The pros and cons of treating internal IT like a business

An initiative called IT4IT, from industry consortium The Open Group, aims to establish a framework to enable CIOs to run the IT department like a business, servicing other parts of the business.

IT as an internal service provider looks attractive and IT4IT's programme represents one of several frameworks that helps IT become more business-focused. It joins others – such as Cobit (Control Objectives for Information and Related Technology) and ITIL (IT infrastructure library) – in attempting to link the work IT does with business outcomes.

From a purely IT management perspective, the CIO needs a grasp of how much effort, in man hours of work and the cost of materials, is required to complete a unit of work. But often, the metrics IT uses bear little resemblance to something that matters to the business. In effect, the cost and people resourcing required to complete the work should corelate with the business benefit.

Dave Lounsbury, chief technical officer and vice-president of services at The Open Group, said: "IT has a lot of material on how you solve particular problems. What it lacks is a model of how to look at IT as a business.” Running IT like a business means the IT department needs to become a business asset. “In a modern enterprise you have assets and value streams." IT needs to find its competitive advantage, he added.

This competitive advantage, to quote the economist Michael Porter, can either be achieved through operational efficiency or by differentiation.

Organisations using IT4IT include oil company Shell. Shell uses IT4IT to improve interoperability in a multi-supplier environment by providing greater control through insights into the cost, value, risk and performance throughout the IT lifecycle.

Speaking last year when the Open Group originally announced IT4IT, Scott Wahl, CIO at Shell global functions and IT4IT decision executive, said: "In our industry, control of the end-to-end IT value chain is mandatory."

However, understanding value is not without risk. Brinley Platts, founder and chairman of CIO Development, said: "The IT department as a profit centre became very voguish for a while in the market-test era of the 1990s, before simpler solutions like outsourcing and offshoring became widespread."

While it may be a great idea on paper, Platts said: "IT as a profit centre within a host organisation either fails or becomes transitory because its leaders want the right and make the argument that they would be even more cost-effective if they could take in business from outside."

Platts argues that if a product or service has a price then it becomes transparent and has to be justifiable whether or not the buyer has any real choice in the purchase decision. This immediately exerts a downwards pressure on pricing and forces the supplier to demonstrate competitiveness, he said. "CEOs may love this but CFOs know that the problem is not usually transparent prices – it is transparent costs and, without a major effort around activity costing, it is often impossible to know what things truly cost."

A service catalogue can go some way to make IT more transparent. An extensive service catalogue can work like an enterprise app store, holding all the IT products and services available to the business.

But as Platts points out, big costs are bound up in infrastructure services that have to be shared in some arbitrary way. This is why the cost of a user’s company email address can amount to £1,500, which makes no sense to a business person used to buying the equivalent IT service for significantly less.