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How the chargeback process will alter the IT-business relationship

The long-debated chargeback process has been revived by cloud computing, which could change how IT groups are organized and operate in a competitive and stressed economy.

Chargeback is that sweet spot -- or sore spot, perhaps -- where IT resources meet business strategy. The goal of the chargeback process is to inform business units about their consumption of IT services -- and what it's costing them. Revived by cloud computing, the decades-old model could alter how IT organizations operate, especially amid external competition in a stressed economy, experts said.

Chargeback is a critical facet of IT financial management, according to Craig Symons, vice president and principal analyst at Forrester Research Inc. in Cambridge, Mass. "I don't even like to call it chargeback, as historically that was applied as cost recovery, whereas IT financial management is about developing an internal service provider [ISV] focus and cost models around IT services to lead to better decision making," he said.

Although the concept of IT financial management has been well articulated, the chargeback process is not being used by a lot of enterprises. McKesson Corp. and Nationwide Mutual Insurance Co., for example, have well-developed chargeback processes, but they're the exception rather than the rule, Symons said. "Today a lot of organizations don't do any chargeback at all, and for those that do, it's a simplistic allocation in big lump sums," he said, because they lack the automated tools for capturing technology consumption.

There's also significant resistance by the business because chargeback has been done poorly in the past, Symons said. Some experts warn that a chargeback process sets up an adversarial relationship between the business and the IT group. After all, business units traditionally have taken technology for granted, believing it should be free. On the other hand, Symons said, if they view the IT department as a service provider, what's to stop business units from looking around to find more enticing contracts elsewhere?

Instead of promoting an us-vs.-them mind-set, a chargeback process "gets the IT department talking at the same wavelength as the business," Symons said. "As an internal ISV, [the IT organization's] services can be thought of as products. It's part of the cultural transition." That cultural change extends to roles, with IT organizations hiring product managers to package IT services into measurable SKUs, and placing account executives with business units to go over the bills and discuss strategic deployments, he said.

A hybrid approach to IT chargeback

The most logical path for IT organizations, then, is to manage a hybrid services environment, where some services are delivered internally and others are contracted out to third parties. Doing this will prompt a larger role for IT departments in companies' procurement of external services, including in contract negotiations, experts said.

As an internal ISV, the IT organization's services can be thought of as products. It's part of the cultural transition.

Craig Symons, vice president and principal analyst, Forrester Research Inc.

IT departments that centralize the management of a hybrid cloud retain the clout to influence business strategy, according to experts. Businesses are much more willing to pay for strategy when they can see the vision, said Len Couture, managing director of agile business transformation strategies at Bluewolf Inc., a cloud consultancy based in New York. Besides providing services, IT organizations will have to provide advice -- or at least be on the same page as the business with regard to strategic imperatives.

"As businesses move from owning technology to providing services, we see organizations moving from IT to information services," said Couture, formerly the CIO for the U.S. Department of Veterans Affairs. "We account for that differently," he said.

In the early '90s, the trend in technology was toward end-user empowerment, with departmental servers and a breakdown in centralization. In the present-day cloud computing environment, the pendulum could swing back toward IT departments becoming private ISVs. A chargeback process enables visibility, compromise and strategic planning.

Let us know what you think about the story; email Laura Smith, Features Writer.

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