Is Chargeback really a “third rail”?

You might think so after reading Chargeback exposes IT shops as slow, expensive suppliers.

“IT is a high cost operation and there will under-recoveries as business units slash consumption,” Rowsell-Jones says. “That’s a terribly interesting position to find yourself in as leader of an IT group. At that point you may wish you had never done chargeback to start with.”

The cloud is also complicating matters, as cloud providers’ very public price lists for computing services can throw internal IT organisations’ fees into nasty relief.

“Internal organisations cannot compete with the cloud,” Rowsell-Jones says. “When I have been asked to help with questions of why the cloud is so much cheaper than internal IT, I say the only sensible response is that unless there is a compelling security or privacy reason not to allow PaaS or SaaS, users cannot make a compelling case for dealing with IT as a slow and expensive supplier.”

Aside from the dubious grammar in the first sentence and the wharrgarbl in the rest, there’s a thread worth exploring in there.  Internal IT is indeed much more expensive than, say, paying by the drip for services from [insert your favorite Cloud or hosting provider here].

The comparison is invalid, however.  The analogy is more like renting 10 cars from Hertz versus managing your own fleet.  Sure, you cannot install your own radios, bike racks or tow hitches on the rentals and they’re all Chevy Malibus or Ford Mustangs, but hey…they’re “cheaper”.

VMware has therefore updated its vision for chargeback to include operations management, performance management and capacity management, a combination Gross says includes all elements of IT service delivery, from infrastructure to the help desk. “That takes it to the next level so the CIO can have a business-level conversation and become a business broker who understands the holistic cost of service delivery.”

VMware is doing the right thing but the author and his sources are missing the point.  The conversation is not about cost but what IT does for the business.  When we seriously engage IT to build with the business for once and run internally like a service provider, that might become clear.  Until then IT is still a skunkworks.  Service providers aren’t.  Service providers don’t have the baggage to carry that IT does unless they want it.  When you can effectively say “we’re not doing that 80% of IT we feel has low value and lower margins” it becomes trivially easy to look cheap by comparison.

If you simply stop with chargeback, the exposure risk is obvious.  Why not start with chargeback and continue by evolving your IT shop to “As a Service”?  Oh, wait…that’s hard.  It would be much easier to pin the blame on chargeback.

If you don’t like the figures, stop reporting them, I suppose.

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Peter

About Peter

Peter is a Geocacher, competitive cribbage player, surfer, amateur magician, golfer and star watcher (the astronomical kind). In his day job for Datalink, Peter is a Senior Manager with their Cloud Service Management Practice helping customers build, manage and improve their legacy IT and Private Cloud infrastructures through Automation, Orchestration and clean living. We're not so sure on the clean living.
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5 Responses to Is Chargeback really a “third rail”?

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  2. Rui says:

    , IT rarely has cornotl over pricing, so the secret sauce is in building a carrot/stick model (like you describe) that accommodates that restriction while still figuring out how to throttle demand without destroying customer satisfaction. It’s tough, hence my hope to keep IT focused on the first order problem, first, while those creative models are developed in parallel. It’s the whole we fund our infrastructure on a project by project basis model that needs to be shattered. The folks doing ITaaS or IaaS presumably have done that already. There are some great examples I wish I could share on the blog but I can’t because of client confidentiality.

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