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IT Departments: a Cost or a Profit Center?

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It Departments: a Cost or a Profit Center?

To understand this paradox we must return to the various organizational models of IT, analyze what their key missions are, and wonder about the CIO’s real role. Indeed, the scope of responsibility and influence that IT departments have may vary dramatically from one organization to another, but it is possible to identify 3 common ways that IT departments are organized, corresponding to very different levels of responsibility.

The supplier: in this model, IT supports users’ business needs; IT is in a typical "customer-supplier" relationship. IT teams are not directly involved in solving the enterprise’s business challenges. The relationship between IT and users is not really structured.

The IT service company: in this intermediate model, IT acts as an internal IT services company, operating in the context of a catalog of products and services, which are subject to internal service level agreements (SLAs). The services delivered are usually billed to the different departments of the company.
What characterizes these two organizational models is the lack of proactivity and involvement of IT management in addressing the strategic issues facing the company. In both cases, the teams meet internal demands, but are not playing a leading role or even participating in the definition of the company’s strategic projects.

The innovation center: beyond the proper execution of an SLA, IT leads the “digital business transformation” by laying out how technology investments can support strategic business goals and put the company ahead of competition. In a video interview, Tim Elkins - CIO of PrimeLending, explains that it is no longer about aligning business and IT, but in today’s world IT and business are so intertwined that IT is the business. This means that IT leaders cultivate a business-centric agenda, understanding and anticipating business needs. To develop this knowledge they must proactively engage with business leaders, customers, employees and partners. They also need to understand how relevant technology products can help them successfully manage digital transformation.

According to Mark Blosh, Research Vice President at Gartner "Enterprise architects can provide unique capabilities to help CIOs develop a new agenda for 'hunting and harvesting' in a digital world."

As I mentioned in a previous post, digital transformation is a real opportunity for CIOs because they are better equipped to understand the technologies and their potential impact on business processes than anyone else in the organization.

This is the opportunity to establish a dialogue and build a strong partnership with other business leaders, which alone can reinforce and consolidate their legitimacy within the executive committee.

It is clear that the role and positioning of IT staff in the company has a direct impact on the perception of value delivered by the IT department.

When the IT department positions themselves as suppliers of technology, they are perceived as a cost center, with no clear return on investment. IT teams positioned as an internal IT service company will be seen as a profit center, offering a service billed to the different departments, depending on their consumption. Finally, only the innovation centers will be perceived as driving business value to the organization, and their performance will be measured based on their ability to contribute to the development of the company. It is usually in this type of organization that CIOs have a seat at the board and are involved in the shaping of the future of the company.

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MEGA

To understand this paradox we must return to the various organizational models of IT, analyze what their key missions are, and wonder about the CIO’s real role. Indeed, the scope of responsibility and influence that IT departments have may vary dramatically from one organization to another, but it is possible to identify 3 common ways that IT departments are organized, corresponding to very different levels of responsibility.

The supplier: in this model, IT supports users’ business needs; IT is in a typical "customer-supplier" relationship. IT teams are not directly involved in solving the enterprise’s business challenges. The relationship between IT and users is not really structured.

The IT service company: in this intermediate model, IT acts as an internal IT services company, operating in the context of a catalog of products and services, which are subject to internal service level agreements (SLAs). The services delivered are usually billed to the different departments of the company.
What characterizes these two organizational models is the lack of proactivity and involvement of IT management in addressing the strategic issues facing the company. In both cases, the teams meet internal demands, but are not playing a leading role or even participating in the definition of the company’s strategic projects.

The innovation center: beyond the proper execution of an SLA, IT leads the “digital business transformation” by laying out how technology investments can support strategic business goals and put the company ahead of competition. In a video interview, Tim Elkins - CIO of PrimeLending, explains that it is no longer about aligning business and IT, but in today’s world IT and business are so intertwined that IT is the business. This means that IT leaders cultivate a business-centric agenda, understanding and anticipating business needs. To develop this knowledge they must proactively engage with business leaders, customers, employees and partners. They also need to understand how relevant technology products can help them successfully manage digital transformation.

According to Mark Blosh, Research Vice President at Gartner "Enterprise architects can provide unique capabilities to help CIOs develop a new agenda for 'hunting..."

As I mentioned in a previous post, digital transformation is a real opportunity for CIOs because they are better equipped to understand the technologies and their potential impact on business processes than anyone else in the organization.

This is the opportunity to establish a dialogue and build a strong partnership with other business leaders, which alone can reinforce and consolidate their legitimacy within the executive committee.

It is clear that the role and positioning of IT staff in the company has a direct impact on the perception of value delivered by the IT department.

When the IT department positions themselves as suppliers of technology, they are perceived as a cost center, with no clear return on investment. IT teams positioned as an internal IT service company will be seen as a profit center, offering a service billed to the different departments, depending on their consumption. Finally, only the innovation centers will be perceived as driving business value to the organization, and their performance will be measured based on their ability to contribute to the development of the company. It is usually in this type of organization that CIOs have a seat at the board and are involved in the shaping of the future of the company.