IT Funding and the Level 2 Sticking Point


One of the more intractable sticking points on the journey to Level 3 Business-IT Maturity is in the IT funding model – the ways that IT prices its products and services, and recovers its costs (and, it a profit center, covers its margin).

Life as a consultant is tough.  I’m not complaining, but we have to find small ways to introduce humour and keep our sanity.  I wrote recently about how a consultant can use language clues to quickly assess both business and IT maturity.  Sometimes, you don’t even need the clues!  One of the ways I can put a sparkle into my day, when I meet a CIO I’ve never met before, at an organization I know nothing about, after a few minutes conversation, I pronounce, “I think your IT funding model is broken!”  In every case, they look surprised, then reveal, “How did you know so quickly?”  Of course, the answer is, funding models are nearly always broken.

However, IT funding is one of the dominant causes for sticking at mid-Level 2 Business-IT Maturity.  Below that point, much IT spend is funded by the project.  To a degree, business clients understand the idea of projects, and, again to a degree, are prepared to fund them if they believe there is a direct benefit to them, usually in terms of cost savings, cost avoidance, or increased revenues.  They don’t understand the idea of IT infrastructure, and what it takes to keep it running and positioned for the future.  One of the characteristics of infrastructure is that you only notice it when it fails.  If infrastructure is working fine (any infrastructure), it is invisible except to those who are involved in keeping it working.  So, IT infrastructure investments requests are typically met by, “Why do we need to spend $x million moving to Windows Vista?”

Typically, at Level 1 maturity, IT infrastructure is funded by some form of allocation or tax.  The business leaders don’t like - it always seems to deliver  too little and cost too much, and keeps needing additional spending on mysterious things that should have been anticipated and planned for.

At Level 2, IT infrastructure becomes an even more significant portion of IT costs.  Recall, Level 2 is often about cross-functional systems (ERP, CRM) and support for collaboration and inter-enterprise communications.  During Level 2, IT is laying down a foundation for shared computing – in effect, procuring “options” for future capability that has not yet been implemented (perhaps not even defined).  Business executives at Level 2 maturity don’t yet have the IT literacy to appreciate the concepts of infrastructure and options.  Costs associated with these things are not easily tied to projects (which they understand they have to fund), and yet stuffing them under the covers as an allocation or tax does nothing to contribute to their understanding – it just makes them more suspicious and skeptical that the IT resource is being properly managed. 

So we get  into the Level 2 trap – IT does not adequately “sell” the benefits of infrastructure.  The business does not adequately understand the value of infrastructure.  Ergo, IT infrastructure places a drag against progress and increasing business-IT maturity.  We will come back to this point, and ways to address it in a future post.

About these ads