Is IT shared services on the short end of the stick?

Last week, I visited with the head of finance for an infrastructure management (shared services) group within a global 100 financial institution. This IT leader said that their Global CIO along with the business had made the decision to cut run-the-business spending (most of what shared services is about) to 50% of the IT budget. This means they are now putting 50% into change-the-business spending.  At first, this seems like a great move, but the head of finance is asking the $1m question. “Where is the money to run all this change stuff when it is ready to go into production?” Like many companies, these costs were not considered in the financial planning process.

 

As long as IT shared services is just simply a demand fulfillment engine, it is going to lose because it will be asked to do more and more for less and less. The problem with run-the-business spending is that nothing ever goes away—“we keep running it”. And while automation and other tactics will take cost out and improve service delivery, these are often no more than a band aid in cost reduction. The truth is that change-the-business spending needs to be accounted for in cost of new business initiatives. And when everything is above board, IT needs to cut the costs of things that no longer matter.

 

But how can IT shared services help the business and application IT balance cost? Is there a way to show them— as Milton Friedman famously said — there is no free lunch? I believe there is only one answer. They must move from their current “piece part” accounting model to an IT service costing model that derives a cost per infrastructure item (for more on how to do this, see my post “Achieving business transparency through IT Financial Management”).

 

Once IT shared services does this, it must develop a catalog of services and benchmark catalog costs against outside service providers. They need to determine where services are equal to or better to outside service providers in terms of cost and service quality.  Where they are not on par, they have more cost cutting to do. Having done this, IT shared service needs to sit with business IT and plan demand for each year taking into account the cost of running the infrastructure to support the outputs of change the business spending along with cost for running  the infrastructure for existing applications and services. IT shared services needs to demand that planning and budgeting for change the business technology include the cost of implementing and maintaining all new systems and applications. This action will force the head of applications and business IT to examine and start to trim aging and unneeded applications to make room for new stuff—thus, creating an appropriate balance of spending for the first time. If it is not cleared, IT shared services is today holding the bag of things that are no longer valuable to the enterprise. This must change.

 

Related links:

Solution page:  IT Performance Management

Solution page:  IT Financial Management software

Twitter: @MylesSuer

Comments
Nadhan | ‎09-27-2012 01:32 PM

Great post, Myles.  The ease with which business units can procure cloud services is further challenging the value provided by IT services within the Enterprise.  The role of the CIO -- is as a result -- vital in serving as a cooperative IT citizen who integrates the forces to effectively combat consumerization and run the business of IT

 

 

Connect with Nadhan on: Twitter, Facebook, Linkedin and Journey Blog.

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About the Author
Mr. Suer is a senior manager for IT Performance Management. Prior to this role, Mr. Suer headed IT Performance Management Analytics Product ...


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