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Iterating on IT Service
September 2007 - Posts
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ITIL v3 Transforms IT from "Overhead" to "Transaction Cost"
Like many of you, I’ve been doing a lot of reading and pondering about ITIL® v3 lately. What is different about v3? Is it an improvement over v2? Is it likely to change the way IT is conducted?
I’ve been particularly intrigued with a statement in the introduction to the ITIL v3 Service Strategy book that says “transaction costs” determine the boundaries of an organization. I wonder how many of my development colleagues are excited by that? Do transaction costs have anything to do with IT? And what are they, anyway?
Transaction costs are actually of vital interest to IT, but not on the level that most of us work. Transaction costs are the costs of performing an economic transaction. For example, the transaction costs of purchasing a house include the fee paid to the real estate agent, the cost of the time spent away from work looking for the right house, the cost of the gas burned driving around looking, and so on. The money paid to the seller is part of the transaction, not a transaction cost.
In fact, most of IT can be analyzed as transaction costs. When a book is sold, the wholesale price of the book is part of the transaction, but the IT cost of selling the book on the Amazon web site is a transaction cost. Keeping the IT share of transaction costs down is vital to IT since IT itself is rarely the commodity traded in business transactions.
In the hierarchy of costs, calling IT a “transaction cost” is a big step up from “overhead,” which is often where much of the IT budget is parked. In executives’ minds, the only good overhead is reduced overhead. Transaction costs, on the other hand, are investments with a return. ITIL v3 equates IT transaction costs with retail cost-of-goods-sold, which is a very respectable place on a balance sheet. However, CEOs and CFOs will not accept IT as a cost-of-goods-sold without evidence to back up the assertion.
Essentially, v3 says that IT should be governed by analyzing IT as a transaction cost. This takes IT best practices beyond v2, which introduced many IT practitioners to the notion that IT provides services to their customers. Now, we are challenged to not only provide services, but to treat the cost of supplying the services as an investment like any other investment in the enterprise.
What does this mean to IT practitioners? Does it change the way we design, deliver, and maintain systems? I believe it does. It means we have to treat IT services more holistically, and there may be a few more pieces in the whole. We will have to begin to pay attention to service models that encompass the entire enterprise. We will begin to use more tools that track investment and return on services throughout their lifecycle. There will be fewer discontinuities between design and execution. There will be more dollar metrics in our reports.
ITIL v2 brought the consumer of IT services to the center stage and made us all begin to favor their needs over the urge to pursue technological perfection. ITIL v3 extends our focus beyond the needs of the IT service consumer to the needs of the enterprise as a whole. For many years, IT got by on sheer technical virtuosity. First the mainframe, then the personal computer and distributed system, were so new, so powerful, that bursts in corporate productivity seemed to come as a matter of course and the IT overhead was easily accepted. As IT matures and figures more strategically into enterprise success, it will progress from being tolerated as overhead to being appreciated as a vital cost of doing business.
ITIL® is a Registered Trade Mark, and a Registered Community Trade Mark of the Office of Government Commerce, and is Registered in the U.S. Patent and Trademark Office.
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CMDBf in the Limelight
For those of us involved with the CMDBf from the start, the recent media attention on the publication of the Version 0.95 specification has been exciting. It’s as though we’ve finally given birth and we now get to proudly share pictures of the baby.
A joint press release entitled “Technology Leaders Release Specification for Federating and Accessing Multi-Vendor IT Management Data” was issued by the CMDBf member corporations: CA, BMC, Fujitsu, IBM, Microsoft. This resulted in numerous articles in IT pubs. Here are a few you may find of interest:
- Federated CMDB spec proposed
- Management vendors team on configuration spec
- Database Standard Could Align Configuration Management Information
- CMDB Federation releases first specification
- Federation and Management Spec Unveiled
Then there’s the article that reminds us that there’s still much to do:
The 0.95 specification is only the first step. The consortium is continuing to work on it, filling in the gaps and considering comments from readers. I’ll continue to serve on the technical committee and will keep you informed.
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