I will never agree with the view that IT is a cost center. It may sound very cliched but I strongly believe that IT is a differentiator and an enabler. Treating IT as a cost center is an incorrect thinking and a very wrong business model.
IT is inextricably intertwined with all business units such as marketing. It helps gather business data for making astute business decisions, and competitive intelligence data for finance, and thereby contributes to the generation of revenue.
IT is ubiquitous, and a company depends on the CIO to advance the interests and strategy of the corporation. CIO works hand-in-glove with the CEO/CFO.
If IT is viewed as a cost center, then all companies would try to keep IT costs as low as possible. But the fact is all companies invest strategically information resources in order to remain competitive, innovative, growth-oriented and ultimately become successful.
So, these are investments, not merely costs.
Many of the software developed by us are monetized, besides serving the basic purpose of fulfilling the customer needs, and generate revenue for the company. These software are business drivers for us.
IT operates as if it is competing with outside providers, continuously benchmarking its costs and service levels against the market.
Look at Google or Amazon. They went from being an online store to an online shopping mall, to an online cloud computing technology provider.
It's all about IT and business collaborating together to transform a company; and IT operating as a profit center.
In all this, CIO is a visionary who can turn the fortunes and make IT profitable.
In my view IT has three levels of maturity. First one when it is a “Support” function and provides all IT support to business. IT does not have any support guarantee, large number of vendors work here and mostly deliver what is asked for. In this case IT is a cost center. IT is a function in in organization and incurs cost for providing services.
The second level of maturity is “IT as Enabler” to business. In this case IT is largely viewed as an strategic arm, consulted frequently once the strategic decision is made and views are taken by business. The CIO is considered as an important person for the business. IT is largely viewed as a mandatory arm but cost center as well. CIO delivers the value by optimization of resources, cost reduction etc. There is a partner strategic relationship with few partners not though very matured. IT is mostly an extended arm of business.
The third level of maturity is ‘IT as a Strategic Partner’ in business in which CIO is extremely business focused, brings in value through IT implementation, impacts top line and bottom line by technology implementations. The partnership is risk and reward sharing with large strategic providers and matured relationship exists. CIO and partners also focus on innovation and bring radical ideas. The services are guaranteed through robust delivered platforms and robust architecture and there is a contract between IT and Business wherein IT is a Service Provider to business.
I firmly believe that IF IT is not strategic partner than it is only support functions however the role of strategic is higher than what we call is support function. I do agree with Mr. Chiranjoy Das that “”It’s all about IT and business collaborating together to transform a company; and IT operating as a profit center” this cannot be happen until you have to play role of strategic.
As Nobel Laureate Milton Friedman said: ‘There is no free lunch’ – the same is true for IT and any other department, such as Customer Service, R&D, HR, Marketing, Accounting, Auditing and Payroll. Many companies even consider Manufacturing a cost center since it incurs expense,and does not help create revenue directly. I agree with Farhan that until IT becomes a strategic partner, it has the potential to be branded as a mere cost center.
Peter Drucker originally coined the term Profit Center. He later recanted, calling it “One of the biggest mistakes I have made.” He later asserted that there are only cost centers within a business, and “The only profit center is a customer whose check hasn’t bounced.”
Agreed.
It all depends on what value an organization places in its overall vision and its IT department. There is a company (name withheld) which is great but does not have any vision for its IT. It places orders through fax and is 25 years behind in blending with latest technology. I don’t think it can stay in business and add value to its shareholders if it continue to operate this way. There are some companies which see IT as luxury and an overhead. But history proves otherwise and the companies who embraced IT in their vision statements are pioneers and leaders in their respective fields now.