Much has been written about the basics of showback and chargeback in IT, but few of the pieces I have read really dig into expectations that the organization should have regarding the use of each, as well as answering the bigger question, “do either of these methods actually work?” First – a bit of history. In the late 90s to early 2000s, it was all the rage to discuss IT as a profit center. The genesis of this fad centered on the fact that some businesses were able to demonstrate that innovative uses of technology resulted in significant cost savings or increased revenues. Hence, the driver behind turning IT from an expense center into a profit center was established. However, the metrics behind clearly demonstrating how the goal was met were immature and highly ambiguous.
Typically, the executive office envisioned IT as a profit center solely through a single financial metric. It focused on IT providing emerging technology services, such as Web and Internet, and thus, facilitating demand from the business for services provided. As a result, IT would charge the business for resources, which the business would then be able to justify through increased revenues or reductions in expenditures. Thus, no one ever had to look further than the IT bottom line because it was assumed IT was answering the demand from the business in an appropriate and successful manner since the business was funding the efforts.
Unfortunately, this approach was so naïve and improperly formulated that it wasn’t long before the house of cards came crashing down. The first failure of this approach was cost. IT just made up numbers that were significantly higher than those being offered by the general market. The second failure was delivery time. The window IT was taking to deliver services was usually double that of the market and typically problematic from either a feature or usability perspective. The result was the formulation of “shadow IT” as the business started forcing internal IT to compete for the business with external contractors. Before long, most IT shops were reduced to cost centers again with some organizations occasionally pulling funding from various business units relative to their usage in order to maintain some accounting and tracking.
With this brief, albeit problematic, history, we have established the pattern of charge, showback, and chargeback. Moreover, from this pattern we can see that chargeback is the default fallback scenario to a failed attempt to turn an internal expense into a profit. The failure, however, goes well beyond the business’ attempt to transform their balance sheet and takes us directly into the heart of today’s cloud computing discussions. Yes dear friends, we have arrived at the point where we will either see a repeat of the aforementioned failed pattern OR the introduction of a workable approach that will finally allow the business to deliver on their initial vision of seeing IT costs being justified by rational business initiatives.
For these elements to succeed, we need to realize there are multiple costing models within the same IT organization. A simple utilization rate for resources does not align with how the business consumes resources. Moreover, there are consistent services that, while seemingly easy to distribute and amortize over multiple departments/divisions, ultimately are required in order for the business to operate and, thus, do not align with strategies for justifying IT costs. For example, the business has to operate and ensure disaster recovery around accounting and customer management systems. These are simply a cost of doing business. If more storage is needed to manage the data associated with these systems, the board would be hard-pressed to push back on the capital expenditure to support the requirement. Hence, attempting to include them in a chargeback/showback model simply obfuscates the numbers and undermines the true vision for these efforts.
What remains after these “mandatory” systems are supported fall into the category of obligatory and marginal systems. Here is where chargeback and showback models are really useful metrics for the business in terms of rationalizing IT costs. Performing analysis of the rate of consumption of IT resources relative to the value they provide to the business, and having that metric underscored and justified by the business through financial outlay from their budget, will finally get the business to the destination they envisioned in the late 90s. As these aging systems weigh on our overburdened IT infrastructure without providing equivalent or greater value, operational costs will continue to rise. IT transformation starts by placing these systems into a free-market economy and seeing if they are worthy of surviving.
I suppose all of this comes down to some disjointed Feng Shui for your compute environment. As in life, we collect things and at some point we become burdened by the very same things we have collected. Unloading our burden means de-cluttering our space and our lives. Chargeback and showback models are not so overly differentiated that it’s worth debating the difference; use what works best for your organization. Understanding what models are applied to which areas of IT and realizing that the goal of these models is to achieve alignment between IT and the business – with regard to utilization and consumption of IT resources – is critical to using these tools successfully to transform.