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Have an IT Organization, Try this Model on for Size
This post was inspired by another que from discussing a topic via twitter. So it seems that most mid-size, large, and super large companies are struggling with getting how to get IT and business resources closer to adapt to the rapid nature of the market changes that happen both in business as well as in technology. From what I have seen and what I going to explain is the financial model has to support this interaction model as well. For the most part how a company is paying for things is one component that is getting in the way! The model I am going to explain is based on working inside of the model and not creating the model itself. I am no way shape or form taking credit for the creation.
I do have experience seeing it work and work well and that is the perspective I am offering up. I have also seen many attempts to fix the financial problem at several companies since I have worked in this model and I have yet to seen anyone succeed. The major buzzwords that sometimes associate this financial model are transformation, matrixed organization, centers of excellence, and delivery centers. The model we used had one concept: Internal Consulting Firm or Development Center to our own business. The technology resources within the Development Center model were hired by the business to do a job, they do it, the business pays, and they move onto something else, period.
A key ingredient to the Development Center is that it reports directly to the CTO or CIO of the company. There are basically three layers management.
1. Director of the Development Center
2. Discipline Community Managers
3. Discipline Community Practitioners (BA, PM, Developers, UX, UI, IA, Data, DBA, Infrastructure Engineers, Engineers, etc)
This flat organization is focused on getting work done and improving the enterprise. I do believe this was one of the key and essential ingredients to our success, but the main course of the feast was the financial model. This model actually facilitated partnering and sharing the responsibility of delivery for the enterprise (not in a buzzword in a powerpoint deck way either). Yes it sounds funny to say a financial model was a main course of delivering success, but it is true.
I am going to dig into the financial model from a very high level. Before I start let me qualify what I mean by financial. I mean financial by the concepts and not hardcore debits and credits, by no means am I a financial analyst or accounting specialist. I would recommend if you do decide on this model find the people that love talking debits, credits, forecasting, and financial modeling and buy them lunch and coffee! This relationships will pay off huge (yes pun intended).
Build a Development Center
This is an organizational structure that houses all the disciplines within the development of technology. The development center will have business analysts, project/program managers, engineers, data architects, technical architects, infrastructure architects, DBA’s, server technicians, developers, and one layer of management. These development center resources are able to form a whole development team to partner with a business unit or multiple business units to build and implement technology. Once this technology is implemented the business unit takes over full support for the technology.
This puts the technology and business unit resources really close together to maximize total cost of ownership, time to market, and technology making business more efficient. The development center resources can perform staff augmentation to business units that don’t need a whole development team, as well. They just need a couple resources to enhance a current technology. The development team is there to partner with the business unit technology staff. The us and them is not tolerated in this model. This clearly divides support and maintenance from new development. Ask any IT professional when you have resources trying to do both it never works. This model works because the Development team needs the business unit IT’s expertise, experiences and partnership to deliver on the mark products to that business unit!
Revenue and Expense
The Development Center financial operational model is revenue expense. What this means is this unit must operate at zero. The Development Center resources are charged to a project just like hiring an external contractor or consultant. So if the Development Center resource works 40 hours per week at $100 per hour, the business unit pays the Development Center $4,000 to their revenue. On the expense side the Development Center must pay out their own expenses training, salary, bonus, computer, etc. If the expenses total $1,000.00 the Development Center is now sitting on $3,000 in revenue…..got to get back to $0.00!
Being that they are revenue expense they have to get back to money if they run a profit based on the resources billable hours. How do they do this, you may be asking? Here is what we did. We called up the business that we technically over charged (I will get into why this is not a bad thing) and said “Hey we have $3,000 here we need to give back to you.” Business Unit: “Uh really, you want to give me money back?” DC: “Yes we do, it’s your money….we don’t sell anything so yeah we want to give it back.” Business Unit: “Oh wow this is awesome!” DC: “Should we set up some time to see what your next set of needs and problems there are to help with?” Business Unit: “Yes let’s do that I have a couple of ideas” This sounds too good be true doesn’t it! I was part of many of these conversations. So how much the conversation changes if you are delivering expected results for your business!
The Art of the Financial Model:
The art of the financial model will start creating collaboration, sharing, and communities of practice! The Business Unit and Development Center technology people proactively and reactively immerse themselves into communities to make each other better (this is not easy and you need some resources dedicated to making this happen). There is no “us and them” there is just “we” deliver technology solutions for making the enterprise work well and in some cases gain competitive advantage in different markets whether that be talent acquisition or not bleeding talent, drive customers to purchase based on allowing the technology the get the consumer closer to the enterprise. In most cases you can not train this, you hire for it if you do not have it. This could mean a complete overhaul of resources. I know that sounds painful, but how less painful and costly is your current model?
Yes the Development resources have bill rates just like the consultants and contractors outside the organization. At the beginning of the year the Development Center is given a budget to cover the resources expenses; including assets, training, and overhead of management (they are not billable). Each discipline was assigned a bill rate that was reflective of their role, skill set and experience. The manager of that discipline was responsible for finding work for their resources and bill them out to cover the expense budget allotted to them at the beginning of the year.
This part of the model was always the relationship building part with our business units. At the beginning of the year we would have Service Fair. All the business units would come in and meet all the resources from the Development Center. The Business Units would explain the types of problems and initiatives they have needs for within that year and how much of each service they would like to buy to get these problems or initiatives implemented.
At the end of the fair we would all get together and figure out how we get back to $0.00 with all the services we sold and just like clockwork, every year the answer was “Uh Oh we do not have enough services to cover our expenses!” It became quite comical because we would all freak out and think wow we run RED for 6 mos they are going to shut us down! This is not a bad way of thinking, it keeps the fire burning trust me, a little pressure to perform is not a bad thing! Low and behold by June we are typically $10 to $15 million in the BLACK. This was not because of poor planning or estimating, it is just software development life-cycles realities. Sometimes your on and sometimes your off, but with good partnerships and real collaborative financial efforts what is produced everyone wins.
This model is a framework and not an end all be all to the solution. This framework can be dropped into just about any company and any industry, but the art of the financial model comes from the people delivering and executing technology to make the business more efficient and some cases gain competitive advantage.
Being that more and more companies are realizing Software as a Service and Platform as a Service is a more cost effective, secure and gets them back to running their business and not upgrades or a software factories (you should not be a software factory unless you are selling software). The Development Center financial model helps facilitate the implementation and management of these new ways businesses should be running their technology landscape.
I think without this organizational and financial structure implementing the above mentioned technologies can and will run into many road blocks and cost overruns (I have seen it!). Because of the flexibility the Development Center offers of tying project teams to solving a problem or innovating and not to an organizational structure, they can solve or innovate and move on. A business unit does not have to pay for 50 people to build, implement, and support because they do not have to with this model.
So next time you are wondering how can I solve my total cost of ownership of technology for my business, implement the Development Center financial and resource model, your wallet, business, and investors will love you for it!