I’m a qualified accountant. I even sometimes read the Accountants Journal … there, I’ve said it! As an accountant and a CIO I am intrigued by the debate within the IT community about how businesses should account for IT. Should it be a cost centre? A profit centre? Or a standalone, semi-independent business unit? From what I can tell, the argument is that how an organisation chooses to do its accounting determines, or is an indicator of, how IT is seen strategically in the organisation. The logic seems to be that if you want to be an IT team that is strategic and adds value, then you need to be a profit centre as a minimum, or better yet a semi-autonomous business.
If you find yourself as a cost centre, watch out, because this means that you are seen as a non-value addition and simply a cost of doing business. It gets worse. As a cost centre the only questions that are asked of you is how can you reduce IT costs even lower than they are now. You are never asked about how IS can contribute to the strategic value of the organisation by driving revenue growth or helping to open up new markets.
The recommendation is that you get out of this cost mentality by becoming a profit centre or independent business unit. Charge the business for your services, create a profit, control your own balance sheet and then the business will begin to see you as adding value. As a result, the focus will shift from how can we drive down IT costs to how can we maximise the IT profit and strategic value?
My experience is that this whole debate is spurious. If I use The Warehouse as an example, it doesn’t matter if you are a cost centre or a profit centre your costs are scrutinised mercilessly. How the accounting works does not shield the profit centres at all. I admit that The Warehouse is particularly skilled at cost management. However, every organisation I have worked for or worked in for any length of time is the same. Costs are scrutinised in detail. I hear some of you saying that this cost focus is counterproductive, as a company cannot cost cut its way to greatness. This is true enough, however no organisation ever became great by being lazy about its cost control.
To me this whole cost centre/profit centre discussion is a waste of time. In the complex world that we live in value is primarily about perception, not accounting numbers. If you are seen as a non-value addition cost of doing business, your focus should be on understanding why that is and putting in place an action plan to correct it. Most likely the issue will be in one of three areas, or a mix of all three:
- The services you are delivering are not meeting the service level expectations of your business. This can be both under delivery of service and over delivery of service which embeds higher costs.
- You are seen as slow and bureaucratic in working with your colleagues to plan and deliver changes. That is, you are not agile enough.
- And finally, when you do deliver, the projects are late, over budget, cause disruption on going live and do not deliver the planned benefits (or some combination of these).
Delivering solutions to these three issues is core to a CIO’s job. If you have these issues, or are perceived to have these issues, it means you are perceived by your colleagues as not doing your job properly. Mucking around and arguing about how the accounting works is not going to solve this problem. The only resolution to these issues is solid, customer-focused delivery day after day.
First published on cio.co.nz