A thorough understanding of IT cost structure is saving State Farm millions while breaking down age-old communication barriers between IT, finance and the business.
With the rise of mobile devices, apps, and high-speed networks, the days of branch-office visits and store-to-store comparison shopping are waning. In this environment, staying competitive means continually rethinking how to attract and retain customers, and enabling them to do business on their own terms.
For State Farm, this was more challenging because IT, the business, and finance didn’t understand the IT cost structure or what was driving those costs. Then they implemented TBM and Apptio.
“Our journey with TBM began back in 2017 and we were really trying to answer a question about the overall effectiveness and efficiency of IT,” said Ashley Pettit, State Farm’s Senior Vice President of Enterprise Technology and CIO. “And [for us] a big gap was understanding our cost structure. Even those of us within IT struggled to … know where we were making investments and … getting an appropriate return.”
This lack of understanding hampered the company’s efforts to roll out the digital products that State Farm customers wanted.
Case in point: Several years ago State Farm deployed an online quoting and application tool. Customers weren’t using it as expected because there were “dropout points” throughout the process. State Farm had just adopted TBM, and by bringing together their digital transformation and IT costing metrics they identified critical gaps in the tool, and how they could better leverage the underlying technology infrastructure.
“By putting all the data together, we could now see those things that in the past we wouldn’t have been able to see,” said Pettit. “And we were able to do multiple versions and revisions on that product to get it to a point where it was optimized, efficient, and just much more cost-justified.”
This lack of transparency was also hurting IT’s credibility with the business. Without the data and insights, IT couldn’t show a line of business manager how their request for something new would impact the IT budget.
To remedy the situation State Farm adopted Apptio’s Bill of IT, which gives business owners deeper insight into how their demands and desires shape IT budget and spending. Early on, this led to some interesting insight on the part of the business partners.
IT Finance Manager Matt Schulkins was presenting an early draft of the Bill of IT to a group of executive business leaders. One of the leaders had a general idea of what the annual IT spend was for his area because he had been heavily involved in IT prioritization of new development initiatives.
“When we started presenting the Bill of IT, he quickly realized the total cost of ownership amount that we presented was over five times higher the amount he had had in his head. That quickly raised their level of engagement in the conversation and helped them realize the ownership they needed to take in helping manage the enterprise IT investment.”
Lifting the veil
The Bill of IT is one part of State Farm’s TBM implementation, at the heart of which is Apptio’s Cost Transparency module. Cost Transparency lifts the veil on IT spending by showing how technology spend is connected from the general ledger, through IT’s services and infrastructure to the application layer – and ultimately to the service itself.
For example, business units (BU) can see the exact cost of developing and fielding a new application in terms of support, networking, development hours, internal and external labor costs, storage costs, cloud, and all the other costs that go into the process.
Apptio and TBM also support endless “what-if” scenario modeling that allows IT to show how alternatives like sourcing the application from a cloud provider will impact the bottom lines of the BU and IT.
“It’s important to have that transparency and to be able to understand … ‘Are we getting a return on the dollars that we’re spending from an IT standpoint?’,” said Mike Cook, IT’s cost manager. “With the [Apptio] tools we have in place, we can not only see the transparency of how things are being consumed, but the metrics behind those, and reports behind that. So we could start to dig in and understand the inefficiencies or effectiveness we could produce.”
In the past three years, IT cut $130M in storage costs. And with further insights into infrastructure costs, consumption, utilization, and capacity, they delayed or eliminated the purchase of additional hardware, software and service contracts in multiple areas, saving both CapEx and OpEx dollars.
Other cost savings uncovered by the introduction of TBM and Apptio include:
- IT leaders in the Life and Corporate Laws areas uncovering little-used applications to sunset.
- Identifying outdated business rules requiring certain transactions be stored on an expensive, dedicated server, leading to a reassessment of this requirement.
- After learning Finance was the primary driver of mainframe usage, IT collaborated with the platform owner to reduce storage costs by compressing data.
- The creation of product roadmaps that have identified conflicts between product and infrastructure plans leading to the search for more cost-effective solutions.
“In order for us to compete … we really need to understand the investment that we’re making [in technology] and the return on that investment that we’re getting,” said Technology Director, Andy Moore. “With the data that we have, with the conversations that we’re having, both with finance and with the business areas, we’re really able to do that in a much more informed way. So if we can optimize that investment, optimize that spend, then it really should provide a better experience for the customers and certainly a better price point for the customers.”
The common language of transparency
As a mutual company, State Farm is owned by its policyholders. This puts them at the center of every investment the company makes. The goal is to constantly improve the customer experience while providing desirable products at the lowest possible price. One of the main ways Apptio and TBM help them do this is by getting everyone speaking the same language. When IT, finance, and the business all use the same, agreed-upon terminology to describe both the technology itself and how that technology supports the business as well as business outcomes, they can move past just talking about costs.
“It’s really created a common language between our IT and our finance shops,” said Ron Tyne, Vice President of Financial Operations. “Now we’re beginning to spread that across the business areas. It’s great to see the conversation that our IT professionals are having with our business professionals, not only when they’re talking about existing technology deployments, but also new ideas and how those new ideas may impact spend and ultimately value … it gets to a point where it’s hard to tell who’s a finance person who’s an IT person.”
And that is precisely the point. IT is there to support the business. If those two entities don’t understand each other, using technology to move the business forward by delivering the products and customers actually want—a hard job to begin with—is that much more difficult. But when these barriers come down and IT is no longer seen as just another cost center to be controlled but, instead, a valuable part of the business that powers innovation, everyone thrives.
“What TBM has enabled us to do is to look deeper into our IT spend, understand where we may have greater value from that spend, where we may have less value from that spend and ultimately have conversation and insight how we may be able to influence that going forward,” said Tyne. “So, the bottom line is, TBM has helped us in understanding the spend and ultimately delivering value back to our customers.”