How to Run IT Like a Business

Transforming IT into a competitive business within a business is good for IT, good for the overall business and good for the economy, argues Martin Warner, Practice Director at BearingPoint.

Business leaders of every institution are expecting more from their CIOs in terms of scale, flexibility, cost and transparency. In today’s sluggish economy, companies are demanding that IT organizations make efficient investments and demonstrate IT’s value to the business. They want proof of this value in the form of business metrics rather than traditional IT measurements such as uptime and throughput. For some CIOs, this is the first time that they’ve been expected to run their organization like a business.

There is no secret to running IT like a business. It simply means that the IT group must now do whatever is necessary to sell products and services on a competitive basis. While there are a few caveats to this statement, overall it is as simple as knowing your market, giving customers what they want, and doing it at a price that is competitive.

This means that CIOs are going to have to think and operate more commercially, using menus of products and services that describe these services with pricing, delivery time, service levels and support options. This can be accomplished with a product and services catalog that provides information about what the individual technology offerings bring to a business unit. This catalog must be based upon direct feedback from internal customers (business units) and state what service levels are included in the offering, the fulfillment interval and support levels. Content in any specific catalog depends on the specific business requirements of a specific project. IT must also step out of the technical realm to develop and communicate performance metrics in business language.

Before IT can operate more like a business, however, it’s important to address some challenges.

First of all, companies must address resistance within IT. Running IT like a business requires a shift in the mindset of IT staff, which often generates fear of the unknown. It pushes IT people out of their comfort zones, so having a well-defined and well-communicated transformation plan is essential.

Next, establish business metrics and governance. To operate as a competitive business rather than a cost center, IT must transform itself into a service organization. It must have clearly-defined deliverables that are subject to metrics created through partnership with the business units. IT must also leverage core competencies to deliver product and service portfolios that include guarantees of quality, delivery and cost. Proper governance requires an ‘open book’ mentality that exposes metrics about operations, projects, user demand and finances to determine the business health of the IT organization.

As an internal service provider, IT must understand and even anticipate the needs and goals of its customers. Alignment ensures that IT focuses resources on business-critical tasks and applies limited budgets to achieving the greatest business benefit. With proper quality, productivity and cost reporting, IT can begin to articulate its value to the business. The best position is having a seat at the table where business units make decisions. Having that seat means having a real understanding of the conditions facing a business unit and being able to make contributions that help the business unit achieve its goals. Once alignment is achieved, then IT managers can begin to gather requirements from internal customers and develop a comprehensive catalogue of IT products. Only then can IT be considered a true business.

The next step is to transform IT into an efficient business that evaluates and adopts standards and components-based culture. Three types of standards must be considered: development of vendor/technology partner relationships (approved parts lists); the creation of architectural patterns (standard operating environments and architectures); and the enforcement of standards through pricing and delivery. Success will depend on the configurability of solutions, control of technology components and partnerships with key technology companies.

In addition, while IT organizations have good tools that address the technical side of IT, they typically lack tools that address the business and people aspects of IT, such as ERP-like software tailored for the IT operation. Yet CIOs must make intelligent decisions on how to optimize resources and operations and how to communicate the business impact of their resource allocations.

Finally, they must develop equitable pricing and cost transparency. TCO is the end game. End-users who are asked to fund the IT budget are demanding an increasingly detailed breakdown of the costs. They want to be able to understand the expected and actual return on the investments made. And they want to compare that return against other viable options – such as outsourcing, application hosting and managed services offered through external vendors.

Transforming IT into a competitive business within a business is good for IT, good for the overall business and good for the economy. This approach increases IT’s credibility and helps the entire organization understand the true value of IT – which can fuel reinvestments in technology.