November 14, 2017
CIO Recap: IT as Profit Center
Is IT defined as a profit center or a cost center? It depends on who ask. During last Friday’s CIO group meeting, Christopher Howe, Director of Applications at 3M led a group discussion on “IT as Profit Center”.
Investopedia defines a profit center as a department being held “responsible for generating its own results and earnings, and as such, it’s managers generally have decision-making authority related to product pricing and operating expenses. Profit centers are crucial in determining which units are the most and least profitable within an organization.”
Below are the key takeaways from Fridays discussion:
What are the essentials needed for IT to be viewed as a profit center?
- Velocity: Operating at the “speed of business”, the business environment is always changing and it is changing rapidly
- Value: Optimizing total delivered value, this tends to be organically driven
- Operational Excellence: Global service mindset and capability delivered holistically across total landscape
What are the challenges?
- Defining a Vision: The objective of creating a true shared vision with CEO’s and the company
- Consistency: Operating at the level of velocity, quality, and cost to achieve that shared vision
- Feeling like a client: Instead of feeling like a trusted partner or a peer, the IT department feels like a client to the business
- Defining a playbook and following through with it
- Utilizing a tier process when transforming to Lean Agile; a tier review process ensures that risks, issues and dependencies are identified, actioned, and escalated in a timely manner
- Charging other departments for their services
- Utilizing the value realization curve, starting with a baseline, recognizing the opportunity for optimization, then targeting the diminishing returns
- Project Charter, a consistent process to influence a profit center mindset with a clear goal of embedding value into all aspects of IT projects
Things to keep in mind
- Go at it with a value perspective
- Don’t just look at the cost of IT as a whole, look at the cost of the process
- Empower leadership at all levels, while consistently setting guardrails as well
- Set the framework
- Change starts with the top people in your organization, and it starts with educating them
- As long as a project drives value, it shouldn’t matter how much it costs
- Spend time on validating the measurement system
- Encourage critical thinking at all levels
Based on your experience, what are the first steps when transitioning to a Profit Center Mindset?