CIO — "Allocations are killing us," a CIO friend recently said to me.

I knew what was coming, but nonetheless I asked why. He responded with the usual three complaints:

Number one: Every year, clients complain that IT costs too much. They claim that their share of the allocations is unfair and that they're subsidizing other business units. (They all say that. Go figure the math.) Occasionally, they demand benchmarking or outsourcing studies to try to prove they're paying too much. Countless valuable hours are lost justifying why IT costs were apportioned as they were.

Number two: Clients attempt to micromanage IT and tell my friend how to run his business. It's completely understandable. Allocations are, essentially, taxation without representation. We fought a war over that, didn't we?

Of course, nobody likes being unable to control costs, especially in this finance-conscious megacorporation. Naturally they attempt to gain back some degree of control. They examine IT's overhead and challenge every investment in innovation and infrastructure.

Perhaps the worst example of this behavior was when my friend attempted to establish an account-executive function to improve client relationships and IT's strategic alignment. Clients fought it, saying they didn't want to pay for it in their allocations. Imagine telling your vendors that you want them to take the cost of their sales force out of the price they charge you!

By the way, those same clients expected regular account reviews. And they complained that the IT department didn't understand their businesses. But they didn't want to pay for the account reps who would do exactly that. Sadly, this issue became so politicized that my friend postponed the initiative.

Number three: Clients didn't understand what their allocation bought them. They knew it was something to do with desktop computers, network services, applications hosting and so on. But the details were fuzzy.

Their response was to be expected. "Hey, we gave you all that money," they said. "Now we get to ask for anything we can dream of all year long. And it's your fault, CIO, if you can't deliver infinite products and services for a finite price! We paid for desktops—why are ours three years old? We paid for e-mail—why are we limited in storage capacity? We paid for applications hosting—why can't we increase transaction volumes by 20 percent?"

The IT department had implemented service-level agreements (SLAs) with the hope of limiting IT's liabilities (a.k.a "managing expectations"). But despite a bureaucratic dance every year that produced piles of paperwork, clients went on expecting lots more than IT could possibly deliver.

Continue Reading