Run IT as a business - why that's a train wreck waiting to happen

Everything you've been told is wrong: What IT should do instead

Architecture -- another victim of having internal customersOne of my former clients -- a large financial services firm -- had embraced the IT-as-a-business concept. When my firm arrived on the scene, the client's information architecture was in shambles because IT's internal customers weren't willing to invest in sustainable engineering. Why would they? To achieve a quality architecture, the internal customer of one project pays more so that a different internal customer, some time in the future, receives the benefit.

The client's IT staff described the resulting mess as going far beyond the usual spaghetti or spider web. They called it "The Hairball." In an average development project, much more than half the total effort was devoted to coping with The Hairball, leaving relatively few resources to devote to new features and functionality.

The impact on relationships Another unintended consequence of running IT as a business with internal customers, while less tangible, might be even more important: Defining IT's role this way creates an arm's-length relationship between IT and the rest of the business. That's a problem. As Jim Struve, director of IT supplier management for WEA Trust, explains, "Relationships matter. A lot. I've seen it a lot in my daily work. When people have built a good relationship there is trust and it's easy to get things done. And it's very difficult to get things done when there is not a relationship built, with the lack of trust that causes."

When IT acts as a separate, stand-alone business, the rest of the enterprise will treat it as a vendor. Other than in dysfunctional, highly political environments, business executives don't trust vendors to the extent they trust each other.

Nor should they.

Chargebacks or effective governance - pick one Businesses that take running IT as a business seriously have to bill IT's internal customers for services rendered. That means instituting chargebacks, also known by the more impressive-sounding synonym, 'transfer pricing'.

Most CIOs I know dislike the idea, but the pressure to head down this path is strong.

Its proponents paint it in rosy terms. Typical is a commentary by Dan Woods, CTO and editor of Evolved Technologist. In a recent Forbes editorial "How to run IT as a business," he wrote, "Right now, about 70 per cent of IT costs go toward keep existing systems running; only 30 per cent finances new development. Without chargeback, business has little incentive to demand efficiency. The size and scope of existing systems grows, crowding out innovation."

When the only incentive managers have to promote efficiency is the impact of chargebacks on their departmental budgets, chargebacks are just a Band-Aid. They won't fix the real problem: that nobody cares about the success of the business, only their own fiefdom.

Anita Cassidy, president of IT Directions and coauthor of "A Practical Guide to Reducing IT Costs," has seen the damage that chargebacks can do. "Although charging back IT costs can discourage frivolous spending," she acknowledges, "I've seen it create too many undesirable results.

"I watched one company make several poor strategic decisions for the enterprise as a whole," she adds. "Because of its chargeback system, its managers were more concerned about reducing their individual costs than doing what was best for the enterprise. I watched another significantly increase shadow costs and inefficiencies within the business. Chargebacks had a chilling effect on using the central IT services."

Chargebacks are an attempt to use market forces to regulate the supply and demand for IT services. If that's the best a business can do, it means the business has no strategy, no plans, and no intentional way to turn ideas into action.

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Bob Lewis

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