IT is too cheap! (part 2)

In part 1 of this 2-part mini-series I made the perhaps controversial claim that IT is perceived as too cheap. As a consequence, it is not given enough attention which results in a non-coordinated mess of applications and data scattered across the organisation which doesn't support a digital world. In this part, I dig a little more deeply ...

The TCO View

It's interesting to compare the IT function's view of an IT investment versus the typical business view. The business will rarely take into account anything beyond the up-front capital costs (which includes the initial implementation) plus some sort of per-year maintenance or usage costs.

By contrast, the IT function has to look at the Total Cost of Ownership (TCO) which includes topics such as:

• What kind of data will be kept on the new application?
• Who will have access?
• How important is it (i.e. will it need to be available 24hours per day as an example)?
• Who will maintain the application ("maintain" has many factors, but let's keep it simple and interpret it as meaning "who will look after it")
• When there's a problem (note: not "if"), who do people call?
• Does the proposed supplier meet organisational standards such as data privacy, security etc.?
• What integration expectations are there around the new application?
• Will it have an impact on master data management?
• How will the data be migrated from any existing systems to the new system?
• How will the data be migrated/archived when the new system is eventually retired?
• How will future releases/updates be dealt with?

I could go on - every organisation has a list similar to this one. The point is that the up-front cost of an application is one thing, but the total cost of ownership is quite another and frequently leads to an under-estimate of the true costs of IT. Even worse, the frequent outcome is complaints about "the IT function being too expensive". I suggest it's not that IT people are inflating costs, it's that the function has to be realistic. Does any of this seem familiar?

The Value Equation

Cost is one thing, but the other side of the equation also has to be taken into account. "Value" in the IT context can look a little complex, but a simple explanation can go a long way: it's about support for goals. But which goals are we talking about? That's where things get interesting because at one extreme you have the stated goals of the organisation (assuming they exist: I worked at one major company where the strategy seemed to be to do more of what they did last year). At the other extreme, you have personal goals. Plus everything in between such as division or function goals. At times these goals can conflict. For example, an organisation might have goals around innovation, expanding markets and employee development, but the CEO and board might only care about profit. Never happens? Just look around ...

Conclusion

In part 1 I made a provocative claim that IT is too cheap. On the surface, it can appear that way, but when we take a total cost of ownership view, it can look very different. What looked like a cheap SaaS application to implement can suddenly cost a large amount per year in associated costs. The big cost picture is therefore important. But so is the value side. If an application truly seems to have value we need to be able to clearly state how it supports certain objectives and therefore what the organisation stands to gain.

This is the only way we can start to bring the IT function in from the cold - to understand the complete picture of costs and value and be very clear about how IT is not just aligned with the rest of the organisation, it is in fact an integral part of the organisation.