IT as a profit centre: Could we? Should we?

Let us agree that technology is or should be a big differentiator for business. Let us also agree also that particularly in very large companies, the IT department may be more cost effective, reliable, agile and so on than external service providers. And of course, getting IT to think and act as a services organisation where …

[haiku]

In my experience IT as a cost centre works well

IT was a cost centre in the company that I worked for in the late 70's, with all IT expenses reflecting on the companies' monthly financial statements.

All work for the other companies in the group was charged for on a fixed-price contract basis, with the other companies having the option of employing outsiders. So pencils were pretty sharp when it came to both quoting and delivering.

The first benefit of the system was that all companies - as part of the annual budgeting process - had to budget for their IT requirements, so we had a pretty good idea of what was coming, and could plan accordingly.

More importantly, however, was the fact that all work was going to reflect on somebody's budget. So the 'customers' made sure that everything was specified correctly 'cos, if not, they were going to blow their budget on re-work. Ditto the IT department if we screwed on a development.

And asking the Group Financial Director for extra funds was, to put it mildly, not something one did twice ... 8)

[Anonymous Coward]

"What matters is the amount of money flowing out of the company."

Not if what you get for your money turns out to make it harder to run the business. Bean counters sometimes appear to want caviar for fish-finger prices. The problems of being unable to get the information or response you need from an eternal IT supplier can be very damaging when things go critical.

[SImon Hobson]

> Bean counters sometimes appear to want caviar for fish-finger prices

Ah yes, there is nothing that can survive letting the bean counters loose on it.

[Doctor Syntax]

"Not if what you get for your money turns out to make it harder to run the business. Bean counters sometimes appear to want caviar for fish-finger prices."

I've always thought that the best response to this attitude is 'OK, we'll turn it all off for a week to see how much money you can save.'

[chezzbian]

In the right business

Is this just a case where the original business takes a back seat or just dies off because of the excitement of the new fad? It has happened before.

Yes, let's look at HR as a profit centre. please. What use are they apart from management apologists and an in house staffing agency, talk about ripe for outsourcing.

[Hollerith 1]

Re: In the right business

I notice that fewer and fewer of an HR team in any organisation actually helps with, say, new joiners or those leaving or issues around holidays and pensions. There are stacks of them doing...what? One place I was at had in-house training (i.e. bought in my HR, who scheduled it), but that was so much work that they outscourced the lot, and eventually made it everyone's personal task to go find their own training. All those 'training managers' are still at desks. Doing what??? One of the great mysteries of the modern age.

[P. Lee]

Re: In the right business

HR is an odd split of strategic and tactical. Many companies have outsourced payroll which often works well, especially in smaller organisations. Mostly they are there for management support, not employee support.

What HR should be doing is stuff like resource continuity and succession planning, coordinating legally and company mandated training / compliance programmes, educating managers on how to handle various situations (and coordinating with legal support on personnel issues), designing/implementing performance review systems. I wouldn't expect too many HR-employee direct interactions. You'd be surprised how many managers give employees good reviews so they don't feel bad, but then try to fire them for incompetence. HR is there to stop that kind of thing because it (a) isn't fair (b) is illegal in most places and (c) is probably going to cost the company in a lawsuit.

[Otto is a bear.]

Cost and Success

In my experience, companies who view IT as just a cost, tend to get poor value and little, if any advantage from IT. British companies are particularly good at doing this when compared to the rest of the world.

Where IT is considered a benefit and an enabler for the business, then success usually follows, as IT is used to provide innovative solutions to business problems, and to generate more business. Let's face it, how many retailers thought of having a web store before Amazon came along, most did it because they had too to survive, not as a way to grow their business ahead of their competitors.

Where we, as an industry seem to fail, is in showing management the opportunities technology provides. Where management fails, is listening, and understanding. It always seems strange to me that in the UK the boards of companies are made up of finance people, when the Sales and Marketing people usually what the customers want and how to deliver it, the product developers how to make it, and IT how it all works together, yet rarely do you get a CEO or Chairman who knows squat about the business of the company. They also tend to put finance people in charge of operations, to control costs, but not understand how the costs are generated, or relate to the quality of the products. Me, I'd put an IT person in, as our job is to translate the technical into the business, which has never been a bean job.

[Mark 85]

Not a bad idea on the surface but reality stinks.

There's still a learning curve to this and it's painful. Our company bought into the idea of IT as a service. Early on, all departments were charged based on usage. A little later, some had to be charged more (such as marketing) because what they wanted hit our resources heavier than other departments. Then we started acquiring "related companies" and things spiraled out of control. They merged our systems and ended up with us hosting them and fielding all service calls. The problem was that our systems and programs were many and varied and dealing with support was a struggle. To bring in more in-house, was/is beyond mere mortals. Instead of increasing staff or dedicating staff for the additional workload, the profit motive kicked in and we actually lost staff as we had to make a profit.

As a cost center, we could justify increases in staff for workload, same for systems, etc. As profit-center.. we're screwed.

Beancounters.... meh... kill 'em all and let <$DEITY> sort 'em out.

[P. Lee]

Re: Not a bad idea on the surface but reality stinks.

It probably depends on what your company does. If it acquires lots of other companies, you probably do want an tenancy-capable system to aid progressive integration.

Interestingly the arguments proposed against over-spec'ing are the same as those faced by cloud providers. Do they have massive spare-capacity? Who's paying for that? For smaller companies its a relatively smaller issue. Only using 20% of a dual xeon box is probably neither here nor there because hardware at the low-end is very cheap indeed. Pull one CPU and halve your MS/VMWare costs. Using 20% of your superdome or twelve-rack blade farm is a larger problem. Did you buy an extra 2x1Gb NIC? No problem. Did you buy an extra 2x40G NIC? That's a much larger problem.

The art in IT is to get the balance right between custom, efficient technical solutions and standardised managerially-efficient solutions. In-house IT generally allows the former, whereas the cloud sides with the latter. It isn't just "cloud" which gives you generalised IT. Outsourced IT will generally give you a generic framework which may have been deployed to your competitors IT systems too. If you rely on IT for competitive advantage you'll need to retain IT expertise in order to direct your outsourcer... in which case, you need to be very clear on why you are outsourcing and how it helps.

Much is made of "elasticity" in the cloud, but most IT requirements in companies are fairly stable on a trend. "Elastic" maybe helpful on a trial, but compute is cheap. If deployment is too slow or expensive, you probably need to rethink your infrastructure and/or procedures. Yes, you need to over-provision, but tin is cheap. Watch your support costs and licensing costs.

[Doctor Syntax]

Re: Not a bad idea on the surface but reality stinks.

"Then we started acquiring "related companies" and things spiraled out of control. They merged our systems and ended up with us hosting them and fielding all service calls. The problem was that our systems and programs were many and varied and dealing with support was a struggle."

It looks as if the costs of integration should have been considered before the acquisition and allowed for in the price paid.

[Mark 85]

Re: Not a bad idea on the surface but reality stinks.

What you say is very true. Our CEO thinks he's smarter than anyone else. Sets up deals for outsourcing without consulting anyone. Our CIO, after 5 years of stomping out the CEO induced fires has had enough and leaving. Luckily, I'm only there for 2 days every week and it will soon be 0 days. I could tell stories to curl one's hair... like signing an outsource deal with the mainframe company for "support" and letting all the devs, techs, and operators go. Or merging several disparate systems (again outsourced) and after spending about $250,000,000 the damn thing didn't work. He insisted on going live and it damn near brought the company to bankruptcy.

No, it's not a public traded company as all the shares are held by the board and it's a 'good old boy" group who thinks he's a god because there's profit and bonuses every year.

[nilfs2]

Can't blame the bean counters

Most companies IT departments I know waste a lot of money on stuff they don't need, or to meet goals that could've been achived a lot cheaper, specially on big companies and government, where IT managers get bribes from vendors.