I had dinner with a couple of health plan CFOs recently, and they both voiced the same concerns about their IT spends. They weren’t upset over the cost, but they were confused about what they were getting for their money — and even unclear about what they should be spending on IT in the first place.

More and more often, I hear the same concerns from business leaders: “I don’t know if I’m paying too much or too little for IT,” “I just don’t understand what it should cost,” or “What are we getting for our IT expense?”

What they’re really asking is, “How do businesses define and measure the value and impact of IT?” 

The 2013 McKinsey Global Survey on business and technology confirms that it’s a common quandary. In general, the study revealed that organizations are quicker than ever to acknowledge the strategic importance of IT, but they’re also less satisfied than ever with its “effectiveness.” Perhaps even more telling: While the vast majority (80%) of businesses had formal KPIs — and even SLAs — for measuring performance, only 50% of respondents claimed that IT was “somewhat effective” (or better) in providing value to the organization. And despite the apparent emphasis on efficiency, only 38% of the organizations surveyed had at least a “somewhat formal” definition of effectiveness. Clearly, business leaders are struggling to find balance — between efficiency and effectiveness, and between investment and return.

With technology affecting every facet of the insurance industry, virtually every part of your business depends in some way on IT. Yet while technology can empower an organization, it also has an opportunity cost — and that cost becomes a real issue when leadership can’t appreciate the value.

The answer is simple, but not easy: IT groups must transform themselves into service organizations that can clearly define their capabilities, costs, and value.

IT is in the Customer Service Business

In many cases, IT professionals assume that an Information Technology Infrastructure Library (ITIL) will solve the problem. While this approach can be worthwhile for a number of reasons, ITIL is not the right tool for explaining the benefits of IT services to business units within an organization. Instead, the key to effective service management is thinking like a consumer. If my dinner companions and I, for instance, had received a bill with nothing more than a price for “meals,” we would probably demand more detail. At the same time, a check that itemized napkins, salt, and “plate usage” would be absurd. IT gets it wrong when it fails to anticipate the wants and needs of its customers.

Customer service — and service management — is all about managing expectations. When business units (the consumers of IT) can understand what services they consume and the cost to produce those services, they can better articulate their needs and requirements. And when IT (the service provider) can clearly communicate its range of services and the costs to deliver them, they can set expectations, control costs, and provide greater value.

Stepping Up the Service Model

Like any meaningful endeavor, this journey takes time and resources. The good news is that most businesses — especially service providers — have been there before. Your IT organization must quite simply define and communicate its value proposition, so their customers can make informed decisions and get the most from the relationship.

What follows is a step-by-step guide to the service management process — along with some tips for avoiding common pitfalls.

Step One: Don’t Skip the First Step

All too often, organizations try to implement Service Level Agreements (SLAs) too early in the process. The path to adoption starts with communication. Bring all of the organizations together. Identify the drivers and metrics that are meaningful to both parties. Sometimes at this stage, it makes sense to talk about budgets and even calculate general unit costs. But the key takeaway from this conversation should be a clear understanding of the services to be provided and consumed.

Step Two: Write it Down

During this phase, each business unit defines its service requirements and clarifies the metrics associated with the services to be provided. With a clear understanding of the goal and a system for measuring improvement, leadership can calculate quarterly costs and set appropriate benchmarks. The output from these discussions is a document that defines the service objectives.

Step Three: Care and Maintenance 

With true performance metrics and costing levers in place — and with IT providers and their customers aligned on their roles and objectives — the newly-formed partnerships can focus on improving service quality, managing costs, and (most important) advancing the business. It is only at this point that meaningful SLAs can be negotiated. Then, as the company faces new challenges, the dialogue between IT and its customers will deepen — and prove exponentially more valuable.

The “Don’ts” of Service Management

For a number of reasons, organizations can fall short in their efforts to adopt a service management approach. Perhaps most often, they fail to think like consumers. Service management works best when viewed from the customer’s perspective — not through the eyes of the providers. Business units can’t buy what they don’t understand, and they won’t buy what they don’t need. So it’s imperative for IT to evaluate its offerings and make sure those products align with customer expectations. Defining and describing services is an art that takes time. Work with IT to articulate their value proposition.

Another common mistake is moving too quickly. I’ve seen businesses fail miserably at getting organizations to align simply because both parties were too eager to jump into SLAs — so they guessed or assumed what service levels were required. The importance of communication and understanding at the outset can’t be overstated.

One final note: The service management model works whether or not it ends in a “charge back” to the consuming departments. Often a charge back is the goal of the process rather than the eventual outcome. It’s more about improving communication and establishing clear, effective SLAs.

Our ever-increasing dependence on IT, paired with our ever-narrowing focus on cost management, means the dialog between IT and the rest of the organization has never been more important. When businesses adopt a service management approach to IT services — and when IT is integrated rather than isolated — leadership can better understand what the business gets for its investment. In other words, once they realize the true value of IT services, companies can thrive — and CFOs can once again enjoy their dinners.