Challenges of running IT like a business

In today’s sluggish economy, companies are demanding that their IT organizations make wise investments and demonstrate IT’s value to the business. They need proof of this value in the form of business metrics, not traditional IT measurements such as uptime and throughput.

For many IT executives, this is the first time that they’ve been expected to run their organization like a business. And it’s not easy. IT has typically operated as a monopoly, employees have been required to use internal IT services, and breaking up a monopoly is never easy.

Breaking up the IT monopoly and transforming IT into a competitive business within a business is good for IT, good for the overall business and good for the economy. It increases IT’s credibility and helps the entire organization to realize the true value of IT, which can fuel reinvestments in IT. It also reduces the exodus of IT jobs offshore.

But before you overhaul your IT organization to operate more like a business, it’s important to understand the following challenges:

1. Resistance within IT. Running IT like a business requires a shift in the mind-set of the IT staff, because breaking up the monopoly changes how IT operates and how it’s perceived within the organization. And this type of change often generates fear of the unknown. It pushes IT people out of their comfort zones. So it’s essential to have a well-defined and well-communicated transformation plan.

Involve people early on so that they can drive instead of being driven. Engage people in behavior-changing workshops and “soft skills” training sessions. Everyone should feel excited and empowered, very much like what people feel when working at a start-up company. It’s an opportunity for IT to take control of its own destiny by competing for, and winning, the company’s IT business.

2. Business metrics are required. To operate as a competitive business within a business, instead of a cost center, IT must transform itself into a service organization, with clearly defined core competencies, service portfolios, guarantees of quality and standard costs. This can’t be done without relevant business metrics.

Proper IT governance requires metrics about operations, projects, user demand and finances to ascertain the business health of the IT organization. Furthermore, IT executives must have access to relevant information about IT’s customers, partners and competitors. Having these metrics and reporting them internally to the entire IT leadership team in a timely manner can show what’s working and where improvements should be made. They’re also required for IT marketing and sales campaigns.

3. Business/IT alignment is a prerequisite. As an internal service provider, IT must understand and even anticipate the needs and goals of its customers. Alignment ensures that IT focuses resources on business-critical tasks and applies limited budgets to achieving the greatest business benefit. With proper quality, productivity and cost reporting, IT can begin to articulate its value to the business.

Only when business/IT alignment is achieved can IT managers begin to gather requirements from internal customers and develop a comprehensive catalog of IT products and services (with appropriate support levels, well-defined service-level agreements and competitive prices).

Internal customers can then assess the IT group’s offerings and choose to retain its services or to use a more competitively priced vendor. If the internal IT group is competitive with other sources or provides extra value, it will win the contract.

4. IT needs business management tools, too. While IT organizations have good tools that address the technical side of IT, they typically lack tools that address the business and people aspects of IT, such as ERP-like software tailored for the IT operation. Yet IT executives must make intelligent decisions on how to optimize resources and operations and how to communicate the business impact of their resource allocations.

Business leaders need to know where IT dollars are being spent and how effectively those dollars are contributing to overall business goals. Without the tools to measure and report a business-centric view of IT, it’s difficult, if not impossible, for companies to bridge the gap between IT and the business.

Breaking up the IT monopoly and transforming IT into a competitive business within a business is a win-win situation for everyone. But IT executives must first tackle these challenges, or else this internal IT start-up company will fail.