Nitpicking is fun, but pragmatism pays the bills.
Last week’s column, which deconstructed the notion that CIOs should run IT as a business, was fun, but it might have been more self-indulgent than useful.
The column, if you missed it, listed eleven definitions of “business” and demonstrated that none of them makes sense as a basis for running an IT department. But running IT like a business doesn’t require you to define it as one, Louis Sullivan’s dictum that “form follows function” notwithstanding.
After you’ve finished singing, dancing and playing the tuba, running IT like a business means negotiating “service level agreements” (SLAs) for what you do and instituting a system of charge-backs to the rest of the business to pay for it.
Negotiated SLAs are contracts between IT and the departments IT serves, and are just plain silly.
Contracts are how businesses manage relationships with their customers, so if you are to run IT as a business, this is what you must do.
Which brings up the question, what happens if you fail to live up to one of your negotiated SLAs? In business, this would result in financial penalties, withheld payments, binding arbitration, or lawsuits.
Just how stupid would a business look if Manufacturing took IT to court for failing to live up to an SLA? This isn’t an easy question to answer because “stupid” isn’t easily quantified, nor is there a unit of measure for it. If stupid was electricity and we measured it in volts, I’m pretty sure this would reach Taser levels.
Charge-backs, in contrast to SLAs, do have one thing going for them — they vastly simplify IT governance. If, for example, Marketing wants to re-plumb the company website with a content management system (CMS), you have no worries. Marketing signs up for the cost and charge-backs give you the budget you need. You hire staff, engage contractors or bring in a systems integrator and everybody is happy.
Not really. What really happens is that your staff based its CMS recommendation on what would integrate best with the rest of your technical architecture, scale without major reconfiguration, and allow granular administration to avoid opening interesting holes in your information security.
The Marketing Director, being a prudent steward of her departmental budget, obtains three competitive bids. All are lower than your estimate.
Of course they are. Because your staff failed to run IT like a business. They are running IT like a department, responsible for managing the company’s information assets. And so you lose the Marketing Department’s business to a competitor.
It isn’t the Marketing Director’s fault. IT isn’t alone in this nonsense. If IT is to be run as a business, so is every other shared service department in the enterprise, Marketing included. Marketing doesn’t want to lose the Dental Accessories business unit’s account to an outside agency, so it has to keep its costs as low as possible.
And the race to the bottom continues.
CEOs who organize the enterprise so its shared services departments act as independent businesses have forgotten a basic engineering principle … that optimizing the parts sub-optimizes the whole and vice versa (“Optimizing the organization, Keep the Joint Running, 10/27/2003).
Specifically, the company’s shared services organizations, when run as businesses, lose their authority to preserve the integrity of essential resources. In the case of IT it’s the information architecture. In the case of Marketing it’s the corporate image and the meaning of the brand. In the case of Human Resources it’s the policies that protect employees from bad managers while allowing managers to deal with non-performing employees without the risk of ending up in court.
And so on.
No question, the idea is seductive. CEOs, for understandable reasons, are likely to have a strong faith in the power of markets to regulate themselves efficiently without the need for outside controls or guidance. That being the case, turning the enterprise into a marketplace sure seems easier than the hard work of instituting the governance processes, difficult choices and consensus building that are otherwise required. As is so often the case, trying to avoid hard work doesn’t lead to brilliant results.
Marketplaces don’t require all of this because they don’t have a purpose. They are simply spaces where entities that do have purpose interact in complex ways.
Companies have a purpose. Marketplaces don’t. Turning a company into a marketplace misses this essential difference.
In the end, running IT as a business … and the enterprise as a marketplace … is an attempt to avoid the need for governance processes, difficult choices and consensus building.
Another name for these activities is leadership. Done right it’s hard work.