October 17, 2005

So far, for the past five years or so, businesses in all venues have worked very hard in reducing the total overall cost of the B2B technology infrastructure: the various data centers, B2B databases, the many networks and the disparate pieces of software used that today support companies engaged in the B2B segment.

Such concerted efforts to consolidate, streamline and standardize assets, technologies and various business-to-business (B2B) processes have delivered substantial savings for the players involved.

However, at times, even the most effective cost-reducing program can eventually hit a brick wall. Such technology barriers are often caused by the complexity and the lack of flexibility of the overall infrastructure itself.

The root cause of this complexity is the build-to-order mind-set traditional in most IT organizations. The typical infrastructure may seem to be high-tech but actually resembles an old-fashioned automobile: handmade by an expert craftsperson and customized to the specifications of an individual customer.

Today, an application developer typically specifies the exact server configuration for each application, and the infrastructure group fulfills that request. The result: thousands of application silos, each with its own custom-configured hardware, and a jumble of often-incompatible assets that greatly limit a company's flexibility and time to market.

Since each server may be configured to meet an application's peak demand, which is rarely attained, vast amounts of expensive capacity sits unused across the infrastructure at any given time.

Now technological advances--combined with new skills and management practices--allow companies to shed this build-to-order approach in favor of one that's off the shelf. With this model, filling an IT requirement is rather like shopping by catalog.

A developer who needs a storage product, for instance, chooses from a portfolio of options, each described by service level (such as speed, capacity or availability) and priced according to the infrastructure assets consumed (say, $7 a month for a gigabyte of managed storage). The system's transparency helps business users understand how demand drives the consumption and cost of resources.

By reducing complexity, eliminating redundant activity and boosting the utilization of assets, companies can make their infrastructure 20% to 30% more productive. Nevertheless, making this transition calls for CIOs to make major organizational changes. Application developers must forecast and manage demand so that infrastructure groups can manage capacity more tightly, while infrastructure groups must develop new product management and pricing strategies.

Deutsche Telekom knows firsthand the challenges involved. Over 18 months, hoping to balance IT supply and demand, it implemented this new infrastructure-management model at two divisions.

In the old days, the company's IT infrastructure was a landscape of application silos. Today, newly minted product managers must take a horizontal view, across applications, to assess the total needs of the business and create the right products. They must then work closely with infrastructure teams to align supply--infrastructure assets such as hardware, software and storage--with demand. Infrastructure employees, in turn, can now be more entrepreneurial, choosing the mix of hardware, software and technology that optimizes the infrastructure.

What we've seen at Deutsche Telekom and other companies suggests that creating a next-generation infrastructure involves action on three fronts: segmenting user demand, developing product-like services across business units and creating shared factories to streamline the delivery of IT.

Large IT organizations support thousands of applications, hundreds of physical sites and tens of thousands of end users. All three of these elements are critical drivers of infrastructure demand: Applications require servers and storage, sites need network connectivity, and users want access to desktops, laptops, PDAs and so forth. To standardize these segments, an IT organization must first develop a deep understanding of the current demand for them.

Most companies find that defining the specific infrastructure needs of applications, sites and users is the key challenge of segmenting demand. Major issues include the time and frequency of need, the number of users, the amount of downtime that is acceptable and the importance of speed, scalability and mobility.

This next-generation infrastructure has major implications for the roles, responsibilities and governance of the infrastructure organization.

The most critical new roles are those of the product manager, who defines products and product portfolios, and of the architect, who designs the shared processes to deploy, operate and support them. Product managers must focus on service offerings and be accountable for reaching productivity targets. Their other key responsibilities include building relationships with business users and application developers, understanding and segmenting demand, defining product portfolios and persuading developers and business users to accept their decisions.

Factory architects are, in equal parts, technology strategists and industrial engineers--codifying the architectures, processes and tools that support the product portfolio. Their other key responsibilities include confirming that product commitments can be met, choosing technologies, defining processes, developing process-automation plans and selecting tools.

Organizational structures must change as well. Specialized silos focused on specific technology platforms--mainframes, midrange computing, distributed servers, storage, and voice and data networks--should give way to multidisciplinary teams. Many companies create an enterprise-level infrastructure council to ensure the consistency of products and service levels across business units.

Even with the new roles and processes in place, changing the build-to-order mind-set and culture may remain the biggest challenge of all.

Deutsche Telekom adjusted its incentives, hired new people, developed training workshops and appointed "change agents" to spread the word and build enthusiasm.

These organizational and cultural changes are central to realizing the potential of the next-generation infrastructure model. Investing the time and attention needed to get the right results is just as critical as refreshing the technical architecture.

Source: The McKinsey Quarterly