Monday, March 07, 2016
Running IT like a business is good but are you prepared to lose your customer and money ?
I received a phone call from a CIO friend wanting to talk over a drink, which I agreed to since he was good company to be with. When he arrived I could see he was internally raging; he looked shades of red I did not know he could. Without asking he started: What does he think ? Asking me to justify why I am getting paid what I am getting ! Cut cost, reduce expenses, my business does not want expensive IT and highly paid staff ! This is even when we benchmark against the industry with lowest cost of providing IT.
He had been in a meeting with one of the business unit heads who had given him the run down on the annual IT costs that were charged back to each business unit. Within the diversified group for which he was the CIO, chargebacks were a way of life; for every support function, there were different metrics based on revenue, headcount, transaction volume or profitability. Every year there was a negotiation with the business on support costs; the previous year not having gone well, the discussions now were loaded.
In the early days of evolution of IT and the CIO role; few companies had broken out by carving their IT departments into separate entities; it became a fad with many attempting to replicate success. Entrepreneurial spirit fueled by case studies gave a ray of hope to aspirants. Quickly the trend disappeared with boom and bust giving fertile minds an opportunity to create a new goalpost. Run IT as a business – became the new mantra and it caught the fancy of some CIOs who otherwise struggled to stay afloat.
How do you run IT as a business ? The hypothesis created by some consultants revolved around charging a fair price for all the services, solutions, technology, business as usual, keeping the lights on, running the innovation lab, providing training, fixing the printer, any touch point that required parts of the IT organization in whole or bits to take any action, triggered by an event or otherwise. Charges were calculated based on simple and complex formulae depending on the creativity of the CIO and indulgence from the CFO.
Chargebacks became a discussion, debate, and topic of angst for many customers of IT (even though internal). Quality of service and Service Level Agreements became the metrics for measurement putting some IT teams in a spot. If I am going to pay (even notional), then I am fair in demanding not realizing that before it became explicit, they were anyway paying in adjustments done by the CFO for all support functions. Negotiations started on why the price is not lower, expecting justification for every line item as experienced by my friend.
Consultants then convinced Management to outsource the entire IT organization to experts offering efficiency of scale, repeatability and predictability to process, tools and technology enabled remote support and fix, again shrinking cost per unit. The big wave of outsourcing promised the moon with numbers that convinced Boards to give it a serious look. IT is not your business or core, so create complexity to manage; give up to the experts, focus on what matters. CIOs struggled through this phase balancing cost and deliverables.
Downturns offered reality check; long-term contracts became sparse, enterprises reflected on the gains which were not as rosy as they had been painted in the beginning. The CEO of IT services or the CIO suddenly had a crisis at hand with ever demanding but dissatisfied customers; changing technology landscape, evolving and opportunistic business models threatened the uneasy balance, with the realization that neither had a choice of providers or customers. It was fragile truce which required maturity rarely observed in corporate world.
The devils choice extinguished the discussion for many enterprises though a few continued to tread down the uneven path. Changing business dynamics have now redefined the platform from running IT as a business to running business with IT. The new paradigm led by the now mature business savvy CIO is raising the bar; they are not interested in running IT or taking a subservient position, they want to run the business and they are succeeding. I believe that CIOs can safely drop the games and achieve heights they truly deserve.
My CIO friend wiser after the discussion offered services from external large providers as an alternative and benchmark to the CEO, willing to give up his team should there be commercial gain for the business. Accepting the offer the CEO wholeheartedly supported the exercise and participated in the discussions investing time and effort as he learned about the complexity of managing IT. Three months later he signed the paper with the CIO realizing that he had a good deal to begin with.