Pay Up!: How CIOs Get Departments To Pay For Their Share Of IT

by drjim on October 28, 2009

Image Credit 1-800-Flowers Found A Way To Make Everyone Pay

1-800-Flowers Found A Way To Make Everyone Pay

Everybody wants their IT services for free. When you become the CIO, you’ve got to find an answer to the ugly question of just who’s going to pay you for all of those fancy IT services that your department can provide.

Sometimes there’s a single IT budget for the entire company that everyone draws from. But who gets what? Does everyone get the same amount? Do successful departments get more IT services than other departments? If they don’t, then will they start to set up their own IT department? Looks like another problem that you’re going to have to solve when you are the CIO…

Budget, Budget, Who’s Got The IT Budget?

In most of the civilized world clean drinking water is freely available all the time. Since it’s always available and we don’t really pay very much for it, we use it like there is no tomorrow.

Who cares about leaky faucets? Run the yard sprinklers, fill the pool, etc. – there’s really no cost to being wasteful with the stuff. This is all fine and good until something happens. When there is a sudden scarcity of water, all of a sudden we become much more aware of just how valuable it is.

I live in Florida and when a hurricane (or the threat of one) looms, bottled water is what everyone starts to stock up on. We can go without electricity for days, but not water.

The services provided by IT are the same way – if nobody has to pay for the helpdesk, or the onsite support, or the printer paper, then we all use them like they were free – which they basically are. As a CIO you’ve got a money problem. The internal customers that you serve are going to want you to do more and more for them while at the same time they are going to expect to not have to pay for any of it. Sounds like you’ve got a problem on your hands.

Flower Power

Tim Moran has taken a look at how the company 1-800-Flowers.com has dealt with this very problem. In the case of 1-800-Flowers, they had created a problem by buying other companies who came along with their own IT departments. They centralized the IT services; however, they were left with 14 separate brands and businesses.

Each of these separate businesses uses IT services; however, they didn’t have to pay for them – the IT funding came out of a central budget. This meant that everyone felt free to request as many laptops, Blackberrys, and cell phones as their little hearts desired because they were all, effectively, free to them. You can imagine the CIO headaches that this was causing – there was no financial IT alignment.

Pay To Play Saves The Day

There is a lot of talk about how CIOs need to find ways to innovate within their departments. Over at 1-800-Flowers CIO Steve Bozzo showed some innovation when he decided to solve this problem by starting to charge each of the company’s brands for the IT services that they were using.

It turns out that this isn’t really all that hard to do. There are plenty of good software programs out there that allow you to do this type of item-by-item billing using the Internet to provide online access to the bills. The real challenge is loading all of the data into the system in the first place.

There will be tricky decisions in many areas. Where servers are being used to support applications that are used by multiple departments you are going to have to find ways to divide up the expenses between all parties involved. Bozzo went about transitioning to this new way of doing business in a clever fashion.

Once the internal billing system was set up, he immediately started sending the business heads so-called “mock bills” that showed them what their IT bill would have been if the chargeback process was actually being used. This, of course, caused some shocked business executives to have some hasty discussions with IT.

The new IT billing system went “live” at the start of 1-800-Flowers new fiscal year. Having seen the mock bills and having had time to reduce their IT expenses somewhat allowed each of the business units to request the proper funding for their portion of the annual IT budget. No solution is perfect, but this approach allowed 1-800-Flowers to get a handle on their IT spending.

What This All Means For You

1-800-Flowers is now able to allocate every dollar in their IT budget to a business unit. This includes their entire infrastructure management from servers, security, voice services, to network services.

What this has allowed the company to do is to finally get true insight into just exactly where all of the money that they are spending on IT is going. Although it may not be in your CIO job description, when you become CIO providing this kind of transparency into your IT budget would be a good idea.

Once you are able to convince your firm’s senior management that you are indeed spending wisely the money that they’ve allocated to you, then they’ll be more likely to provide you with additional funding to work on those new projects that you really want to work on.

Do you think that there is any downside to providing so much insight into where the IT dollars are going?

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What We’ll Be Talking About Next Time

It turns out that a company’s #1 salesperson is their CIO. They may not go on sales calls, have an assigned quota, or even be up-to-date on the company’s latest product pricing plans, but at the end of the day the CIO is the one who drives (or drives away) the most sales.

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{ 2 comments… read them below or add one }

Elyse November 6, 2009 at 1:00 pm

Hi,

Great Article, and a good concept to share driving value back to the individual areas requesting the work. In healthcare, having this transparency can help drive innovation. Too often in reactive organizations a large part of the IT budget is lost in running and maintaining instead of innovating and implementing. The trick is to transform how the organization uses IT from a running the lights to a transforming presence.

Thanks for sharing!
Elyse

Reply

Dr. Jim Anderson November 29, 2009 at 12:24 pm

Elyse: you hit the nail on the head — lots of IT work gets spent on just keeping things up and running and nobody ever realizes that is where it’s going! Perhaps this approach of charging back to the users will help to motivate people to get off of some of those older systems that IT always seems to end up supporting for way too long…!

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