There's an old saying that goes something like this,
"Don't tell me what you value. Let me see how you spend your money and I'll tell you what you value."
It's a very true observation that we can apply to IT and its relationship to the business. In most businesses, IT is 'funded' as a cost center through some form of a cost allocation. So for most companies, a quick look at their budget will tell you how they value IT - as a non-strategic, ill understood cost line item.
In part, this is because this is the way that IT has always wanted it. Just take all of those costs, bundle them together and spread them across the enterprise. It was easy and expedient, but hopelessly flawed.
The concept of an IT allocation has two primary flaws:
- It disconnects the payment from the service being provided
- It disconnects the service from the value being provided
In the first case, the budget allocation process disconnects the payment for services from the recipient of those services. In most cases, the person "paying the bill" has only a fleeting understanding of what those payments or costs represent. While they may be ultimately responsible, they are likely to be at the top of the food chain and therefore have little direct interaction with the services they are paying for. It's like if I'm providing services to Joe, but Sue is paying the bill. Because allocated costs get bundled together at such a high level, they become disconnected from the services they represent and that will always create an environment in which those costs are not understood and are undervalued.
In the second case, allocations completely disconnect the service being provided from the value being received by the recipient of the service. If IT was a restaurant, using the allocation model makes IT the "All You Can Eat Buffet." And at the "All You Can Eat Buffet" the quality is generally sub par and your customers are driven to take everything they can because they're paying the same no matter what. The 'buffet' of services become commoditized with all services having the same cost basis irrespective of the value they may provide to the user of the service.
These two flaws are a major cause of the 'dysfunction' often found in the relationship between IT and the business. They lead to the feelings often expressed in IT shops that IT doesn't get the respect it deserves, that IT is being commoditized and that IT has to fight tooth and nail for every budget dollar. So, why doesn't it change?
The challenge is that in order to fix this, IT has to fundamentally change how it does business. It needs to take a service oriented approach to its operations and it must develop financial rigor around everything it does. Doing so will enable IT to calculate, defend and 'charge' specific costs for specific services - which are described and measured in terms the business understands. (This is the Service Catalog concept as presented in ITIL.)
This change isn't easy. It means that every person in IT must focus as much on finance as they do on technology. It means that everything that IT does must be measured in dollars. And it will require significant financial and process rigor to make it work. But the IT shop that can successfully complete this transformation will be able to abolish the IT allocation model forever and deliver value-driven services to its customers.
