Your IT Department: Cost Center or Profit Center?

Moderated by Jason Hiner | May 7, 2012 -- 07:00 GMT (00:00 PDT)

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.

Talkback

29 comments
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  • Depends on the IT department

    Most IT departments exist for the purpose of continuing the IT department. Some very small number of IT departments exist to do exactly what the business needs to be successful in business, and listens attentively to do exactly as asked, and no more. As soon as IT starts making up solutions for the business, the business itself does not know what to do and has given up. IT can't buy itself out of the lack of this knowledge, but it usually tries by purchasing something based on a huge Oracle-based platform. This is exactly the point where the productivity curve peaks and starts to fall back.
    Tony Burzio
    Reply Vote I'm for Cost Center
    • Depends on the executives and the board

      The executives need to define their strategy. Once that's completed, IT can come in and help align the IT organization to support those strategies.

      Otherwise, it's just IT thinking what's best for the company and becomes the tail wagging the dog.
      matthewboh
      Reply Vote I'm for Profit Center
      • Does your company have a strategy?

        Most industries leverage IT these days. If you leave the IT requirements up to non-IT people, you may find your IT resources are not aligned correctly. Align correctly. Make IT responsible for revenue and costs. Either embed IT into each revenue area, or manage as a cost center to drive it's own agenda.
        rch07860@...
        Reply Vote I'm for Cost Center
    • You are talking about IT and business leadership

      ... ask any one of us 'plebbs' in IT to help and we will and CAN help. We don't choose the tools we are given.

      "Most IT departments exist for the purpose of continuing the IT department."
      This sort of derogatory comment is completely lacking perspective. Most of my users are still confused by the photocopier and the applications that they use EVERY day. What do you think the workforces chances are without an IT dept to help?

      That is why we are here - to help augment other departments - and that is what we do.
      12312332123
      Reply 1 Vote I'm Undecided
  • Cost Center, but dont get lazy

    I think Tony is right to say that many IT departments are often self-serving and are inclined towards self-preservation rather than ensuring that the business gets what it needs. IT departments who continue to do that will eventually find that they make themselves irrelevant.
    For an IT department to prosper I think that it needs to be completely 'in bed' with the business - fully focused on what the company's needs are and always ensuring that it makes an objective choice between doing things in-house or outsourcing. If they don't do that they will find there are sharp-suited, smooth-talking cloud providers whispering tales of huge IT cost-savings in the ear of their CFO in no time!
    patrickbosworth@...
    Reply Vote I'm for Cost Center
  • One or the other depending

    If IT seems to be a law onto itself or self-serving it is in my view largely because the organisation does not have a clear strategy for IT governance and so it falls to the IT Department to determine its service delivery and to prioritize same.
    I think as a profit centre there is the best chance for agility, innovation and even cost effectiveness. However it is a perfectly ligitimate requirement of an organisation to perceive its IT department solely as a service arm to support its stratrgic objectives. This requirement is better served I think by a cost centre model.
    doreen.mallett@...
    Reply Vote I'm Undecided
    • Here's the truth

      What you say is true, in a very 'politically correct' sort of way. The blunt truth is that the general user to the topend executive is clueless ( and most would admit it) about technology (of all kinds) and it has always fallen to IT to learn new things faster than their users, support them with knowledge, fix problems and provide solutions.

      In return for your services, you often get a bunch of whining execs, sales people and project managers who know nothing about anything, 'rebelling against IT overlords' because they want an iPad... pure and simple.

      The reason IT has a 'special place', is that unlike even a far reaching dept like Engineering/Maintenance, it is completely interwoven with the fabric of how EVERY dept, process and person works in every conceivable situation.

      IT now touches everything and therefore the IT dept has to touch everything as well. Turn off IT and you might as well turn off your lights. This is a fact not appreciated by some.
      12312332123
      Reply Vote I'm Undecided
  • A Lot of Both

    I don't really have access to the balance sheet nor the inclination to figure out if customer-facing IT offerings bring in more revenue than the internal cost of IT, but we have departments engaged in both. Of course, those "profit center" departments are still consuming internal IT resources for their own use, and as infrastructure (or cost of goods sold) for external offerings.

    Companies I've worked for in the past have been a lot of what Justin describes -- I've brought up ideas on how to generate revenue, but the mindset when it comes to dealing with external customers is so completely different that most minds were extremely closed to these ideas. These same people would bemoan insufficient budgets, but a mental block when it came to thinking of ways to overcome this.
    jvitous
    Reply Vote I'm Undecided
    • History weighs on many decision makers & decision processes

      It will never matter how much you "align" your IT department with the business ... unless the "core competency" and focus of the company is the business of selling IT services/products to external customers, then the business will always consider IT as a cost center plain and simple.

      Would you walk into a company's HR department and propose ways to make money? Their accounting department? Logistics? Plant/property? Please note I am specifically envisioning these situations in businesses where none of those internal business functions (which ALL businesses have, and need in order to simply exist) are the core competency of the company. A company that manufactures widgets is, generally speaking, not a company that makes money by selling IT services or HR services or Accounting services, or logistics, or facility maintenance ... they make money by making and selling widgets. If said widget manufacturer tries to leverage internal functions into some kind of externalized profit making enterprise, the usual result is abject failure since those functions are not the core expertise of the business.

      The other difficulty with this question/concept is simply the definition of "IT". In many (most?) companies, IT means the technical infrastructure that supports the business, and not the business applications themselves. Apps can be part of the "money-making business" side of the house at the exact same time that "IT" is an internal cost-center. I've worked at/with/for a handful of large companies over the years, and in those companies, as well as in all large business that I have any reasonable knowledge of, "apps" or "app dev" have always been separate from "IT". This even applies in technology companies. A business can provide a service via computer applications and make money from those apps, and those profit centers are simply NOT considered IT.

      IBM makes money by selling software, hardware, and services. They don't make money from their IT department ... it's an internal cost center.
      Gravyboat McGee
      Reply Vote I'm for Cost Center
  • Unless it's a tech company, in reality most are cost centers

    While the idea of being a profit center is sexy enough to evoke a strong defense and support for that position, in reality most IT departments of non-tech companies are truly cost centers. They aim to deliver what the business needs in the most efficient manner, driving increased productivity at a cost that is below the benefit.

    Departments that are profit centers get a lot of respect and are often in the spotlight as the lifeblood of the organization, but the cost center departments remain necessary and it's not like companies can just do without them. To make money you have to spend money. The trick for the successful IT department is to do it wisely in a way that clearly supports the needs of the business in a cost-effective and strategic way. Both short and longer term.
    cwcjr1
    Reply Vote I'm for Cost Center