CITO Research Product Overview: Apptio

This CITO Research overview of Apptio will attempt to answer the following questions:

• What does Apptio do?
• How is Apptio different from other competing products and approaches?
• What compelling value does Apptio provide a CITO?
• What questions should be explored in future research?

What does Apptio do?

Apptio’s stated goal is to create an application suite dedicated to supporting the practice of Technology Business Management (TBM). TBM software is based on the simple premise that IT should be run like a business. But to achieve this goal Apptio recognizes that most accounting and capital planning software is not optimized for IT. Generic finance is not IT finance. Generic accounting is not IT accounting. New models and forms of data collection and automation are needed.

Apptio’s applications create a model of all the assets that IT has under management and all the money spent on labor, power, and other forms of infrastructure. IT executives can then use that model to allocate the cost of services that is as detailed as possible. Reporting on this model can be done in whatever level of detail is needed for those using the information. Apptio’s TBM applications give CIOs the ability to compare their costs to industry benchmarks and plan corrective measures if the numbers don’t stack up.

But what is TBM? It is a Three Letter Acronym, which means that whoever created it is shooting for the same sort of enterprisey gravitas that ERP, SCM, and CRM are known for. It has some words that all CITOs are into (Technology, Business, and Management). The question is, does TBM mean anything of relevance to a CITO who is on the journey to become a more effective technology leader?

After talking at length with Sunny Gupta, Apptio’s CEO, Michel Feaster, VP of Products and Strategy, Chris Pick, VP of Marketing, and others, I am happy to report that TBM actually means something important. As I pointed out in my recent Forbes.com article, “The Coming Crisis of IT Management” and the problem statement on CITOResearch.com, “Avoiding the IT Management Crisis,” CITOs must improve their management game in order to handle the accelerating, multi-dimensional challenges brought by consumerization, cloud computing, SaaS, and mobility that have smashed the IT monopoly to bits.

Right now IT is managed neither comprehensively nor systematically. Current management practices lack transparency and a comprehensive approach to determining costs. We are now entering an era where IT can no longer be informally managed by virtuosos, in which each silo of IT crafts its own solutions, sometimes out of raw materials, sometimes out of point solutions. Most CIOs today cannot answer questions such as, “How much does it cost you to deliver email to everybody?” or, “I want to move this application to the cloud – what is the cost of running it internally?”

CITOs need to understand the fully-loaded costs of the services they provide. Using this cost transparency, they can make better decisions and help their customers make better decisions.

IT management has been split into two parts. The most common is the guild system focused on managing technology. In this setup, the CIO oversees the storage guy, the networking guy, and the database guy, who manage their kingdoms as they see it. The technology is the focus of management.

The other way that IT is managed is at the service level. ITIL or COBIT is used as a framework and the services offered to the business are the focus of management efforts. IT Service Management is a much broader and more sophisticated approach than just managing the technology, but it falls short of the biggest picture.

The problem is that CITOs have not been trained to manage a business using all the tools and techniques developed in the past century. CITOs and other IT practitioners do not really understand how to use methodologies like activity-based costing. They cannot easily understand the impact of shifting money from capital expenditures and operating expenses or the influence that shift has on their own budget and the financial condition of the company. When CITOs have been trained in modern management methods, the tools that are used to implement common business methodologies often lack the representational power to map the methods to the world of IT management.

TBM encompasses both technology-focused management and ITSM. TBM is about looking at the business of providing IT to a company. To practice TBM, a CITO must think about how the IT organization is financed, how each dollar is spent, how much it costs to deliver services, who is consuming the services, and how needs are changing. To be sure, some of these issues show up when managing technology or practicing ITSM. There are other approaches that are being suggested such as IT Financial Management and IT Business Management. Compared to the state of management at most IT shops, pursuing any of these approaches will help. What distinguishes TBM is the granularity of the recommendations and the availability of tools to implement those recommendations.

TBM recommends creating a model of what is being offered to the business, a “Bill of IT” similar to the bill of materials used in manufacturing. For decades, even centuries, manufacturing and transportation have had bills of materials and bills of lading. These documents included a quantity, a unit cost, and a total for the goods used or delivered.

The Bill of IT can be a focus for a new kind of relationship between the CITO and the business, especially when it leads to a conversation about the costs for different levels of service. If a department doesn’t know what it costs to get a service, of course they want the best. If they do understand what they are getting, how much it costs and what sort of alternatives are available, huge cost reductions are possible.

The ability to display the Bill of IT to users and incorporate its information into several other applications in the Apptio suite, including an IT planning facility, which enables forward planning based on verified numbers, gives IT the tools to start running itself like a business, and to deploy market-based incentives (and disincentives) to its user base. The Apptio suite directly correlates the cost of running IT assets with other performance characteristics, which are needed in order to make decisions about whether to purchase certain assets, for example.

The other analogy popular with Apptio is the idea of the IT value chain. TBM is about identifying and tracking costs and usage all along the supply chain and applying common tools that are used to manage and measure the rest of the business, such as activity-based costing or best practices for procurement or supplier management.

So, what is Apptio? It is an application suite designed explicitly to support TBM in a way that builds on the lessons learned about enterprise software over the past 30 years.

“The CIO’s world is transforming from managing vendors and raw materials to delivering a portfolio of internal and externally provisioned services. So I need to answer questions about costs and usage just to run IT better because I’m no longer just a technology person,” said Gupta, Apptio’s CEO. “There’s really been no concerted effort to deliver a business management platform, a system of record that helps you tie together one picture of the cost of your IT products and services and who is consuming them and integrating that picture into a thorough planning application.”

Apptio has five modules, each dedicated to supporting a different facet of the TBM practice:

• Bill of IT, an application that supports presenting the business with the services consumed by the business users and their associated costs
• IT Planning, an application that supports planning for both the demand side (what the business want), and the supply side (how IT will provision for those needs)
• Service Costing, an application that creates a detailed, highly granular, customizable model of the costs of providing a service
• IT Benchmarking, an application that compares an organization’s costs to industry benchmarks
• IT Service Performance, an application for tracking the usage and operational performance of services (internally or externally delivered)

Apptio is also unique in its approach to constructing its products. Like most modern software, Apptio is a SaaS offering. But Apptio’s designers recognized that any modern application must address not only the capture and use of the data for the stated purpose of the application, but must also support the use of the data for business intelligence purposes. Apptio carefully separates the model used to capture data and describes business activity from the “reporting surface” in a way that allows the model to evolve with minimum impact on the reports and other analysis tools built on top of the model. In addition, like many leading BI products, Apptio supports in-memory analysis of data so that various what-if scenarios can be examined in an instant.

Apptio has productized best practices for its customers, with out-of-the-box “accelerators” for typical cost centers such as servers, networks, storage, and desktops, so customers need only submit a few pieces of data to begin to identify cost reduction opportunities. Accelerators can answer basic questions such as:

• What best practices to start with?
• What data do I need?
• How should I build the cost model? What allocation strategy should I use?
• What KPIs and reports should I look at to find cost reduction opportunities?

Accelerators provide the top-ten pieces of data needed to get started and 30 to 50 KPIs and reports so that a customer can begin seeing results before excavating too deeply into the bowels of their organization.

For many years, the IT department has heaped technology on the rest of the company, encouraging them to implement applications that create models to track real-life activity and processes. The applications use those models to observe the activity more closely, opening the door for automation. It is time for IT to take its own advice and start to systematically improve technology management practices. Every other VP has an application with a three-letter acronym. Finance gets ERP. Sales gets CRM. Supply chain gets SCM. Product development gets PLM. Now it is time for IT to get TBM.

How is Apptio different from other competing products and approaches?

Apptio is an application suite built from the ground up to meet the business management needs of IT and technology in business. Apptio is not a retrofitted version of an enterprise performance management or accounting system.

For example, most general ledger systems are organized by cost centers, which are classified in one of two ways:

• Organizationally – Budget owners can have a cost center
• By Type – Travel, depreciation, and so on

Neither of these ways maps appropriately to the complexity of procuring products and providing services in IT. In most IT organizations, there is a wealth of data about costs. The problem is bringing that data together in a way that supports analysis. Spreadsheets, of course, can serve this purpose but not without considerable manual data crunching, errors, and the difficulty of refreshing data. Apptio brings together a number of different islands of data from various systems of record and then relates them so that they become actionable and usable. The result is the information needed to gain a deeper understanding of how much a computing landscape costs and how it is being used.

In addition, TBM is not bound by the traditional definition of IT that is focused on applications, the data center, end-user computing, and supporting infrastructure. In the modern IT department, all of these things are supported, but they are increasingly supported by managing business relationships centered around services. These business relationships can range from long term contracts, to engagements for commodity services, to new forms of relationships based on crowdsourcing. The advanced users of Apptio and companies like eBay and Microsoft have models of business activity that range far wider and go much deeper into the specifics of services offered than is typical for most CITOs.

Apptio provides a dynamic model with the power to represent and capture the financial and technological structure of the cost of providing a service. As a result, CITOs can make technology decisions from a business perspective. Getting a handle on costs helps CITOs make decisions about how to improve or lower the cost of services, as well as how to produce a credible and understandable record for business users, giving them more power to make direct decisions about their IT. A conversation about the benefits and drawbacks of saving money by choosing lower service levels becomes less frightening as end-users better understand what they are paying for. In addition, CITOs can compare their cost of delivering a server to that of their peers, for example.

“Apptio operates on two planes of control,” said Michel Feaster, VP of Products and Strategy at Apptio. “First, we provide total transparency over the supply chain for delivery of the current portfolio of IT services. Second, we automate all of the thinking and decision-making around the future of the IT planning process. If we do both of these things well together, we can help deliver IT that is run more like a business.”

Unlike previous generations of enterprise applications, Apptio is built to support an incremental implementation. Apptio recommends a “broad and shallow” approach in which data is assembled to get at least a rough idea of the costs of various types of services and infrastructure and which services are being used most intensely. Then, it is possible to compare costs to benchmarks and see where costs are higher or lower than the norm, which Apptio delivers as a Unit Rate Scorecard. The model can then be extended in areas where cost cutting or quality of service improvements are most needed to obtain activity-based transparency.

Changing Roles to Support Better IT Management

Apptio is one of a growing cadre of forward-thinking companies that recognizes a new role is emerging for the CIO: the service broker. The CIO is becoming accountable for the TCO and quality of a product, deciding which services to offer, and how to offer them, provisioning the services with a myriad of products. But instead of thinking about IT in terms of throughput and RAM, the service broker thinks holistically, and asks questions such as,

• “What services and what choices do I want to offer?”
• “What’s the cost and quality tradeoff in that portfolio?”
• “How do I deliver those things at the lowest cost?”

This role is likely to grow, blending the roles of Chief Procurement Officer (CPO) and CIO, the latter of which will be acquiring more power, but also more responsibility to think beyond pure technology.

Apptio aims to become the system the service broker CIO will use for tracking internal services, external services, cost metrics, utilization metrics, and SLA metrics as well as helping manage more esoteric user requests than “I need a new application installed on my PC.”

Through the course of an informed dialogue, the classic IT-business communication gap begins to be bridged because rather than appearing rigid and resistant to change for the sake of preferring one technology over another, a service broker CIO can coolly offer the business user requestor, “Sure you can have a physical server. It’s just that it’s five times more expensive than a virtual server.” The cost argument gives the CIO credibility and compels the business user to be more educated about IT -- if the data backs up the statement.

“Shadow IT,” the covert acquisition by business of web-delivered services without the nod of approval from IT leadership, is becoming a rampant phenomenon at most enterprises. Amazon Web Services has price-list for cloud services, and business users want to understand what they’re getting. IT will need a very well-defined set of principles to navigate through the future and provide these answers, and IT leaders will increasingly need to think like product managers running a supply chain. That means listening to users and being able to produce what they are describing, rather than simply pushing version upgrades down the line.

Skills that are not institutionalized in supply chain management, such as vendor procurement, SLA design, and risk management will become far more important.

The cost transparency that TBM provides will support these new roles and make it possible to do an apples-to-apples comparison of providing services internally compared to using an external vendor.

Apptio Application Modules

For a CITO that is intrigued by TBM and wants to know more about how it works, it is illustrative to take a closer look at each of Apptio’s modules.

Bill of IT

The Bill of IT gives IT staff the ability to publish costs to the consumers of IT. Apptio IT users can view costs in draft mode and are supported by a workflow around publishing the costs as well. Users can analyze all bills that relate to IT and look at the relationship of consumption to the overall portfolio. They can pinpoint savings that could be gained from lowering the price per unit, for example, or shifting email to Gmail or the cloud, and then provide choices to their customers. The user could be a CIO, trying to determine the top consumers of services, or a business relationship management group, responsible for managing customer relationship. In either case, Apptio empowers consumers of IT to either change their behavior or to at least understand the relationship between their behavior and their IT cost—the missing link in most IT organizations. Principles that are easy to understand with other business services, such as express delivery – if you want it to come faster you have to pay more – become just as clear around IT.

The best way to get people to change their habits is to change the price. Just as more people start using transit when gas prices rise, it becomes much easier for IT practitioners to propose decommissioning applications if they can show they will be more expensive to operate. The Bill of IT allows the IT user to alter prices to influence end-user behavior, even if that means artificially discounting newer, more efficient services and inflating the price of outdated, nonperforming services that end users simply won’t let go of. People understand how to behave when they’re given choices between cost, quality, and value.

IT Planning (Budgeting & Forecasting/Demand & Resource Planning)

In IT Planning, users make financial decisions about changing behavior or spending in IT that will make the business more effective. With this application, users answer the question, “How should IT need to plan to accommodate the growth of the business next year?”

The Budgeting and Forecasting application is essentially the business-user point of view. It reflects a top-down budgeting and forecasting process. The main variables are operational expenses, capital expenditures, and cash flow. Users select services from a menu that is described in terms that are meaningful to them – “Change email hosting” or “Add new hire” for example. The choices are presented side-by-side and can be decomposed into individual costs if desired. The costs have been provided through the Service Manager view, which is essentially IT’s portal into the product.

Demand & Resource planning application, most likely operated by someone on the IT side, understands the same services in different terms – in terms of hierarchies of service, such as foundational, business-level service, and of course in terms of servers, storage, networking, hardware, and so on. This allows the model of business needs for IT to be translated into a detailed provisioning plan.

IT Service Costing

IT Service Costing is one of the deeper and richer, more granular features of Apptio, in which users build a visual cost model that can, for instance, determine the cost of each server, or the average cost of all servers in a portfolio. It is the most mature offering in the suite, and most directly relates to COGS.

When users are first shown IT Service Costing, their relief is palpable, because it’s likely they have been trying to document their service costs through a tangled web of spreadsheets. With IT Service Costing, they can now do point-in-time analysis, trending, and decision support.

There are three levels of service context out of the box – foundational, business, and client – but customers can rename these objects or add onto them.

As with many analytical applications, Apptio works better as more data is fed into the system.. The cost of a global service could be decomposed to individual machines, examining the power use needed to run a single application under a given SLA -- as long as the inputs exist and are valid. As customers get more comfortable with Apptio, they tend to add more automated feeds from various systems of record.

Apptio is equally effective as a tactical, strategic implementation -- “Should we standardize on SuSe Linux or Red Hat?” – as it is a transformational product.

The rubber hits the road in the Service Costing application. Looking at cost and utilization side by side, you can begin to make decisions about whether it is better to add new machines or move lower-powered tasks to underutilized legacy hardware, saving fixed and variable (i.e., such as energy) costs in the effort.

According to Apptio, the top questions that drive people to want a deeper dive into the Service Costing module include:

• Can I view fixed and variable costs side-by-side?
• Which applications and machines should I retire or keep? How can I put a dollar amount on that?
• How can I get more granularity on cost per server? Many users understand their cost per server, but don’t have visibility to investigate use, slice and dice by operating system, by location, by purpose, and so on.
• What is the cost to serve my customer? For example, what is the cost of email per user?
• What are the costs of my services, and how can I change user behavior to drive that cost structure differently?

IT Benchmarking

IT Benchmarking provides third-party benchmark costs, primarily from Rubin Worldwide, which also licenses its index to META Group and Gartner. This provides a barometer against which organizations can compare whether their costs of service are competitive with their peers.

IT Service Performance

IT Service Performance examines utilization and service quality data of primarily fixed assets, which helps determine if the workload on a given machine is too heavy or too light and also allows for assessments of vendor performance, particularly if the vendor is an outsourced third-party service.

A live implementation of the Apptio suite would most likely use a combination of applications. For example, if the question was: “Should I move my servers into Amazon.com’s cloud?” they would use IT Service Costing, IT Service Performance, and IT Benchmarking. User profiles can be heavily customized and segmented – business analysts, the CFO, CIO, line of business head, and COO all need to see different slices of information that differs from the “power user” in the nerve center of the Studio.

What compelling value does Apptio provide a CITO?

As we’ve stressed many times before, the IT manager has been conditioned to think only about the technology, and not to think about the business. He’s been put in a little box, rewarded for saying yes, and punished for saying no. Apptio is one product that recognizes that model is about to change.

Apptio has more than 65 customers, many of which are enterprise-class, in addition to smaller firms that have also been able to reap tremendous value.

At Microsoft Global Foundation Services, Apptio is used to run the division’s Bill of IT. Every time someone uses Bing or Hotmail, Apptio is the costing engine, providing transparency into $2 billion worth of infrastructure.

Facebook uses Apptio Bill of IT to manage its telecom and end user spending. Since using Apptio, they’ve been able to reduce telecom costs per worker by 18%, and realized savings of $1 million.

Another Apptio customer, EMC, runs an 80% shared services environment. The more one virtualizes, the more one loses transparency into cost, value, and quality of service metrics. Apptio helps to restore that transparency, allowing companies such as EMC to make decisions between the cost of 99.0% availability and 99.9% availability.

JPMorgan Chase used Apptio to force the migration of users off of a platform that cost $10 million to run and had only a handful users. Using Apptio, the financial firm was able to prove that a comparable application with 80% of the functionality would cost significantly less. After allocating the costs to the business units at $900K each, the servers were retired within a quarter.

More than just pure savings, Apptio is also being used at many companies to foster the kind of cultural change that will be required in the age of the Service Broker CIO.

In some ways, the user profiles of Apptio fall into two camps. On one side, the CIO is driven by the need for internal optimization and transformation, focusing on rationalizing applications after a merger, for instance. This type of customer is trying to use Apptio to make technology decisions in a different way – from a business perspective.

On the other side, the second core use case for Apptio is business unit transparency. IT customers want to be able to deliver a bill of IT to either change the behavior of the consumer, or a consumer wants levers he can pull to more directly influence IT. Rather than let IT continue to be a “black box of spending,” these customers want to be shown how they can change their behavior and directly affect their IT costs as a result.

What questions should be explored in further research?

Once the cost of all applications is understood, how can TBM help expand the value they provide?

After the broad and shallow review, what are the additional clues besides benchmarking data, that suggest expanding transparency will lead to business benefits?

In what order should Apptio’s applications be implemented based on different needs and goals of an IT organization?