Is Your IT Department a Cost Center or a Business Partner?

About 12 years ago I was working as a consultant (Novell, WINNT/2000, Citrix, etc. were big technologies at the time) and I became fascinated with ROI analysis and using it as a way to demonstrate the value behind various initiatives.  It wouldn’t take long before the issue of intangibles came up.  Not everything can be defined neatly in an ROI analysis.

For example, what’s the value of your sales force having access to CRM data on their smartphones versus dialing back in to corporate?  You can’t easily define various measures of productivity in an ROI analysis, but understanding such intangibles is key – I think – to moving beyond the concept of IT as a cost center.

I found myself often challenging colleagues, managers and even CIO’s to think about whether IT was just a cost center or something more.  What does “IT as a cost center” mean?  In my view it basically means that IT is a “necessary expense” of the business.  You need email, websites, CRM, ERP and departmental apps, and so on and so forth and while some of them may provide value, for the most part IT is considered “a cost of doing business”.

But what if IT could be something more?  One step to this was to identify intangibles, understand value creation and choose to make technology decisions from an enlightened perspective, taking into consideration the business and their needs and gaps.  Now with cloud computing the potential to move beyond a cost center just moved to a whole new level.

I’ve tried to tackle this concept in a few previous posts, but with cloud computing IT has the potential to evolve beyond being a mere cost center towards being a business partner.  Yesterday you bought servers, storage and networks independently for the most part, but in a cloud environment it becomes all about providing on-demand capacity for the business as they need it and when they need it, in order to execute their business strategy.  You might be using converged infrastructure, public cloud providers or any myriad of models to satisfy demand.  But you’ll need to be able to predict this demand as well as understand your supply.

The biggest problem in many organizations is not so much obtaining “cloud technology” as it is getting IT at all levels to understand “cloud” and then to change mindsets, org charts and processes to work within this new paradigm (an upcoming blog post will focus on real-world examples of what types of IT behaviors are NOT compatible with cloud computing).   But once you get there, you can begin to look at a model where IT becomes an engaged partner with the business, learning how they can provide the capacity to run the applications the business needs and when they need it.

Christian Reilly shared this image recently which shows an IT organization actively working at the highest levels with the business in order to support –not IT or a “necessary expense” – but the business itself:

And that’s ultimately where IT has the potential to be and should be – not a cost center but an engaged partner in the business, leveraging a cloud operating model.  Companies who fail to adopt this approach will only put themselves at a competitive disadvantage and perhaps hasten their own demise.  One of my favorite business leaders is Andy Grove, who despite Intel’s dominance, had a healthy paranoia of the competition and a perpetual curiosity that provoked new improvements and opportunities.  The time to begin moving your organization towards the cloud model is yesterday.

In my next post I’ll expand on this from a few different angles based on my own experiences with one IT organization.  Stay tuned…

One Response to Is Your IT Department a Cost Center or a Business Partner?

  1. cmeskee says:

    The most powerful leaders in organizations come from profit centers, not cost centers and those in positions of power usually want more power. So, regardless of whether having IT function as a profit or cost center is more effective, most IT units today function as profit centers in order that they can obtain the big budgets for their big projects that “save the day”.
    My opinion is that when IT operates as a cost center, the business’ bottom line wins. When IT gets to dictate what software projects get done or has a private allocation of IT time set aside for strictly IT projects and has a say in which projects hit the chopping block, effective portfolio management is undermined and organizations end up not doing the right projects at the right time for the right reasons.
    When business units who propose software projects end up having to foot the bill for their projects, there is heightened project ownership, better analysis into ROI and costs and many low value projects never even make it into the queue, which is inevitably clogged with a surplus of projects that need to be sorted through in order to locate those of highest yield to be focused on in any given period.
    Additionally, in my experience, when IT functions as a cost center with another department writing the check for development efforts, costs are tracked much more effectively, making it easier to track and budget, while helping to hold sponsors accountable for changes in scope and at the same time holding individuals in IT  accountable for producing quality development, on time and on budget.

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