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Running IT ops like a business not so easy

Running IT ops like a business not so easy

Any small-business owner will tell you that starting and running a business takes a massive amount of work. Some IT executives who are trying to run their operations like a business are discovering the same thing.

Any small-business owner will tell you that starting and running a business takes a massive amount of work. Some IT executives who are trying to run their operations like a business are discovering the same thing. "We started a chargeback system on Day One of our services (organization), and it was miserable. We didn't really know what we were doing," said David Pelosi, an IT business partner at Public Service Enterprise Group Inc., a diversified energy holding company. In 2001, Newark, New Jersey-based PSEG formed a shared-services organization that includes its IT, legal and human resources activities.

PSEG's shared-services unit has since developed a mature chargeback system for the IT services it delivers to business units. It has also built credibility with business users by benchmarking costs with external IT service providers and reducing IT expenses by $63 million between 2001 and 2004.

Still, Pelosi said that getting PSEG's 300-person IT organization to run smoothly as a business unit took a fair amount of time and effort. Technology workers need a high-level understanding of financial plans and concepts such as return on investment, Pelosi said at the IT Financial Management Week conference here last week. The event was organized by the New York-based International Quality & Productivity Center.

Other problems can crop up even after years of evolving an IT shared-services business. For instance, Carlson Companies Inc. has had an IT shared-services organization since the late 1990s. Since 2001, the Minneapolis-based provider of travel and hospitality services has automated its chargeback system to the point where business-unit customers can view invoices online with a detailed summary of services and pricing, said Bev Swanson, director of business strategy at Carlson.

But there have been snags. For example, Swanson's group once charged business units for storage on a per-gigabyte basis on the 15th day of each month. Last year, it learned that some business managers were moving data from one set of disk drives to another on the 14th, resulting in zero-sum charges, she said. Then they would move the data back to the original disk drives on the 16th. A business executive acknowledged moving the data, but "we didn't go back and recharge them" for the storage fees, Swanson said. "It was a relationship issue."

At Lehman Brothers Holdings Inc., depreciation on new and existing hardware purchases is automatically calculated and applied to customer invoices using software from San Francisco-based Business Engine Corp. The New York-based investment bank put the system into production earlier this year, according to Brian Greenberg, Lehman's vice president of IT.

Defining use

Last year, KeySpan Corp. developed a 26-category IT services catalog. In November, the company began issuing an itemized monthly bill of IT services for business-unit customers, said Frank La Rocca, acting CIO at the Brooklyn, New York-based electric and gas utility. "We met with [business] customers two months ago, and they struggled with defining what they use from IT," he said. The itemized bill "helps articulate that."

Still, KeySpan has decided not to implement an automated chargeback system -- at least for the time being. "Our CFO told us, 'Don't spend a quarter to chase a nickel,' " said La Rocca.

Some CIOs have had to make difficult choices in order to effectively run their IT shops. For example, The Williams Cos., a Tulsa, Oklahoma-based natural gas and electric power company, has whittled its IT organization from 1,000 people across four IT shops to just 100 people in a single department over the past few years -- thanks, in part, to the outsourcing of some of its application support, said CIO Ron Mucci.

He added that the IT workers who remain with the unit "are expected to have as much business knowledge as business people." -- Computerworld (US)

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