Takeaway: Today’s IT departments are in flux and under pressure. Here’s an explanation of why, and advice on how IT can change the equation.
I regularly moderate The Great Debate over on ZDNet and it’s always a fun opportunity to get a couple smart commentators together and let them cross swords over a controversial topic. However, this week the debate was especially great, as TechRepublic’s Justin James and ZDNet’s Dana Gardner clashed on the topic of IT Department: Cost Center or Profit Center? It ended up being about the current trajectory of the IT department and how to change it.
If you missed it, then you missed a crash course in why many IT departments are struggling today and advice on how IT can transform itself into an indispensable force. Fortunately, you can still read the entire debate online, but I’ve also selected and curated 12 of the most important insights from Gardner and James into the following list.
1. The problem with IT
Justin James: “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.”
2. Losing the stranglehold
Justin James: “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!”
3. A new class of IT
Dana Gardner: “Rather than remove IT in favor of cloud or SaaS — businesses must embrace a larger role of IT as services broker… 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.”
4. The Amazon revenue model
Dana Gardner: “Before Amazon Web Services, a.k.a. 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.”
5. The Apple innovation model
Justin James: “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.”
6. The SMB model of IT
Justin James: ”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… and I think that in the next few years, we’re 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.”
7. Measure and report
Dana Gardner: “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 about 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 … will help improve perceptions.”
8. The organizational dilemma
Justin James: “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.”
9. Find a hero project
Dana Gardner: “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… It’s a culture thing, as much as anything. And people change culture.”
10. The technical CEO
Dana Gardner: “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.”
11. The three factors you must have
Justin James: “You need to have … 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.”
12. Dominance of the technically-capable
Dana Gardner: 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. 
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