes; that is, keeping operations running as effectively as possible. The goal is competitive cost alignment and contain- ment, where IT partners with the business to reduce the operating costs through such means as labor arbitrage and competitive sourcing.
• The second level is as a technology partner. The goal here is continuous improve- ment such as accelerated time to market through new or enhanced processes.
• The third level is a business partner. This type of partnership is focused on business results through such mechanisms as improved market share, revenue growth, profit improvement, and cycle time reduction.

The group agreed that demand for IT resources does originate at different levels within the organization and therefore IT organizations must be effective at each of these different levels. In addition to senior IT executives, other key relation- ship players are business analysts, account/relationship managers, and business architects.

One organization mapped out a set of generic attributes for an effective IT–business partnership capable of shaping demand for IT resources. According to this manager, effective demand management requires the following:

• Relationship management—Where collaboration and partnership are key to identify- ing business capabilities and requirements.Continuous

• communication is essential. In fact, some have argued that relationship management has to transform into the role of demand management

• (Cameron 2006).
• Leadership—A technology manager’s leadership style has significant implications for the success of the partnership; for example, is he or she driven by collaboration? Is the business a key partner or kept at arm’s length?
• Clear business requirements—Without clear business requirements, the technol- ogy group will struggle. Even under the best of cases, high-level requirements may drastically change when digging into the details of business needs.
• Marketing skills—With the ever-changing technology landscape, marketing tech- nology capabilities becomes critical. Thus, instead of talking about technology, the conversation should be about business capability.

These partnership traits would take on different degrees of importance depending on whether the relationship called for a business partner, technology partner, or a utility partner.

governance and transparency

It is customary for organizations to have a process for vetting IT project proposals (i.e., a business case4). Furthermore, the business is normally expected to pay for new development as well as a pro rata share of the technology costs to run the business (i.e., chargeback). Together these two forms of governance shape the demand for IT resources. They do this by encouraging and/or sanctioning investment behavior on the part of the business. For example, we would expect that business managers would be reluctant to request and pay for anything nonessential. Nevertheless, organizations find themselves having to manage IT demand. As a result, are we to conclude that these governance mechanisms are inadequate? The focus group made two arguments: First, they suggested that IT demand will always exceed supply due to the myriad poten- tial applications of information technology in the workplace; and second, they felt that existing governance structures were indeed lacking. We explore the latter of these two issues next.

Business managers continuously seek to leverage their business with technology whether that happens by streamlining processes, offering self-serve options, implement- ing enhanced information/reporting systems, or implementing dynamic pricing systems. Provided they have the money, their only challenge is to win approval for the requisite IT resources. IT managers are equally motivated to provide such systems as are desired by the business. Specifically, delivering systems on time and within budget rewards IT managers. In sum, both parties are highly motivated to deliver new capabilities to the business. The resulting effect, according to members of the focus group, is encouragement to overstate the short-term benefits of delivering the desired capability and to understate the long-term costs of maintaining it. Without a countervailing governance structure to reinforce different behavior, IT demand expands to overwhelm supply.

Recognizing the need for a remedial governance mechanism, two separate organizations adopted similar approaches. Both mandated the adoption of a standard business case template combined with compulsory training for all business managers in business case development. Both organizations also mandated that the finance organization must sign off on the acceptability of benefits proposed in all business cases. The third and arguably most important process change was to track the delivery of project benefits following implementation in order to hold business managers accountable for realizing anticipated benefits. The combination of these three initiatives produced significant behavioral changes.

• Training business managers in the process of preparing business cases had the imme- diate effect of raising the overall quality of submitted business cases and sharpened the focus on benefits identification.

• Assigned accountability for realizing benefits countered the tendency to overstate benefits and understate costs.

All in, these governance procedures reduced overall demand for IT resources but more importantly, focused limited IT resources on the “right” systems. Both firms expressed confidence that these were effective strategies for managing IT demand.

Transparency goes hand-in-hand with governance. A well-articulated process that is understood by everyone and adhered to by all managers is the goal. Information needs to be understood, consistently interpreted, and applied correctly for there to be any hope of effective decision making. A byzantine chargeback allocation algorithm, for example, provides little guidance in terms of appropriate action and usually fails to produce its intended behavioral effect. In like fashion, allowing “unplanned” or “off-plan” activity to enter the service queue undermines even the best demand management initiatives. One manager claimed that unplanned demand is like “getting bitten to death by ducks”—no single bite will kill you but one thousand bites later and you are dead! As mentioned earlier, the solution adopted by one organization was to shuttle off all unplanned activity to their strategic project office in order to make it visible and force it to compete with other demands for IT resources thereby ensuring an open and transparent process.

McKeen and Smith (2010) argue that effective application portfolio management can impact demand management due to the increased transparency provided by accu- rate information. In fact, providing information can on occasion make governance unnecessary. A vivid example of this was provided by one organization. Having made a significant investment in an application portfolio initiative to track IT expenditures, senior IT executives were able to present the following information to their senior busi- ness partners:

The annual investment in systems designated as surplus6 by the business. • All investments to enhance these surplus systems. • Annual investment in systems misaligned with overall strategy. For example, it

was discovered that only 20 percent of their IT investment was directly focused on “improving the customer experience” and “driving revenue” despite the fact that these two areas were designated as the enterprise’s top priorities.

• architecture.