Anita Cassidy, president of IT Directions and coauthor of "A Practical Guide to Reducing IT Costs," has seen the damage that chargebacks can do. "Although charging back IT costs can discourage frivolous spending," she acknowledges, "I've seen it create too many undesirable results.
"I watched one company make several poor strategic decisions for the enterprise as a whole," she adds. "Because of its chargeback system, its managers were more concerned about reducing their individual costs than doing what was best for the enterprise. I watched another significantly increase shadow costs and inefficiencies within the business. Chargebacks had a chilling effect on using the central IT services."
Chargebacks are an attempt to use market forces to regulate the supply and demand for IT services. If that's the best a business can do, it means the business has no strategy, no plans, and no intentional way to turn ideas into action.
In my firm's consulting work, we discuss these concepts on a regular basis. Not only CIOs, but also our clients' business leaders express relief when we provide alternatives to internal customers, chargebacks, SLAs, and all the other baggage associated with the "standard model."
The alternatives begin with a radically different model of the relationship between IT and the rest of the business -- that IT must be integrated into the heart of the enterprise, and everyone in IT must collaborate as a peer with those in the business who need what they do.
Nobody in IT should ever say, "You're my customer and my job is to make sure you're satisfied," or ask, "What do you want me to do?"
Instead, they should say, "My job is to help you and the company succeed," followed by "Show me how you do things now," and "Let's figure out a better way of getting this done."
Governance, not chargebacks
Cassidy sees proper governance as the superior alternative to using chargebacks to set IT's priorities. The company's leaders have to collaborate to determine how funds are spent, or the company won't be able to set and implement a strategic direction. "This results in a more productive and effective organization," she says.
When IT is integrated into the heart of the enterprise, its priorities aren't defined by who has the budget to spend (by chargebacks). Rather, they're defined by a company leadership team whose members have a shared purpose, who understand what the company must do to achieve that purpose, and who understand the role new technology will play.
That's what proper governance requires: effective leadership. It's the hard work of turning the company's top executives into a team that agrees on strategy and turns it into a plan for coherent action. IT's priorities are built into that plan. They aren't bought and sold by whomever plays the budget game best.
The superior alternative to IT projects
When IT runs as a business, it "sells" software that "meets requirements" to its "internal customers." Because its product is software, it has no choice -- it has to ask the wrong question: "What do you need the software to do?"
Asking business managers to describe what software is supposed to do is the unavoidable consequence of a relationship in which IT's job ends with delivering software to its internal customers -- in which projects are considered successful when software is installed, users are trained in its operation, and using it to improve the business is someone else's problem.
Companies that have integrated IT and no internal customers define success differently.