Thinking In Terms Of Cost-To-Serve

We talk about IT-as-a-service all the time -- or at least, we should be!

Whether we're large enterprises, or service providers who desire their business -- you're providing a service, what does the service cost?

It's turning out that this mental leap is proving difficult for many IT people.  For decades, they've been focused on the cost of the ingredients, rather than the price of the meal.

My Restaurant Analogy

You didn't think you'd escape without reading about another one of my weird analogies, did you?

Restaurants deliver "meal-as-a-service".  You pay for something you could perhaps do yourself, but prefer not to.  And, if you're a consumer of restaurant services, you know it's not all about being cheap.

Anyone who's been in the restaurant business focuses on the revenue-per-diner (food + beverage + service) and having a full restaurant (efficient utilization).  And, of course, if you have some secret sauce that others want and competitors can't easily replicate, you're doing well.

But what about the cost of the ingredients?

Sure, that's important, but the focus is far more than the price-per-unit.  Food that is of low quality will result in a poor experience, and people will choose to eat elsewhere.  Ever had a really tough piece of meat at a restaurant?

Labor costs are important as well.  Food that is pre-prepared can cost less once you add in labor.  Food that can be completely used and has little or no wastage can be more cost-effective as well.

Back to labor costs -- where do you scrimp, and where do you invest?  Obviously, you don't want to go cheap on the chef and cooks.  And you probably want to make sure the servers who are talking to paying customers create a positive experience.  But every other task you'd probably want to either outsource, or pay as little as possible.

And let's not forget quality control -- a really bad meal experience will only drive customers away if you're lucky.  At its worst, you can sicken or kill people.

Back To IT Infrastructure -- Enterprise and Service Providers

For the last few months, we've been talking about fully-virtualized IT as a service, or a private cloud model. 

What makes it "private" is that IT is in control.  What makes it a "cloud" is three aspects: (1) it's built differently, using dynamic pools of virtualized resources, (2) it's operated differently, using low-touch and zero-touch models, and (3) it's consumed differently, with a variety of convenient consumption models.

As part of the discussion, we put a Vblock up as illustrative of several concepts.  Here is pre-integrated infrastructure, optimized around cost-to-serve.  Our default metric is "cost per VM" all in -- hardware, software and operational costs.  Sure, VMs come in different sizes and shapes, but it's a useful simplification.

And people sometimes react in a predictable way.

The first general reaction is "I can get cheaper ingredients". 

Well, if you select a server that can get more VMs per blade than anything else (e.g. UCS), isn't that the right metric, rather than the cost of the blade?  Or if you select a storage array that can use a ton of really cheap SATA and a tiny bit of enterprise flash to deliver great performance at a much lower cost, isn't that the right metric?

And if you create a set of operational tools and procedures that deliver a great user experience without a lot of expensive people, isn't that a good thing?  And if "quality control" was baked in (availability, recoverability, security, etc.) so no one had a really bad experience, isn't that important as well?

The second general reaction is "I have to change my process".

One of the advantages a restaurant has (vs. cooking for yourself) is that they (usually) have a highly optimized process.  There are fixed offerings on the menu, there is a defined cadence to each step in the process, the end-to-end experience is managed, there are specialized roles, and so on.

Restaurants with poor process will not do as well as restaurants with good process.  And if you're in the IT-as-a-service mindset, process should be one of the first things that gets thrown on the table for discussion.

The third general reaction is "I'm giving up certain aspects of control". 

Yes, you are.  You're putting your users more in charge and holding them a bit more accountable.  You may be working with your vendors in a different way as well.  In each case, you've elected to relinquish control in a few areas in order to gain benefits in others.

Many restaurants buy their ingredients off a truck that conveniently stops at their door.  Others outsource marketing functions, as well as certain kinds of labor sourcing.  Maybe use a convenient delivery service.  The owner of the restaurant is still accountable, but prefers not do everything directly.

Your patrons are free to choose anything off the menu, request slightly specialized versions of your offerings (extra spicy, please).  You have no way of knowing ahead of time whether they're going to want steak, chicken or fish. 

And if competitors start to offer a better meal and/or a better price, you'll lose them all in a hurry.

Sorry For The Restaurant Analogy

I apologize in advance if you think I've over-simplified this. 

Yes, IT infrastructure is an amazingly complex and intricate topic.  There are so many interesting discussions around technology, operational and consumption models that it can give many people headaches just trying to contemplate it all.

But, after all, delivering IT services is essentially a human endeavor.  And, any time we consider a complex human endeavor, there's always a few good analogies to learn from.

Final note -- many companies put nice cafeterias in their buildings since, after all, employees need to eat.  How many of these same companies make IT resources incredibly difficult to acquire?

Maybe we're making this all too complex :-)

Comments

[Stuart Savill]

So a couple of things...
(a) yes i do think you have over-simplified this - its not just the IT people that have a hard time getting around these items you mention - but the business as a whole

(b)I am always suspicious when a IT vendor states comments such as " How many of these same companies make IT resources incredibly difficult to acquire?" - I agree we do make it hard, but also - how easy do we want it... Yes I want to make it self service, yes i want to make it simple to the customer but i also want to keep costs under control.... If you can put this agility in place, in some cases its a vendor-dream come true... eat as much as you like and by the way here is a big bill!!! - appropriate controls need to be in place with appropriate measurement.

and finally (c) - measurement of how much i have spent on this meal... Have i had a full fat version, or a skinny version. I still do not believe that we have had the tools given to us to measure effectively how much we have actually consumed.. With the introduction of de-dupe, thin provision etc etc etc... how are we going to bill for this dinner?? - Have i had the skinny latte, or have i had the full fat mocha?? (wrote an article on this: http://www.stuiesav.com/2010/01/measuring-cost-of-storage.html)

@stuiesav

[Chuck Hollis]

Hi Stuart

First, thanks for the comment. I do have to say, though, that we would end up disagreeing on a few points.

While cost measurement and allocation is important, giving people what they need to get their job done is also important.

As an example, I travel a lot in my business. It's expensive, but important. I don't have to wait 6 weeks and go to three approval meetings to get a plane ticket to go see a customer.

Cost-to-serve is important, but it's all about the "serve" first, "cost" second.

If the Travel Department (IT) is all about controlling costs at the expense of business value, that's not good.

So, where do you come down on this?

-- Chuck

[Martin G]

Whose fault is it that IT has ended up controlling costs at business value? ITs or the Business? Or perhaps a combination of both?

We need to move away from the concept as IT as a pure cost but also as a business enabler but still we see IT treated as a necessary evil as opposed to a true partner. It gets pretty exhausting for all involved that the relationship is still often so dysfunctional.

However, IT still needs to maintain it's position of a good steward; it needs to be able to cost solutions quickly and transparently and then allow the business owners to make a decision. But often, we end up in complicated discussions with the business wanting to trade-off this function against that function. Business owners should own Business cases and also accept the fact that their own budgets are not infinitely elastic.