Over the last four years, Lontra has developed an innovative Lontra SUCSESS™ methodology to help its clients make a transition toward running IT like a customer-centric business, with full transparency around IT offerings and their unit costs.
Lontra SUCSESS™ stands for Service Unit Costing Strategy for Enterprise Shared Services, and it has been successfully applied to IT organizations at multiple Global 1000 companies, as well as to enterprise shared services organizations beyond IT.
Lontra SUCSESS™ Steps
Lontra SUCSESS™ is a ten-step process:
Step 1. IT (Technical) Services Inventory. Catalog all technical services offered by your IT organization. These are the underlying services used to support IT's customer-facing offerings, such as application hosting, disk space, web analytics, etc.
Step 2. Business Services Inventory. Catalog all business services consumed by your customers. These are IT's customer-facing offerings, which may include email access, use of various applications, Internet access, etc.
Step 3. Hierarchical Service Portfolio. Map all the business services from step 2 to their underlying technical service components from step 1. For instance, the business service providing access to a finance system may be built on top of several technical services, such as an Oracle database, a managed server, and a backup service. This will help you align your IT services with business needs. The resulting Service Portfolio is your IT organization's Service Model.
Step 4. Service Unit Cost Modeling. Create a full cost model by mapping the Service Model from step 3 to the appropriate general ledger (GL) cost centers, such that every IT cost element is appropriately assigned to business services depending on it. Identify consumption drivers for each business service. This is your IT organization's Service Cost Model.
Step 5. Service Pricing. Identify the consumption volume for each business service, and calculate unit cost for each service using this consumption volume in conjunction with the Service Cost Model from step 4. Then use the unit costs to determine the pricing scheme for each of your services.
Step 6. Service Cost Benchmarking. Compare your unit costs to industry benchmarks. (Make sure to compare "apples to apples"!) Identify opportunities for internal improvement, external sourcing, and other performance optimizing business decisions.
Step 7. Cost Transparency. Begin generating monthly or quarterly "shadow invoices" for each organizational unit, based on the business services offered, their unit costs, and actual monthly/quarterly usage. This will provide insight into how much each business unit actually spends on IT services.
Step 8. Demand-Driven Budgeting and Planning. Use the service hierarchy and cost model set up in the previous seven steps to help IT's business customers plan their IT usage in terms of service units (and their associated unit costs), revise the IT budget appropriately, plan effectively for demand increases, etc. This is the step where you can very significantly reduce your overall IT spend.
Step 9. Business Planning Scenarios. Apply the Service Cost Model to analyze the impact of various business decisions on service unit costs and the overall IT spend. Examples: impact of top-down IT spend reductions, technology changes (such as virtualization), M&A related adjustments, etc.
Step 10. Communication and Rollout. This step really substantiates all the other steps. It involves presenting all these changes to customers, and educating your organization about them. The entire IT Financial Management effort may fail without proper communication
Lontra SUCSESS™ Benefits
Once you have a fully developed service hierarchy and cost model, service costs become transparent to business customers, which translates into an extremely powerful tool in your IT organization's cost-cutting effort. Here are just a few of the things that you can do using this framework:
Determine which services are driving up your IT costs, and do something about them. You can benchmark your unit costs against industry data to see if they measure up, and then focus your efforts on the services that lag behind industry standards.
Determine which business units consume more than their fair share of IT resources, and take measures to control their demand.
Influence customer behavior by driving them toward the most cost-effective solutions. This can be done by providing flexible service choices and different SLAs at different price points.
Webinar Replay: IT Budgeting in the New Economy
Join IT Financial Management expert Ronald Bradley as he talks about service-based costing, consumption-based chargeback, and demand-driven budgeting in Lontra's latest webinar - “IT Budgeting in the New Economy: A One-Hour Primer in Service Based Costing.”
Ron's presentation features models, methodologies, and templates that he has used to help dozens of Fortune 500 IT organizations and government agencies to save tens of millions of dollars.
Join Lontra Founder & CEO, Boris Pevzner, as he gives tips and tricks for surviving the IT jungle, fills you in on what he's hearing in the market, and introduces you to new concepts and best practices.
Boris is a frequent speaker at technology conferences on IT transformation, ITIL, and service-oriented IT delivery. His CIO blog provides thought-leading advice and opinion based on his experiences in developing service-oriented IT delivery concepts and methodologies over the last 10 years.
Lontra SUCSESS™ is typically implemented in a series of incremental steps. Lontra is offering a wide array of workshops and consulting engagements to help customers with various critical components of this overall project, such as service portfolio creation, service unit cost model development, or implementation of a demand-driven planning and budgeting process.
Best Practice Templates
With Lontra SUCSESS™, you are not going to be starting from scratch. Lontra brings to bear at every engagement not just the experience of its consulting staff, but also a set of best-practice templates. Through this codified knowledge, we ensure that you avoid the common and costly pitfalls.
You can find a comprehensive list of the templates that are part of every Lontra SUCSESS™ engagement here.