The move to make Finance operations a profit center is one of the moves that lead Enron down the path to destruction.

Since Finance became all about making a profit rather than controlling money; Enron essentially ran without direction for several years until they disintegrated.

Bob and Profit Minded,

IT as a profit center can work depending upon where the budget lies and what facets of IT you are discussing.

Looking at it from an infrastructure perspective, if the Lines Of Business (LOB) hold the budget dollars for IT projects than it can be done. However, to be done well, IT must treat the LOB's as if they are true customers that can go elsewhere if IT fails to meet expectations. For example, a LOB customer should never have to hear, "we do not have storage available to meet your needs at this time and will need to order a new storage frame".

IT should be managing their inventory of assets as a hosting company would, tracking projected utilization vs. actual so that orders for servers, storage, network equipments, software licenses, etc are ordered before existing capacity is exhausted. To be able to afford this forward looking approach, they must charge more than cost for resources to have the seed funds to purchase new infrastructure before existing ones are fully utilized.

I understand that there can be draw backs to this approach, as IT must recover the sunk cost even if the street value of the an asset (commodity server for example) has decreased, but it provides benefits to the LOB's that are tangible. First decreases time to market for now projects / initiatives. Second, allows for near real-time adjustments to be made in the event that utilization grows faster than projected. Third, since the infrastructure is already an owned assets the business has the flexibility to perform Proof of Concepts with little to no capital required. Four, development teams should be more productive since they are never waiting on infrastructure.

To take a dev approach as indicated in Profit-minded's letter is a bit trickier. Most large companies will transfer their intellectual property to a separate subsidiary that is responsible for tracking and protecting the use of their IP. To try and show this as a profit to the IT department is very tricky and to me, doesn't make a lot of sense since it isn't in their core skill. After all why would you task your It department to protect a company’s IP from outside use.

Regards,
Michael

Bob, you got on a soapbox on a favorite subject and didn't respond to the writer's question. He didn't ask about "transfer pricing" or "Chargebacks" or other phoney "profit" measures. He asked specifically about areas where IT is producing customer facing solutions (that's real customer, not "internal customer") that are bringing real profit into the company. Surely there's something to say about ways to manage these and pitfalls to avoid, etc.

Bob -

For the first time in recent memory I think you missed the gist of the question. The idea of IT as a profit center is not about transfer pricing or charge backs, albeit that is the most common (and simplistic) implementation found today. The real idea is today, for some businesses, IT is as responsible (if not solely responsible) for profit as any other unit. In fact, one could make an argument in some cases, IT is the only true profit-generating component of the business - every other unit should be treated as a pure expense.

The sad fact of the matter is IT still gets way less credit for its contribution because many senior executive mindsets are using a '60s cost-center model of IT. For example, over the last 25 years I've seen hundreds of companies where Finance, a non-revenue generator if ever there was one, gets more respect in the boardroom than IT, despite the fact that without IT there would literally be no business to run.

My 2-cents.

Christopher Casey
Exertus, Inc.