Understanding the TBM Taxonomy: Making Sense of IT Costs

In last week’s article, we introduced Technology Business Management (TBM) as a powerful discipline that brings clarity and alignment between IT, Finance, and the Business. Today, we're diving deeper into one of its foundational components: the TBM Taxonomy.

Why a Standardized Taxonomy Matters

Imagine walking into a grocery store where nothing is labeled or categorized. You would waste time searching for basics, buy duplicates, and likely overspend on things you don't need.

That's precisely how technology costs appear in many organizations – a giant, unorganized store of spending. The TBM Taxonomy changes that by providing a structured, standardized way to categorize IT costs, transforming chaos into clarity.

What Exactly is the TBM Taxonomy?

The TBM Taxonomy is essentially a common financial language for IT. It standardizes how we classify costs, making them understandable and actionable across IT, Finance, and Business teams.

At its core, it has three main layers, offering different "views" of your IT spend:

1. IT Towers – The Supply View

This layer shows what technology components you're buying and operating. It's about the raw ingredients and infrastructure of your IT department.

It includes categories like:

• Compute (servers, physical and virtual)

• Storage

• Network

• End-User Services (devices, helpdesk)

• Applications

• Facilities (data centers, hosting)

• IT Labor

Example: Instead of a vague "₹50 crores on IT," you can articulate, "We spent ₹20 crores on compute, ₹8 crores on network, and ₹12 crores on end-user services," providing much more granular insight into where the money is going within IT's operations.

2. IT Services – The Functional View

This layer focuses on what IT is delivering to the business. It translates the technical components into tangible services that business units consume and value.

Examples include:

• Email & Collaboration

• CRM Platforms

• Data & Analytics Services

• ERP Systems

• IT Security

• Application Support

Why it matters: This view enables crucial conversations like: "Is our CRM platform cost-effective for the value it provides to Sales?" It shifts the focus from technical jargon to business impact.

3. Business Units / Consumers – The Demand View

Finally, this layer answers the critical question: Who is consuming these services? It links IT spend directly to the parts of the organization that benefit from it.

Common consumers include:

• Marketing

• Sales

• Finance

• HR

• Manufacturing

• External customers (in some specific models)

Example: You can now analyze: "Marketing consumed 25% of our analytics services last quarter. Their usage is up 15% year-over-year – do we need to budget more, or can we optimize their consumption?" This fosters accountability and strengthens business alignment by showing direct cost attribution.

Bringing It All Together

By categorizing IT costs across these three interconnected views, TBM Taxonomy achieves powerful results:

• IT knows what it owns and operates, providing a clear operational perspective.

• Finance sees exactly where money is going, enabling better financial oversight.

• Business leaders understand the value they’re getting from IT investments, fostering strategic discussions rather than just cost complaints.

A Simple Analogy

Think of your IT budget like running a restaurant:

• IT Towers are your ingredients and kitchen equipment: Without taxonomy, you only see the total grocery bill.

• IT Services are the dishes you prepare for your customers: With taxonomy, you know what you're cooking, how much it costs to prepare each dish, and its profitability.

• Consumers are the customers ordering those dishes: With taxonomy, you know who's eating what, and whether your menu is satisfying their demand.

Why TBM Taxonomy is So Powerful

Implementing the TBM Taxonomy brings significant benefits:

• Creates a shared language: Bridges the communication gap between IT, Finance, and the Business.

• Enables data-driven decision-making: Provides the actionable insights needed for strategic investment and optimization.

• Drives cost optimization and value-based investments: Helps identify areas of waste and ensures spending aligns with business value.

Coming Up Next

In our next article, we’ll explore Showback vs. Chargeback – two financial management techniques that build trust and accountability between IT and the Business, leveraging the clarity provided by the TBM Taxonomy.

Your Turn

When I first learned about TBM Taxonomy, it felt like seeing a messy wardrobe instantly organized into perfectly labeled shelves. Clarity truly enables action, and that’s exactly what this taxonomy does for technology management.

Does your organization categorize IT costs in a structured way today? What challenges have you encountered when trying to explain IT spend to business leaders? I’d love to hear your experiences in the comments below!

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