The Limits of Running IT Like a Business

I liked this CIO Magazine article by Chris Potts: The Limits of Running IT Like a Business:

A rallying call of corporate strategies for IT in recent years has been to run the IT department "like a business." When the technology-centric first generation of IT strategies reached a point of diminishing returns, this next stage was both inevitable and beneficial....

But with these benefits come pitfalls, especially if you take the IT-is-like-a-business approach to extremes. If you've tried managing an internal IT department as a bona fide business you already know that you can't take that very far, for the obvious reason that your IT department isn't a business. It is, after all, a part of a business: a significant contributor to a value chain, not a self-contained value chain of its own. And the harder you try to create a separate value chain for IT, the harder it becomes for the IT department to become integrated with the business of which it is truly part.

A strategy founded on running the IT department like a business will reach a natural point of diminishing returns, if it hasn't already. Innovative companies have moved to the next-generation strategy, in which the CIO's purpose is not necessarily to run a traditional IT department at all. Her primary role is to provide corporate leadership to business functions which are investing in and exploiting IT in the context of their business strategies and operating plans...

There's a world of difference between running the IT department "like" a business, and trying to run it "as" one. It's amazing how one word can fundamentally alter strategy. Running IT like a business means adopting a businesslike mindset, processes and financial disciplines. Running it as a business means competing for revenue and investment in an open market, and going bankrupt if you run out of cash to cover your liabilities.

What happens if a CIO attempts to run her department as a business? Colleagues in other departments will perceive that the IT department wants to be treated like a supplier. If the CIO's chosen business is primarily to be a provider of operational IT services, then that what is her "customers" expect her to concentrate on...

The IT department might find another pitfall if it tries too hard to run itself as a business. The company's business units will be reluctant to fund any material investment by IT in anything that looks like branding, marketing, selling or upgrading the management systems that support the IT department's own productivity. Why should they? One of the primary cost advantages of an internal department is that it doesn't require all the capabilities a real supplier needs to compete in the open market. So the CIO is caught. She has placed herself in competition with bona fide external suppliers but without access to the investment that they have in order to compete as an equal...

I liked this article because I see this "internal business" model everywhere, particularly when security projects must justify their "ROI". Ugh.