In Part 1 of this column, we introduced tools to help IT executives develop a baseline assessment of where and how their IT money gets spent. In Part 2, we’ll explore a method for determining how your organization funds what it buys, as well as which part of your organization logically should bear the cost of funding IT projects.
Table 2 suggests what the landscape should look like. It identifies the funding mechanisms and responsibilities that make the most sense in decentralized organizations.
Categories Mechanism EnterpriseLine of Business ResponsibilityResponsibility APPLICATIONS Apps Software PackagesFee-for-Service X Apps DevelopmentFee-for-Service X (Integration & Deployment) Apps SupportFee-for-Service X Apps Architecture DesignTaxation XX Apps Architecture Services, Support Fee-for-ServiceX Modernization & MigrationFee-for-Service X INFRASTRUCTURE Messaging Environment Allocation X Network & Comm. Architecture Design Taxation X Network & Systems ManagementAllocation X Voice & Data Services & Support Allocation X Infrastructure Engineering Allocation X Services & Support Data Center HardwareAllocation X Desktop HardwareFee-for-Service X Laptop Hardware Fee-for-Service X Other Access DevicesFee-for-Service X OVERHEAD Staff (Human Resources, Benefits, etc.) Taxation X Training Services & Support Taxation X General Support (Admin. Assts., etc.)Taxation X Table 2: Funding Governance Recommendations _________________________________________________________________________________
Take a look at your organization with reference to Table 2. How does it look?
As Table 2 suggests, infrastructure funding is largely the responsibility of the enterprise. Infrastructure design and construction is funded via taxation and allocation. The design of the infrastructure benefits everyone, so it’s taxable. But use of the infrastructure will vary from business unit to business unit and should therefore be funded by usage allocation.
The arguments to watch out for include:
You get the idea. The key to the successful implementation of mixed funding mechanisms is – you guessed it – serious leadership that expresses itself in a well-defined governance policy. If arguments such as the ones listed above are allowed to infect your organization, you’ll be spending as much time on resolving the arguments as you will on building and supporting your infrastructure and applications.
The simple rules should be:
Is all this simple? No. Here’s why. Much of what we’re talking about in what appear to be clearly defined terms are, in practice, quite fuzzy.
For example, when does the purchase of new laptops move from fee-for-service to allocation? If the central infrastructure organization runs the data center that houses mostly mainframe applications, but not some of the important distributed applications that reside on servers in the lines of business, where should the line be drawn between fee-for-service, allocation and even taxation, if either the mainframe or distributed applications team used a common applications architecture (developed by the enterprise group via taxes)?
What about sourcing? If the lines of business decide that they’d like to shop a bid for services internally and externally and select an external vendor, who manages that vendor if the vendor’s work requires them (as it will inevitably) to interface with existing internal policies, procedures, hardware and software? If the enterprise organization hires an outside vendor to help it perform infrastructure support for the lines of business, does the outsourcer report to the enterprise group or the line of business?
Disputes should be handled via some form of published grievance procedure. If a line of business feels it has a legitimate gripe, there should be a process that helps resolve the dispute. If you want the arbitration process to work you will have to use external judges.
Applications are the lifeblood of the lines of business – and they should pay the freight here as well (as suggested in Table 2). But there are some major issues surrounding applications funding that you should be aware of as you develop a funding strategy. Here are several of the most important ones:
All of this needs to be monitored closely because change is inevitable. One that should be especially tracked is the new movement toward applications hosting by third-party vendors.
It’s now possible, for example, to “rent” ERP and CRM applications from the major software vendors – and others – who have evolved into “application service providers” or “ASPs.” Other trends such as component architectures will also significantly affect the applications development process. Infrastructure outsourcing is also likely to continue at an aggressive pace.
Steve Andriole is the founder and CTO of TechVestCo, a new-economy consortium that focuses on optimizing investments in information technology. He is the former senior vice president and CTO of Safeguard Scientifics, Inc. and CTO and senior vice president for Technology Strategy at CIGNA Corp. He can be reached at [email protected].