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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.

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|In: Industry Commentary|Last Updated:

CIOs are, according to many in the business punditocracy, supposed to run IT as a business. Yet in spite of all of the ink smeared on crushed trees advocating this thought process (not to mention the miniscule magnetic domains that have given up their freedom to store it) I’ve yet to see anyone define what they mean by “business.”

It might seem too obvious to bother with. We all know what a business is, don’t we?

That’s the problem with this sort of thing: We all do know what a business is, only we don’t all know what one is in the same way. Depending on the situation and who is doing the talking, businesses can be:

  1. Non-human, amoral organisms that have an existence independent of the people who make them up, and which, like any other organisms, consider self-perpetuation their first and most important goal.
  2. Mission-driven entities that exist to provide goods and services that have value to someone.
  3. Product generators that exist to deliver items for which customers will pay more money than was needed to provide them.
  4. Profit generators that exist to deliver a stream of money to their actively-involved owners.
  5. Ecologies — environments in which individuals compete, and sometimes collaborate to obtain resources.
  6. Assemblages of processes that connect to transform inputs into outputs.
  7. Places of employment that exchange work assignments for money and non-cash compensation.
  8. Social fabrics that provide a space for people to interact and form connections.
  9. Personal “force multipliers” that increase an individual’s ability to achieve goals.
  10. Opportunities for investment, to deliver a lump of cash to a passively involved shareholder.
  11. Commodities to be bought, sold, aggregated or dispersed for profit.

And more. This isn’t a complete list by any means. Nor are the items on the list alternatives on a multiple-choice test. Many can be simultaneously true.

When a CIO is supposed to run IT as a business, which definitions are supposed to be part of the formula?

Certainly not Definition #1. If you work in IT you might like it, as it makes Definition #7 a more enduring possibility. But even ignoring the pundits who also recommend disbanding internal IT in favor of outsourcing, self-perpetuation isn’t something you can sell to a board of directors.

Which also means you can scratch Definition #7 off the list.

Definition #2 is a certainty. In its simplest form, IT’s mission is to provide working information technology to the business. This, or something like it, is IT’s mission whether you run it as a business, a department, or a hobby, so scratch Definition #2 off the list as well. The same logic applies to Definitions #6, #8 and #9.

Definition #3 is a distinct possibility. Never mind a mission. A Definition #3 IT business would deliver products and services to internal customers in exchange for money, through the magic of transfer pricing (the practice formerly known as charge-backs).

Except that it doesn’t work that way. When companies engage in transfer pricing they put controls in place to make sure internal departments break even exactly. If they didn’t, the business as a whole would be an ecology (Definition #5, as are most companies that engage in transfer pricing anyway). Scratch this one off, too, and Definition #4 for the same reason.

Definition #5 is a good representation of a marketplace as well as a jungle, and in fact, marketplaces are near-perfect parallels to ecologies. It’s bad enough when a CEO turns a whole enterprise into an ecology. Another description of this sort of environment is “political quagmire.” One presumes “run IT as a political quagmire” isn’t what the pundits have in mind.

Definitions #10 and #11 make no sense either. It might be fun to sell shares in IT to various business executives and might even lead to beneficial results, in much the way the Green Bay Packers benefit from having 125,000 fans as the shareholders who collectively own the team.

Somehow I just don’t see it working very well in practice.

So there you have it. Eleven different definitions of “business” and not one of them makes any sense for IT. Which leads to a question: If IT isn’t a business by any reasonable definition of the term, what might it mean to run it like one?

I’m left without an answer, and with only one possible conclusion — that I don’t know what the pundits are talking about.

I suspect that’s something they and I have in common.

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