Running IT ‘like a business’ has its limits

A reported trend in how much IT departments are planning to invest in improving their own processes provides an interesting test of how far it’s possible – and wise – to ‘run IT as a business’.

A January 2008 report by AMR Research indicates that IT departments are planning to spend 9.3 percent more this year, compared with 2007, on technology to improve their own performance. Meanwhile, the same report concludes, companies are planning to increase overall IT spending by only 5 percent. The kneejerk conclusion one might draw from this is that IT departments believe they can deliver almost twice as much bang this year for each new IT buck compared with their colleagues in the wider business. Good. Companies have probably been investing less in redesigning the way their IT department operates compared to other areas, so there’s likely to be untapped benefits waiting to be realised.

However, there’s a deeper challenge to consider arising from this news. It’s been something of a mantra in recent years that CIOs should ‘run IT as a business’. If that were literally true, then when they want to invest in improving the performance of their ‘business’ they should have the usual range of choices a business has for sourcing the investment funds they need: from current profits, financial reserves or external investors (e.g. shareholders and banks).

Now, there are some real advantages to be had from people in the IT department thinking and acting in a businesslike way. But, beyond a point, they cannot really operate as a business because they are, in truth, simply an integral part of one. They don’t have a true Profit and Loss account, their own financial reserves or external investors, from which to fund performance improvements. They’ll be asking their ‘customers’ to fund the estimated 9.3 percent increase in spending – and those ‘customers’ might want to use that money to fund their own projects, or keep it in the bank.

And if the IT department is looking to its ‘customers’ to act as investors, what’s the customers’ return on that investment? Reduced prices for the IT services they use, or a better service experience? And will either of these be of greater value to the customers than the returns they could deliver themselves, by investing the same money elsewhere.

Or maybe there’s a natural limit to how much an IT department can really ‘run itself as a business’, and make sure it delivers the benefits of that idea while also making sure nobody takes it too literally. Otherwise it can all get rather messy.