Your IT Department: Cost Center or Profit Center?

Summary:There's increasing pressure to transform IT into a business. What kind of transformation makes the most sense for your shop?

Justin James

Justin James

Cost Center

or

Profit Center

Dana Gardner

Dana Gardner

The moderator has delivered a final verdict.

Opening Statements

Most can't make it happen

Justin James: To be perfectly honest, I can definitely argue either side of this. I do think that IT departments can be a great profit center!

But that said, I feel that most businesses lack the foresight and long-term vision to make that happen. When the focus of most businesses is to use computers as electronic file cabinets and adding machines, it is hard to treat IT as anything but a cost center, because it’s not adding much value to the business.

It is rare to find organizations who can leverage IT to unlock real value and profit, and as a result, most businesses must treat IT as a cost center, because that is what it is to them.

And it is their own fault for not being innovative or having the right mindset.

IT is the business

Dana Gardner: We’re at a rare crossroads where IT will redefine itself and elevate its role. The impact of IT on business is deep, pervasive, and growing. We literally can't separate IT and general business.

The better any company exploits technology, the better they are at their jobs, knowing customers, working with partners, capturing markets, growing profits. IT is being called on to transform business, and to do so IT must transform itself, too.

Rather than remove IT in favor of cloud or SaaS -- businesses must embrace a larger role of IT as services broker. IT must be a profit center, enabling new business functions and efficiencies, guiding the way to new markets and services.

Already a new class of strategic IT organization is emerging, one that uses cloud, mobile, mixed-sourcing, strategic souring, ecommerce as core components. By delivering business services better than competitors -– even partners -- the modern value chain flows to them. Via innovation, they take more share, more margin, more opportunity.

IT is the business. Therefore IT is the profit center.

The Rebuttal

  • Great Debate Moderator

    Thanks for joining us

    Justin and Dana will post their closing arguments tomorrow and I will declare a winner on Thursday. Between now and then, don't forget to cast your vote and jump into the discussion below to post your thoughts on this topic.

    Posted by Jason Hiner

  • Great Debate Moderator

    Proactive IT vs. the right CEO

    In the final analysis, how much of this issue falls on IT to become more proactive versus the CEO having the vision to see IT as a business-enabler?

    Posted by Jason Hiner

    Both!

    IT can't do anything without buy-in from the business side. You need to have BOTH a proactive IT department and a visionary leadership team (not merely the CEO), AND open-minded employees who won't drag their heels and sabotage the process. That's a rare combination, and it's one of the big reasons why we don't see organizations transforming their IT as much as we see new organizations coming up that use IT to drive profits from Day 1.

    Justin James

    I am for Cost Center

    Dominance is the goal

    If the CEO can't or won't do it, than IT must. And if that's not in the offing, get out of that company ASAP because they're doomed. If ever there were a time when disaster was in the offing because a CEO was not open to better use of tech, and the tech people were too timid to push for change -- it's now. Let's face it, a lot of companies are not going to make IT a profit center, and they will be in trouble, and then more trouble. It will be very hard to transform a company that is dysfunctional in IT. On the other hand, companies that do IT well, that integrate the technically possible with the business necessary will be able to change and adapt. And they will hire that best minds that can build on the successes and go dominant in a big way. It's not just survival of the fittest, it's dominance by the most technology capable.

    Dana Gardner

    I am for Profit Center

  • Great Debate Moderator

    The role of the CIO

    Today's CEOs and CFOs are getting much more technically literate. Will this diminish or eliminate the CIO role in many organizations? If not, then how can a CIO provide value in this type of environment?

    Posted by Jason Hiner

    They still don't know what IT is or how it works, or what it can do

    Most CIOs and CFOs think they are becoming more technically literate. They aren't, not in relation to what it means to be "technically literate." In fact, things are moving so quickly, it is harder and harder for the IT department itself to be "technically literate!" Most CEOs and CFOs have learned a couple of buzzwords, discovered that a "server" is more than the person who brings them their meal at a restaurant, and that is about it. But the perception of technical literacy has become quite dangerous, these folks are now trying to make tactical decisions that they have no business making. There's a reason why most of the companies that are really leveraging IT to be a true profit center are IT companies themselves (or firms with a lot of engineering experience), and it is because they have leadership that gets IT, and IT is in their DNA. It's a lot easier for a company like Google or IBM to figure out how to use IT as a profit center than a company like a big box retailer.

    Justin James

    I am for Cost Center

    New CEO types wanted

    The CIO should become the CEO, that's the proper direction. The CIO is more important than ever, but they may also become the leader of the larger organization. I expect to see offices of the CEO comprised of a COO-CIO duo. When business operations, market strategy and IT knowledge are combined, big things can happen. The fact that CEOs have one come from sales and founders may need to give way to more technology savvy people at the top. Selling is important, of course, but making the strategy align with what the technology allows is more important nowadays. You need to have something to sell, and the products and services themselves are increasingly about technology. So let's get more techies in the corner office for more kinds of companies.

    Dana Gardner

    I am for Profit Center

  • Great Debate Moderator

    Skills and job roles

    For IT to become a profit center, what are the skills and job roles that are most important to fill with top-notch employees?

    Posted by Jason Hiner

    Where IT talks to business is most critical

    I think that business analysts, CIOs, and whoever leads your software development efforts are the key hires. All of these folks are where the business talks to IT, and without people in those places who really understand IT and who really know how to work with the business folks, there is no way these changes can happen. And this is a large part of my pessimism regarding the ability for most companies to turn IT into a profit center! They have had decades to get this right, and they still can't even roll out a new version of Office without a disaster, due to poor communications.

    Justin James

    I am for Cost Center

    Thick skin and big ears

    Super hero capabilities would be nice. But in lieu of Iron Man, leaders need to be what the late Steve Jobs had in mind. And that's a cross matrix of liberal arts and technology strengths. Leaders, in other words, need to be steeped in many areas, not a few. But being technology savvy is not longer an option for business leadership. It's critical. And the technology leaders can no longer just be good geeks. They need to understand the business, markets, end customers and competition. So the walls that separated the board room and IT department need to fall. People in IT need to have business experience, and vice versa. The dialogue needs to improve. It needs to be a business-IT scrum, not a hand-off. I know it sounds pollyannish ??? but people need to communicate beyond their core peers to break through the group-think.

    Dana Gardner

    I am for Profit Center

  • Great Debate Moderator

    Can IT make consumerization work?

    How is the consumerization of IT changing the equation, and how can an IT department turn this trend to its advantage?

    Posted by Jason Hiner

    Consumerization is a big driver and exposes the problems

    I think that the consumerization end of things is a big driver, because now the business folks are demanding that the IT department be more flexible. It was easy for IT to mandate that everyone use Outlook, or use a particular version of Windows, or have the corporate anti-malware installed, or whatever. But now, folks are saying, "hey, I need to be able to access this with the new and shiny thing I bought this weekend, make it work." And IT is being told to make it work, because half the sales team bought the new and shiny thing last week. And IT's inflexibility on this score has really brought to light just how badly most IT departments react to change and deliver the services that their users actually need and want. By learning to actually meet these needs, IT can take the first step in becoming a profit center.

    Justin James

    I am for Cost Center

    Lose the edge, control the center

    There's a risk on consumerization that may lead some to think that all IT can be outsourced, or that there are silver bullets. People being more productive on their own, using tools, apps and network access can be a bod enabler. But IT must temper this trend. Security and control are huge concerns, rightly so. The trick is to have IT steer the use of consumer resources for business purposes. IT cannot be seen as the bad guy, just saying no. But they cannot turn their back on the reality that mobile devices especially have changed the game. So learn about HTML 5, find the VPNs that work, virtualize apps and desktops. Virtualization of the end point is a huge win to allow consumerization while retaining control. I expect to see a lot more of this.

    Dana Gardner

    I am for Profit Center

  • Great Debate Moderator

    Perception vs. real change

    How much of this is about managing perception versus truly acting differently?

    Posted by Jason Hiner

    100% real change

    Absolutely none of it is managing perception. IT must act different to be different. Managing perceptions is a dangerous shell game, and it is basically what IT has done for a while now and folks are finally catching on.

    Justin James

    I am for Cost Center

    It's gotta be both

    It must be about both perception and measured results. And they will support each other. Measure whatever you can on how IT impacts business. Make the causal connections between a new application that improves a process and the results of the process. Use social tools inside the enterprise to do polls, to ask users to tell the good and bad abut what IT is doing. Like with app dev, do scrums in the ops side to determine performance and then share that back to the developers and forwards to the users. A lifecycle approach where there is visibility from IT in dev, test, use, requirements, etc. will help improve perceptions. It's sort of like what Deming did to manufacturing 20 years ago. Measure, tweak, measure, tweak, and kaisan things will happen. It's quality but goes beyond that because it brings more participants to bear. IT needs to be able to listen well to all its constituents. And we now have the tools to do that. Chatter of Salesforce.com is a great example.

    Dana Gardner

    I am for Profit Center

  • Great Debate Moderator

    The best opportunities for IT to lead

    Where does IT have the best opportunities to lead business transformation?

    Posted by Jason Hiner

    Depends on the organization and the people

    I really think this depends on the organization and the people. Which departments have the foresight and willingness and open-mindedness to work hand-in-hand with IT? Which employees are willing to make the decisions to go ahead, knowing full well that the process is going to possibly cost a lot of people their jobs? That's probably one of the biggest issues, folks know in the back of their heads that a push to modernize can cost jobs, which not only hurts employees, but can reduce the internal "juice" or "stroke" of a manager as their budget and headcount shrink.

    Justin James

    I am for Cost Center

    Change the culture

    IT must pick its first battles very carefully. It's essential to show benefits early on to get buy-in later, and make those perceptions shift to the goodness of IT. So find a pain point for the leadership ??? Perhaps it's visibility into some business process, or ability to use data better and faster. Business leaders love a good chart. Make them see that IT is making data, analytics and dashboards a priority. Or find a problem that impacts those tasked with business development and fix it or offer suggestions. IT needs to proactively court those that are building the new business winners and engage with them. It has to be more than repaving cow paths and replacing older servers. Show how business transformation and IT are linked, then gain more attention to be able to input on what IT can do early on in the business planning. This helps IT manage expectations, rather than have to say NO after the business requirements have been set. Another strong approach it to make sure that IT has a seat on the board or to try and encourage the board to bring in people that have done IT-business transformation well elsewhere. It's a culture thing, as much as anything. And people change culture.

    Dana Gardner

    I am for Profit Center

  • Great Debate Moderator

    The switch to profit center

    What kinds of things can IT do that can enable it to be perceived as a profit center?

    Posted by Jason Hiner

    Innovate, be responsive

    Innovate to meet the needs of the organization and reduce the friction. Here???s a good example: most companies view the accounting department as a cost center, a necessary evil. Then you get a company like Apple, who puts a lot of really smart accountants and lawyers to work, and they come up with revolutionary new ways of exploiting loopholes in tax laws, and all of a sudden, the accounting department is adding BILLIONS OF DOLLARS to the bottom line. They transformed the ???cost center??? accounting department into a ???profit center.??? How many IT departments are doing the same kind of thing? Not many. They are too focused with replacing a handful of low-wage employees with an application written and maintained by a high wage developer, running on expensive servers maintained by high wage IT staff.

    Justin James

    I am for Cost Center

    Outside the box

    IT can explain how the fast-chaging world of IT brings new business opportunity. So IT needs to think like an entrepreneur and act like both a visionary and pragmatists. How can a business nowadays succeed without a sense of invention of what's possible vis vis cloud, mobile, big data, social? There are huge trends roiling business and they are largely of, for any by technology. And so technology has to be key to how to react. In a word, IT needs to educate the business on what's possible, to say, yes, while also not under-estimating the complexity, cost and skills requirements. IT can't shirk the role of inventor, but it needs to do so based on what's doable.

    Dana Gardner

    I am for Profit Center

  • Great Debate Moderator

    The cost center perception

    What are the things IT does that leads to it being perceived as just a cost center?

    Posted by Jason Hiner

    Where's the beef (value and ROI)?

    That's easy... most IT departments consistently fail to deliver value! When all you've done is replace the intraoffice mail system with email and IM, and replaced the filing cabinets and accounts ledgers with databases and applications, all for a price so expensive that you wonder if it wasn't cheaper to just pay people to do it instead, then of course IT doesn't look like a profit center. And it isn't. And when folks offer suggestions on how to improve it, the IT department likes to say "no." Sure, they usually have a good reason for it, but it still feels like stonewalling to the business folks.

    Justin James

    I am for Cost Center

    Show your strengths

    When there is no connection between what the business does to succeed, and what IT does, there's a gap. IT needs to tie tech spend and business success together if the leadership does not. Reactive IT is likely to be perceived as holding the company back, while proactive IT is a business aid on its way to being an enabler. The enterprise architect often can make these connections and begin the process. Having enterprise architects is very helpful in bolstering the perceptions of IT, and in making the case to leadership that IT is the business. Also, IT needs to be at the strategy table to explain to leadership what can be done, or the best way to procure IT services. This is a key change, IT needs to be in the IT services procurement seat ??? Not be limited to what only they can do themselves, or in totally outsourcing IT. It's not either-or for the most agile companies. The right mix of IT in-house and mixed souring is the key decision for companies. It's a tough one, but those that find a means to achieve it will be in a stronger position.

    Dana Gardner

    I am for Profit Center

  • Great Debate Moderator

    The current state of IT

    A lot has happened to change the organization and mission of the IT department over the past decade. How would you characterize the current state of IT?

    Posted by Jason Hiner

    IT departments are in deep trouble

    Right now, a lot of IT departments are struggling to define their mission, struggling to be relevant to the business, and struggling to deliver real, provable value and ROI. Like I said in my answer to the previous question, the forces of the cloud and BYOD are really bringing things to a head, and I think that in the next few years, were going to see the small business model of IT - cloud services bolstered by a small cadre of on-site techs and a handful of part-time experts or consultants for the big stuff - start to move up the food chain.

    Justin James

    I am for Cost Center

    It's a pivot point

    The current state of IT is flux. There are lots of stakeholders with differing points of view. But the ability for IT to transition to a profit center vs. a cost center -- in both reality and perception -- will determine if IT is marginalized or made core to the business. And I firmly believe that almost any company of any size that makes IT core will have an advantage in terms of agility, lowering total costs, of relating to other innovators, of knowing their customers better and in analyzing their own opportunities well. It's essential for those that see IT as strategic and core to gain power and position to make the transition. They need to show early wins and provide trust in their capabilities. And a part of that will be knowing what aspects of IT to retain as on-premisis and controlled and that which should be sourced otherwise. Incidentally, Justin, I don't think IT has had a stranglehold on resources. That would be the wrong perception. The consumerization of IT and more tech savvy leadership will be the end of the dark science control that IT may have had.

    Dana Gardner

    I am for Profit Center

  • Great Debate Moderator

    How critical is this topic today?

    We've been debating this concept for over a decade. How critical is it right now and what are the issues that are moving it to the forefront of the discussion about the role of IT?

    Posted by Jason Hiner

    More important every year

    I think that every year this question becomes more important, and it may be heading to a tipping point scenario. Why is this happening? Well, a lot of it is that IT has become so pervasive, and a lot of it is that the IT department is losing its stranglehold on the corporate IT resources, now that individuals can BYOD and departments can source IT from the cloud. This forces IT to work harder and smarter within the organization, when in the past they could adopt an attitude of, this is what were giving you, and you had better like it! like they did in the past.

    Justin James

    I am for Cost Center

    Timing is great, no time to waste

    The old debate about whether IT is productive and how much is different. We're now at the juncture of IT being of a different value and role. For example, before Amazon Web Services, aka Amazon's public cloud, IT there was a cost center, enabling their online retail and business functions. Now, IT is a profit center, adding entirely new revenues to Amazon in the form of paid cloud services. I'm seeing companies now following that model, taking their IT capabilities and making them the product, of combining their digital services and market insights to forge whole new services, and bringing in whole new revenues. So the discussion has changed. It's not how will IT support the old business, it's how is IT able to create new lines of business.

    Dana Gardner

    I am for Profit Center

  • Great Debate Moderator

    Mic check

    Are both my debaters online and ready to roll?

    Posted by Jason Hiner

    Yup!

    I am here.

    Justin James

    I am for Cost Center

    Yes, indeed

    Here

    Dana Gardner

    I am for Profit Center

Closing Statements

Let's be realistic

Justin James

 

Reading and re-reading our debate, I think that Dana and I are in agreement on most of the fundamentals here. We certainly agree that IT cannot deliver value or ROI (the things needed to shift from “cost center” to “profit center”) unless the business knows enough about IT to really use it; and IT cannot be responsive enough to business to let this happen unless they have open ears and open minds.

If you look at our responses regarding the kinds of key hires needed, you’ll see that we’re both talking about the need for IT to be ingrained at the top and for the top of IT to be oriented towards partnering with the business.

Unfortunately, I have seen scant evidence to suggest that many companies can do this. They lack the leadership and vision. They treat IT like expensive janitors. And there is nothing wrong with that. If all you want is to “keep the lights on” an IT department can do that for you, and you don’t even need to hire top talent to make it work. Unless you are in one of the rare companies that can truly use IT to transform their business (a “profit center” kind of IT department), then you need to be honest and realistic about it, and that means treating it like a “cost center” and trying to minimize its damage to you budget.


 

It's about creating new business

Dana Gardner

The lines are blurred between businesses and IT as never before. Nearly all businesses need to exploit IT to grow and compete. IT needs to transform into a profit center mentality to allow the business then to thrive.

Success nowadays is not just survival of the fiscally fittest, it's about gaining dominance by bring the most technology capable. Let's face it, a lot of companies are not going to make IT a profit center, and they will be in trouble, and then deeper trouble. It will be very hard to transform a company that is dysfunctional in IT.

On the other hand, companies that do IT well, that integrate the technically possible with the business necessary, will be able to change, adapt and compete.

I'm seeing companies now following that model, taking their IT capabilities and making them the product, combining their digital services and market insights to forge whole new services, and bringing in whole new revenues.

IT needs to be at the strategy table to explain to leadership what can be done, or the best way to procure IT services to the same ends.

So the discussion has changed. It's not how will IT support the old business, it's how is IT able to create new lines of business, to be a driver of new business development.

 

IT's best days still ahead

Jason Hiner

This week's debate turned into a highly useful discussion about how IT got itself into its current mess and what it can do to dig itself out. Both of the debaters offered analysis that was right on target and that yielded a set of useful insights that our readers can use to better understand the situation and start driving useful changes immediately.

Justin did an excellent job of pinpointing many of the attitudes and approaches that are to blame for IT getting the reputation of a cost center and thus being targeted for cost cuts. On the other hand, Dana provided the vision for how an IT department can break out of that scenario, bring game-changing value that impacts revenue, and establish itself as a critical resource for making the company faster and more innovative. The real winner here is the reader who gets the benefit of some excellent insights from both commentators. But, since I think IT's best days are still ahead, I'm going to give Dana the nod for this debate. 

Topics: Great Debate

About

Jason Hiner is Editor in Chief of TechRepublic and Long Form Editor of ZDNet. He writes about the people, products, and ideas changing how we live and work in the 21st century. He's co-author of the upcoming book, Follow the Geeks (bit.ly/ftgeeks).

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