His agency is trying a new approach now, built around a more collaborative relationship. "We currently have a large project where we have a partnership agreement with the agency," he says. "The agency is responsible for all business-side decisions, and we are responsible for the IT-type decisions. We were part of the RFP process to select the vendor, and we are working side by side with agency and vendor personnel. I think it is a model we will see more often in the future."
Architecture -- another victim of having internal customers
One 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," but more accurately described as "full employment for accountants."
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 percent of IT costs go toward keep existing systems running; only 30 percent 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.