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Run IT Like a Business, Not As a Business

post by Chris Curran on January 25, 2010
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Get it Just Right by Jaci Berkopec

A recent InfoWorld article by Bob Lewis questions the IT organization concept of “running IT as a business.”  Paraphrasing, he poses several problems with it:

  1. No one inside your company is your customer
  2. IT’s costs are always higher than external options
  3. Building software that “meets customer requirements” is short-sighted and reactive
  4. Software product focus limits enterprise wide thinking and shared investment
  5. It creates more organizational and relationship barriers and is seen as a vendor not a partner
  6. Running IT as a business implies that chargebacks are used and are often used as a substitute for good management and governance

While I agree that many of these would be problems with an IT organization who takes the “run IT as a business” to the extreme, very few organizations out there have actually attempted that.  Instead, they have tried to become more “business-like” in their attitudes, strategies, planning, investment analysis, project management, measurement, etc.  The primary goal in “running IT LIKE a business” is to improve the business-IT communication (I hate that “business-IT” thing, but we have to deal with it for now…) and reduce the translations from business need to value delivered.

I would also argue that any software or services business organized like Lewis suggests wouldn’t be in business for very long, and therefore, it’s a worst-case model.  Most decent businesses (and IT organizations) have learned how to treat their customers as more than transactions, bring ideas to the table, have meaningful design discussions, and understand that innovation is critical to growth.

The Business of IT

So, instead of trying to apply “run IT as a business” literally, what can an organization do to improve its business savvy and think more like other parts of the business?  Here are some ideas based on what Diamond has seen from successful IT organizations:

Area IT Centric Business Savvy
Planning

Driven by individual requests and annual budget cycle

Multi-year roadmap linked to business capabilities
Architecture

Focused on technology platform

Focused on the enterprise’s products and services
Service Level Management

Reports IT metrics, like 99.999 uptime

Reports business metrics, like “generated 12,340 bill this cycle”
IT Staff and Organization

Point people assigned to business functions and apps

Business and IT teams are co-located and integrated; IT leaders part of business leaders’ management teams
Project Justification

Subjective or loose business cases; all projects treated as ROI generating

Consistent business cases across the enterprise; match expected value to type of project (ROI, pilot, infrastructure, etc.)

Lewis and I agree on at least one thing: IT should become more integrated with the business, not less.  Running IT like a business is all about that.

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  • Chris,

    So true! What happens when IT departments try to run themselves as a business is they often times find themselves outsourced to a 3rd party whose business it is to run IT as a business…

    Whether it’s called alignment, integration, convergence, or whatever - the key is to have proper communication, understanding, and a mutual dependence on each other for success.

    Glenn

  • Chris,

    So true! What happens when IT departments try to run themselves as a business is they often times find themselves outsourced to a 3rd party whose business it is to run IT as a business…

    Whether it’s called alignment, integration, convergence, or whatever - the key is to have proper communication, understanding, and a mutual dependence on each other for success.

    Glenn

  • Excellent points, Chris. With the emergence of cloud computing, and as SaaS offerings specialized to various industries and business functions get more mature, IT organizations may want to rethink the idea of operating as a business when interacting with their business partners.

    Most IT organizations face the risk of being sidetracked for an Cloud offering by a third party that can compete on costs. IT organizations need to focus on their strengths - the intimate business context they have, and position themselves as a strategic partner to the business. Operating as a business in their interactions with their business counterparts comes with a great deal of risks.

    CIOs that operate their IT organizations like businesses, that track their costs based on business value delivered have an advantage. For instance, employing the concept of Activity Based Costing (ABC) to their costs, where IT costs are mapped to business activities, eg. IT cost per trade is $0.17 or IT cost per policy renewal is $0.50 (see http://blogs.hbr.org/sviokla/2009/07/it_costs_do_you_speak_their_la.html), allows CIOs better insight into the business value generated by IT. This can help CIOs focus on optimizing the allocation of resources to those activities that generate value, enabling IT to transition from being a cost center to becoming a value-driver.

  • Excellent points, Chris. With the emergence of cloud computing, and as SaaS offerings specialized to various industries and business functions get more mature, IT organizations may want to rethink the idea of operating as a business when interacting with their business partners.

    Most IT organizations face the risk of being sidetracked for an Cloud offering by a third party that can compete on costs. IT organizations need to focus on their strengths - the intimate business context they have, and position themselves as a strategic partner to the business. Operating as a business in their interactions with their business counterparts comes with a great deal of risks.

    CIOs that operate their IT organizations like businesses, that track their costs based on business value delivered have an advantage. For instance, employing the concept of Activity Based Costing (ABC) to their costs, where IT costs are mapped to business activities, eg. IT cost per trade is $0.17 or IT cost per policy renewal is $0.50 (see http://blogs.hbr.org/sviokla/2009/07/it_costs_do_you_speak_their_la.html), allows CIOs better insight into the business value generated by IT. This can help CIOs focus on optimizing the allocation of resources to those activities that generate value, enabling IT to transition from being a cost center to becoming a value-driver.

  • Chris
    On similar lines:

    The Limits of Running IT Like a Business:

    http://www.dominicbarrow.com/documents/Articles/The%20Limits%20of%20Running%20IT%20Like%20a%20Business.pdf

    Chris Potts

  • Chris
    On similar lines:

    The Limits of Running IT Like a Business:

    http://www.dominicbarrow.com/documents/Articles/The%20Limits%20of%20Running%20IT%20Like%20a%20Business.pdf

    Chris Potts

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