One trend that we’ve noticed is that organisations are typically very poor at organising themselves to create good cross-charging schemes for the supply of internal IT infrastructure or IT shared services, and often only have a very coarse-grained view of what the provision of these services really cost. At an individual change project level, this makes it impossible to make educated judgements about the likely ‘run’ cost of a solution, and so the architectural trade-offs that have to be made must be sub-optimal.
An explanation I’ve heard in the past for this is that the internal accountants just don’t “get it”, but that’s never rung quite true with me. I read an interesting suggestion on the cloud computing Google group for another reason – that if internal IT managers did accurately define the costs of internal shared IT service provision then they would be opening themselves up for direct comparison with external providers of equivalent services, so it’s a defensive mechanism basically. They don’t want a Cx0 coming to them saying “OK – you change me £x per service call, but I can get them for £y from [substitute your favourite cloud/SaaS etc offering here]“…
June 4, 2009 at 10:47 am
I worked for a large telco that did attempt to address the problem of accurately defining costs, or rather the benefit, and used the idea of return on investment (ROI).
My perception was that it was very hard to do with any kind of accuracy, especially with long timelines.
I do agree there may well be a fear of direct comparison. But I also wonder how far it is really possible to compare equivalents. For example, can you ask your internal IT department respond to an RFP?
July 13, 2009 at 6:35 pm
Count me in amongst the people who believe that this is definitely an accounting and reward structure issue.
The ‘nervous’ CIO explanation might have some credence if there were not a set of other similar malaises which spring from accounting – like the annual budget cycle: “I’ve got £££ and I’m going to spend it, even though I cannot get anything worthwhile. If I don’t use it, I’ll loose it”.
Another example is the difficulty in getting money for a cost-avoidance programme. You can often fund a programme for direct savings (e.g. FTE reduction), but hardly ever to avoid some future spend.
The issue is that in order to provide a metered service, some investment is required – not least to install the meters. Then the benefit of paying per use has to be sold to the business, who normally do not have to pay (directly) for any of the rest of their estate. That’s a hard sell. It is only an easy sell when the on going cost of not sharing becomes explicit.