By Paula Rosenblum, Managing Partner
6/16/2009
I found an article called “Chargeback Process Delivers” while leafing through a magazine whose tagline reads, “The fusion of Business and Technology.” What I thought was an article about retail merchandise chargebacks turned out to be about a well-known multi-channel retailer’s implementation of an IT chargeback system. IT is a shared service across multiple brands, and the CIO bought and implemented a technology solution to help business leaders understand the costs associated with everything those brands ask the department to do. They’ve created “rate cards” to help users “see” how much it costs to support business applications and even to support new PC’s. In other words, everything IT does has a cost to someone else’s operating budget.
As former CIOs, RSR partner, Brian Kilcourse and I are familiar with the concept of charging back users for IT services. We both hold the view that they’re an out-of-date and dangerous way to drive business alignment. At best, a chargeback system helps you influence people without making friends, and at worst, can be a terrible way of justifying a bloated IT budget. In other words, IT chargebacks are a “solution of last resort” when all other attempts at alignment fail. They’re a poor substitute for real IT governance. They are also a very risky proposition. As Brian points out, “Once you’ve published your ‘rate card’, what’s to prevent business users from getting outside quotes? This is a sure way to encourage outsourcing of IT functions and it leaks productivity from IT and business users alike.”
Here’s an example (it’s really IT to IT alignment, but the point will be clear). Early in my career, while I worked at a now-dead company, our parent company’s IT department funded a lot of its IT Computer Operations expense with chargebacks from our smaller IT group. We were in fact, using part of their mainframe as a shared service. The parent charged us a monthly fee for systems programmers and computer operators maintaining and running their machine, along with a rate per CPU cycle used. It’s fair to say the rates were somewhat usurious and Help Desk support weak. PC’s weren’t an issue – they had yet to hit the mainstream.
My boss, the CIO of the smaller company, somehow managed to buy a small IBM mainframe out of his capital budget - but under the radar of the parent company. He hired one systems programmer to prepare the computer and bring over source code for compilation. One weekend, without any warning to anyone at the parent, we switched over all computer operations to our own computer in our own computer room. The flow of inter-corporate “funny money” dried up, and we managed to maintain our shop for far less real money than the funny money we’d been previously charged. I think our parent company IT department was shell-shocked. The source of funds for their IT budget disappeared. While it didn’t make us any friends at the home office, it did give us control of our destiny and better service for our business users.
We’re not unsympathetic to this CIO’s problem. His company had been on an acquisition spree, and all the acquired companies had their own systems they were unwilling to part with. Brian and I asked ourselves, “How does senior management feel about all this? What was the expectation for IT support after acquisition? Are those other systems really needed? And what’s the plan and impetus for consolidation? Where did the IT governance process go?”
Respondents to RSR’s recent report, IT and Business Alignment in Retail, did report the state of IT governance in retail is pathetic. While the business knows it is at least somewhat dependent on IT for future success, IT is generally left to fend for itself in driving business value, even (and especially) at the largest retailers. Value scorecards are generated either infrequently or are otherwise non-existent. The details behind budgets are reviewed rarely.
While this CIO has succeeded in fending off a barrage of requests, one has to ask, “Has he really added value to the business?” He may be feeling less pain, but the business may be growing sicker by the day.
The bottom line? An IT chargeback system may be a useful tool for some companies, but it’s a really poor way to drive IT alignment, and it may divert the attention of business users and IT alike from the critical business issues at hand – driving top and bottom line business improvements. Our vote: they’ve passed their prime.
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