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It’s not what you do but how you measure IT

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Colin-Rowland
by Colin Rowland, VP EMEA, Apptio

A finance department breaks down costs in multiple ways, dependent on the business model and what is being measured. For example, consider the different approaches to company valuations: mature companies, or those in mature industries, are generally valued on profitability metrics such as earnings per share, gross margin and EBITDA (earnings before interest, taxes, depreciation and amortization). In contrast, young companies, especially those in high growth markets, are primarily measured on growth, market share, the value of their intellectual property, and other metrics to indicate emerging market dominance.  Today the IT Finance Manager, CIO or IT director is also expected to present costings in many ways. But how do you do this?Colin-Rowland

Financial IT metrics can help a company to make better decisions and communicate with stakeholders in a language they will understand. Yet, different models and goals exert different pressures on the IT department and there isno one-size-fits all approach in the business of IT. At one end of the spectrum, the role of IT is that of a utility provider, where IT is bound to tight operational budgets to support existing business services as efficiently as possible.  This is where cost-reduction is king.  On the other end, IT serves as a strategic partner with business leaders in delivering new lines of revenue or penetrating new markets.

It’s a metrics game
An IT department needs to deliver value based not only on the varied demands of your business units, but also in terms which are familiar to your business leaders.  Financial metrics combined with data on IT service consumption and quality can be invaluable but only if they are used within the context of your business—for example there is little point delivering reports on information that your company does not measure. To this end choosing the right metrics based on your business’s role is invaluable.
Using sets of performance metrics that vary based on the particular business model chosen is nothing new. Technology Business Management (TBM), employed by many forward-thinking CIOs, now align to the expectations of the business.  TBM IT metrics communicate with stakeholders in a language they will understand.
•  Balancing the cost vs.demand for IT resources
•  Delivering services that match or beat the cost and quality of those offered on the open market
•  Investing in projects to enable long-term competitiveness and business growth.
The Business Role of IT

In general, IT plays one of three distinct roles in business:
• Efficiency – Delivering efficient IT services, such as desktops, networks, telecommunications, storage, and servers. CIOs in this role focus on cost reduction and quality metrics such as infrastructure availability and failure rates.
• Service Delivery – The business role is composed of basic IT services combined with service classes, value-added products and services, defined service owners and structured service-level agreements.  Here, the business consumers value the quality of services and are more willing to negotiate service levels in order to strike the right balance between quality and cost.
• Business Transformation – When the CIO is seen as a peer to business leaders, she is expected to facilitate long-term competitiveness and revenue growth. IT organizations in this role often struggle to allocate enough of their budget to growth and transformation initiatives.

The Essentials – Financial metrics for IT

Very few IT shops have the systems, processes and skills in place to routinely measure and report on the financial performance of IT and do it successfully.
So what are the appropriate IT Financial metrics to measure?
Unit Costs vs. Benchmarks
Unit costs are simply the direct costs on a per-unit basis for key (and generally commoditised) components of your services. Common examples of this include mobile devices, laptops, telephony, storage, networking and data.
Fixed vs. Variable Cost Ratio
The fixed to variable cost ratio helps you understand your cost structure relative to your strategy. With nearly two-thirds of most IT budgets being fixed cost, you may be seeking a more variable cost structure that favours agility and flexibility (i.e., lower fixed-to-variable cost ratio). By maintaining a high proportion of your costs as variable, you can more easily scale up or down based on demand.
Direct vs. Indirect Cost Ratio
To determine direct vs. indirect costs, you must answer one question: to what are your costs (primarily) allocated? In organisations that have not completed the transformation to a service delivery model, the objects of allocation are generally business units or cost centres. For example, IT organizations in this model may allocate the cost of a server to the business unit (cost centre) to which it is dedicated. In organisations that are aligned to service delivery, the objects of allocation are generally their services. Resources that are dedicated to a business unit or a service would be described as a direct cost.
Capex Ratios
Opex, or operating expense, is an expenditure that immediately flows through your income statement. Capex, or capital expense, is an expenditure that gets capitalized, or booked as an asset, and flows through your income statement as depreciation over a period of time (generally equal to the useful life of the asset). Capex not only includes hardware and software, but also the costs to deploy them and certain application development costs. The accounting rules governing the capitalization of costs are complex and vary from company to company, but every CIO and IT executive should understand how the rules apply to them.

Budget vs. Forecast
While budgeting is generally an annual exercise, forecasting should be done on at least a monthly basis allowing you to estimate how much you expect to spend in a given period or for the remainder of a project. Forecasted amounts are generally added to actual expenses in order to determine any expected variance from your budget.

Knowing your expected variances is vital for effective IT management. By identifying variances early, you can take prescriptive action. At a minimum, you must inform stakeholders who are directly impacted by variances, such as the business units that will be charged for them. There are few things as detrimental to the CIO-business relationship than large, unexpected budget variances, or bills.

Using IT financial metrics not only demonstrates value to the business in a language business leaders understand, also enables both IT leaders and the business consumers of IT to make informed decisions to improve business value. Respecting the relationship of metrics to the business role of IT is crucial. Employing the right metrics will help ensure better alignment.

In most IT organizations, very little of this data is readily available without an investment in skill sets, processes and systems, but those who master the financials of IT are those who are transforming the business.
Colin Rowland is VP EMEA of Apptio, a provider of on-demand technology business management (TBM) solutions.

Technology

The case for AI technology adoption in financial back-office roles to improve efficiency

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The case for AI technology adoption in financial back-office roles to improve efficiency 1

By Tomas Gogar, AI CEO, Rossum

In this era, digital transformation isn’t anything new. Nonetheless, it can still cause a lot of confusion and resistance for some companies, many of which are often slow, unwilling or unable to implement the necessary changes to embrace technology. As a result, entire industries are barely scratching the surface when it comes to shifting to the digital world, and many, from the insurance industry to logistics and delivery are still catching up on the digital transformation.

The banking and financial sector have been notoriously slow in adapting to the online world. They paid the high price for it, giving way to a flurry of incredibly successful new disruptive players, built on cutting edge tech from the ground up. From Transferwise, Revolut or Venmo, to GoCardless, this new generation of fintech companies addressed consumers changing expectations in a way that traditional retails banks simply couldn’t.

To catch up, incumbent players have prioritised the user interfaces, giving the appearance of a digital offering, and oftentimes leaving the back end infrastructure untouched, and hence the processing power, accuracy and speed unaffected. Back-office functions, although they are essential to the smooth running of a business, have seen very little change and as a result,  too many people in these functions are still tied up typing information into spreadsheets and software forms – in fact, manual data entry is a prime example of how much resources the offline legacy wastes. Take Accounts Payable for example, invoice data entry in this sector is estimated to eat up roughly 100 human lives worth of time every single day.

Tomas Gogar

Tomas Gogar

With the significant increase in the number of employees working from home due to the global COVID-19 pandemic, the back-office challenges have suddenly come to light, and finally, companies that got away with minimal changes so far, are realising that they need a structural digital overhaul, and fast. We believe the solution to this is artificial intelligence backed software solutions.

Previous technology based solutions essentially did half the job, heavily depending on human fact checking. Consequently, these solutions were actually quite cumbersome and time consuming and costly to implement and maintain, and offered only incremental improvements. Now with AI, automises data processing completely removing the need for human fact checking (and human error!). Additionally, deployment is massively simplified with an average setup time of one week, compared to about 6 months for previous technologies.   AI solutions are also highly adaptable to new formats and scenarios, allowing businesses to test them in say one department and to quickly roll out a single unified solution across all functions of the business.   Data can be extracted from any invoice layout with no template or rule set-up, saving significant and effort. Rather than trying to change and standardise a highly fragmented environment (there are about as many invoice formats as there are businesses), AI can work with it, and optimise the overall process and offer a unified answer to a fragmented ecosystem.

Taking Accounts Payable as an example again, this is a sector that has relied by and large on Optical Character Recognition (OCR) software solutions in an attempt to remove some of the manual labour involved in reading processing and filing invoices. Although OCR did improve the processes to a certain degree, ultimately these types of solutions still required a long and expensive set up processes and a lot of manual labour to actually capture the data accurately with templates and manual data entry. Now, with AI software, like the one we have created, this is a solution that makes data extraction simple and easy, saving time and man power, as well as building on existing infrastructure. It has the ability to transform this industry.

In conclusion, for a sector that has been slow to adopt digital change, AI is THE technology answer that is finally fixing the invisible pain points that businesses had simply accepted as unremovable. AI applied in this way offers a viable way forward and businesses that were notoriously slow and resistant to embrace the digital transition, incentivised to make a change, may actually end up at the head of the pack. Skipping ‘older tech’ and jumping straight into AI solutions, the best scenario available by far, is indeed the smartest, fastest and most cost effective way to transition into the digital world.

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InsurTech is helping to drive the digital evolution of the UK motor retail industry

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InsurTech is helping to drive the digital evolution of the UK motor retail industry 2

By Alan Inskip, Tempcover CEO & Founder

If the last nine months have made anything clear, it is that the pandemic has fundamentally changed both buying and driving habits for UK motorists. The latest Tempcover research has revealed that online-only used car sales had increased fifteen-fold during the pandemic among 2,000 survey respondents.

Before lockdown, just 4% of used car sales were fully-digital. The vast majority of those surveyed opted for either a physical purchase (50%) or a digitally-assisted purchase (45%), relying on a combination of digital tools and an in person viewing or road test before buying.

While car sales overall are down on last year’s figures*, one in six (17%) of those surveyed had bought a used car during lockdown, with two thirds (64%) relying on a fully-digital purchase journey. Digitally-assisted purchases counted for one in five (20%) used car sales, while in person sales fell to just 15% – no surprise considering the ongoing social distancing measures.

And when it comes to arranging insurance for their recently-purchased vehicle, our survey participants displayed an equal balance between telephone and online as the preferred method (48% each). Nearly a third of those (28%) said they wait up to ten minutes for their policy to be confirmed, and a further 22% wait as long as 20 minutes to get cover.

The switch to digital insurance, driven by InsurTech

In the midst of rapid and significant market changes, many traditional insurers have lacked the agility and flexibility to adapt accordingly. InsurTech can provide immense value in bridging that gap, as the digital solutions are entirely scalable, with the flexibility to substantially increase in size and across multiple geographies, with minimal disruption.

Alan Inskip

Alan Inskip

The ongoing decline of physical transactions in the motor retail industry is a perfect example of how InsurTech is adding value. Several national blue-chip dealerships, with both physical and digital showroom floors, are already streamlining their online purchase process by offering temporary driveaway insurance policies to cover the vehicle for a fixed-term, usually between five to seven days, as part of the purchase journey.

The entirely online one-step user experience is the first of its kind in the traditionally outdated and inflexible driveaway insurance industry and it is dramatically simplifying the process of how insurance is purchased and consumed. Due to the flexibility and agility of the digital solution, each retailer has its own unique URL, where the customer can obtain a simple single-cost policy in just 90 seconds through an entirely digital process, which fits in line with the evolving consumer purchase trends.

For the dealers, this technology means more efficient stock clearance times and greater profitability. For the buyers, it takes the stress out of searching for annual insurance on the spot, and provides the driver with near instant cover so that they can immediately drive their new car, while giving them the opportunity to thoroughly research the best annual policy to suit their needs. An added benefit is there’s no risk to any existing No Claims Discount, as it’s a separate and standalone policy.

While there is a chance these trends will reverse to some extent post pandemic, it is clear that the consumer appetite for digital purchase and consumption is here to stay, and InsurTech will continue to lead the way in making motor insurance more easily-accessible across digital platforms, while offering consumers the best value for money.

* https://www.thisismoney.co.uk/money/cars/article-8615851/Used-car-sales-halved-lockdown-brakes-1m-motor-transactions.html

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Five ways enterprises are using the public cloud

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Five ways enterprises are using the public cloud 3

By Michael Chalmers, MD EMEA at Contino

The public cloud is the most significant enabler in a generation. It’s causing a massive shift in how businesses are operating and tearing apart previous business models.

Amid challenging economic times, it’s inevitable that spending within IT is dropping. However, the cloud is the only segment that is still growing. The public cloud is increasingly becoming a central element of enterprise IT.

Contino asked 250 IT decision-makers at enterprise companies across Europe, USA and APAC within companies of over 5,000 employees about their views on the state of the public cloud within their organisation at the beginning of 2020.  Nearly all of them (99%) saw a significant technical benefit compared with on-premises.

Here are some other ways public cloud is being used by enterprises:

  1. Widely, albeit not yet business wide.

A whopping 77% of enterprises are using the public cloud in some capacity. Overall, 50% of businesses are utilising a hybrid cloud, 22% single private cloud, 20% multi-cloud, 7% single public cloud and only 1% are using only on-premises.

But only 13% of businesses have a fully-fledged public cloud program. The largest set of respondents (42%) have multiple apps/projects deployed in the cloud. 24% were still working on initial proofs-of-concept, and 18% were in the planning stages.

83% of respondents said they want to grow their cloud program. Almost half (48%) do wish to grow, but with caution, while 36% want to move as quickly as possible.

Only 4% plan to revert to on-premises but are in no rush to do so.

  1. To enhance security and compliance versus on-premises, although these are still also seen as barriers to adoption.

A massive 64% of respondents stated they find this more secure than on-premises, and only 7% see it to be less secure. 72% found it easier to stay compliant with business data in the cloud versus only 4% who found it harder.  However, 48% cited that their biggest barrier for not using the cloud was security, and 37% stated the need to remain compliant was the most prevalent blocker.

Other challenges also posed a barrier: a lack of skills, the cost to purchase and cloud-native operating models not working with existing investments made up 29-32% of responses.

19% stated that lack of leadership buy-in is the biggest barrier, reflecting that a significant number of IT departments have a need for this solution but have not been provided with the support to do so. However, relatively speaking, this was one of the least-cited barriers.

  1. For improved efficiency, scalability and agility, but vendor lock-in is still a major concern.

The top three cited technical benefits of public cloud were better efficiency, agility and scalability versus on-premises. However, 63% of IT professionals were ‘somewhat’ or ‘very much’ afraid of the commitment that can come with investing in the cloud. This is another major barrier that is preventing businesses from ​migrating to the cloud.

Only 23% are not afraid of being locked in and a meagre 5% have no fear at all. However, the fact that 77% of businesses are using the cloud shows any risk of being locked in is outweighed by the benefits of the cloud.

  1. To align IT with the business.

This is by far the most cited business benefit of the public cloud. 100% of those surveyed witnessed varied business benefits versus on-premises. Other major benefits include the ability to focus on new revenues (43%), accelerated time-to-market (43%), and increased ROI (40%).

  1. To accelerate innovation and increases cost-effectiveness.

Innovating in the cloud was quicker for 81% of respondents. What’s more, not one person surveyed said the cloud slowed down their innovation. 79% have saved money with the cloud and only 5% have found it more of an expense than on-premises.

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