Some excerpts from my 2nd edition, relevant to current debates
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[excerpt 1]
IT service development activities parallel those of commercial R&D organizations. IT service delivery and operations activities parallel those of corporate manufacturing and customer service departments. IT governance activities parallel corporate governance activities. IT is dynamic, but so are other disciplines, such as finance and logistics. IT is complex and uncertain, but no more complex or uncertain than engineering and demand forecasting. Get over IT! In concept, the fundamental management principles of all the disciplines are identical. We just need to do a little translation.[i]
Jeff Kaplan
A well known thought experiment (dating back to at least 1971) in discussions of IT management is “run IT like a business.”[ii] Pragmatically, IT as a management domain can be viewed as a complex system of sustained economic activity, thus “a business” in significant respects. As implied by the excellent Jeff Kaplan quote at the start of the section, large IT organizations are subject to emergent dynamics that can be understood using tools from finance, operations research and industrial theory.
The idea is that if an IT organization (even one run as an internal “shared service” cost center) is managed “as if” it were a profit making entity, more disciplined and optimal allocation of IT resources will result.
Weaker forms of this concept also exist. Less emphasis may be placed on cost accounting and recovery, with more focus on operational issues.
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For example, IT portfolio management draws inspiration from portfolio theory in financial management. Demand management, a critical concern in manufacturing supply chains, is emerging as a prominent concept in IT project portfolio discussions. Infrastructure service provisioning bears similarity to Make to Order production processes. And so forth.
However, the concept can be problematic. “IT like a business” may raise unintended red flags if perceptions are not carefully managed.
Captive cost centers may be in fact prohibited from attempting to become profit centers; such assumptions are typically fundamental to the enterprise business model. This does not preclude “running as a business” if the intent is to increase efficiency and effectiveness.
Other criticisms may arise in viewing internal IT service sponsors as “customers.” The customer is the person walking into the store with money in their pocket, the viewpoint goes, and any other use of the term is problematic.
Despite these concerns, this book relies on this thought experiment. As Terence Quinlan of the IT Financial Management association notes, “Managing lS financially as a business does not require a profit center structure. lS can remain a cost center.”[iii] Womack and Jones note that enterprise value streams often contain miniature versions of themselves, that is, they are fractal, an insight that also supports the “IT as a business” model.[iv]
It is difficult to reason about large scale IT, including the application of Lean concepts, outside of an “IT as a business” framework. Concepts in this book such as IT Value Chain and IT Value Stream rely on this foundation. “Customer-provider” relationships are found throughout the discussion, regardless of money changing hands. If this bothers you, substitute the term “sponsor,” “requestor,” or “user” as appropriate.
[excerpt 2]....claiming any “value” as “IT value” may be problematic. A claim to value is a political statement and often the managers of profit centers (or line managers more generally, e.g. program managers in a not for profit) compete for who receives credit for any increases in organization results (financial or non-financial).
IT, as a back office cost center, is in general not competitive in this fray, any more than peers in HR or Operations. Any claims to “value” from the IT organization may not be well received. And yet, there seems little choice in the matter, as IT is called on to account for its never-ending high costs. Such is the IT manager’s dilemma.
[i] (Kaplan 2005), p. 12
[ii] The concept of considering IT as a business within a business was conceived as early as (Ditri, Shaw et al. 1971) and (IBM Corporation 1981). See also (Van Schaik 1985; Cunningham 1992; Curley 2004; Lientz and Larssen 2004; Lutchen 2004; Hunter and Westerman 2009; Ryan and Raducha-Grace 2010)
[iii] (Quinlan and Quinlan 2003), p.6
[iv] (Womack and Jones 2003), p. 322.
Curley, M. (2004). Managing Information Technology for Business Value, IT Best Practices Series. Hillsboro, OR, Intel Press.
Ditri, A. E., J. C. Shaw, et al. (1971). Managing the EDP function, The Touche Ross Management Series. N.Y., McGraw-Hill.
Hunter, R. and G. Westerman (2009). The real business of IT : how CIOs create and communicate business value. Boston, Mass., Harvard Business School Press ; London : McGraw-Hill [distributor].
Lientz, B. P. and L. Larssen (2004). Manage IT as a business : how to achieve alignment and add value to the company. Amsterdam ; Boston, Elsevier Butterworth Heinemann.
Kaplan, J. D. (2005). Strategic IT portfolio management : governing enterprise transformation. United States, Pittiglio Rabin Todd & McGrath Inc.
IBM Corporation (1981). A Management System for the Information Business, Volume I, Management Overview, 2nd ed. A Management System for the Information Business. White Plains, NY.
Lutchen, M. (2004). Managing IT as a business : a survival guide for CEOs. Hoboken, N.J., J. Wiley.
Quinlan, T. A. and S. J. Quinlan (2003). Readings in IT Financial Management. Santa Barbara, CA, IT Financial Management Association.
Ryan, R. and T. Raducha-Grace (2010). The business of IT : how to improve service and lower costs. Upper Saddle River, NJ, IBM Press.
Van Schaik, E. A. (1985). A management system for the information business : organizational analysis. Englewood Cliffs ; London, Prentice-Hall.
Womack, J. P. and D. T. Jones (2003). Lean thinking : banish waste and create wealth in your corporation. New York, Free Press.
