Saturday, June 19, 2010

Is IT a Cost Center?

First of all I'll issue a disclaimer.  I've worked the majority of my career in the IT field in many different capacities including management.  On the one hand this probably makes me a bit biased in answering this question.  On the other hand it also makes me very well informed.   If you're inclined to dismiss me because of my technical background then also keep in mind I am an MBA.  Now that I've ruined my credibility with the technical crowd as well I'll move on to answering the question posed in the title of this post.

I'm going to eliminate the suspense and answer right now.  No.  

OK, now that I have that out of the way I'm going to explain my reasoning.   Recently I've been on a certification binge.  In the past I wasn't a fan of certifications, primarily because most of my early encounters with certified individuals in various technologies were less than satisfying.  More often than not it turned out that while they were good at taking tests, they were lousy at actually doing productive work.  Since that time though most certifications have improved significantly in quality and the value is much more obvious to me.  For this reason I'm playing catchup, working my way through the lower level technical IT certifications so I can get to the more advanced ones.  To that end I've just started studying for ITIL foundations.  I'm currently reading "Foundations of IT Service Management based on ITIL V3" and came across a great quote.

"IT's role is no longer just supporting, but has become the baseline for the creation of business value."

"Creation of Business Value", sounds great doesn't it?  Substitute "Shareholder" for "Business" and we have the definition of the purpose of any business. 

IT is a cost center in the same way that Product development, Sales and Marketing are cost centers.  All are integral to the success of a business.  You clearly want to keep your costs under control but you don't want to make decisions about how much you spend on any of these functions based purely on lowering your costs.

Furthermore if you look at where much of economic growth has come in the last twenty years you'll find it is centered in the area of IT.  Google, Yahoo, Amazon, YouTube, Facebook, Twitter, etc.  Information Technology is the engine of commerce and business.  In developed nations the trend is towards almost everyone being on line all the time.  In emerging nations this is still somewhat true.  More importantly in the case of emerging nations is the opportunity that Information Technology is providing for these countries to take a different path to economic prosperity than the one that developed nations took.  Given the scarcity of resources and the environmental cost associated with the traditional path to economic development this is a very good thing.

Companies that view IT as a cost center are taking a very myopic approach.  Any budgeting decisions made in regards to a companies Information Technology component must take into account the real place IT has in todays world as an equal player with the other more traditional business components. Companies that do not take this approach risk cash flow hypoxia.

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