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What Not To Be: 'Black Hole Cost Center'

As the CFO office's liaison for IT--associate VP of IT finance, to be exact--Bill Miller of Nationwide Insurance sees one of his jobs as making sure IT isn't seen as a "black hole cost center."

As the CFO office's liaison for IT--associate VP of IT finance, to be exact--Bill Miller of Nationwide Insurance sees one of his jobs as making sure IT isn't seen as a "black hole cost center."Miller's role at Nationwide is to understand the nuances of IT economics. The idea is that IT needs its own specialized financial analysts, just like a company's real estate or investment group has. "IT is unique in that its cost drivers aren't necessarily one-to-one drivers to traditional business cost drivers," Miller says.

So, in the insurance business when the number of policies grows, processing costs might not go up, Miller says, because an existing mainframe can handle the volume. Storage costs, however, likely move more incrementally with policy growth.

Nationwide's working to define IT more by business outcomes, and it's using the latest version of ITIL as part of that, managing the effort with Digital Fuel IT service management software. As they dive deeper into ITIL, the teams realize that at times they have "a tech catalog, not a true services catalog," Miller says. The difference is between a business unit having to talk in terms of servers or computing capacity, rather than the better situation of talking about, say, claims processing needs.

Hard financial analysis won't always going to cut IT's way. Nationwide this year said it would cut 480 IT staffers and contractors, adding to about 3,000 jobs cuts across the company the past two years. Miller said he couldn't speak to the specifics behind the cuts.

Digital Fuel CEO Yisreal Dancziger sees more companies putting people into what amounts to a CFO of IT role. When they do, he sees IT get defined more often in terms that force business unit leaders to make choices based on value and cost. One example: the IT team at one company asked business unit leaders to choose among small, medium, and large e-mail box storage, with a price tag on each. "Guess what? 90% subscribed to the small one," he says.

With the constant pressure to cut costs, Miller says IT teams must tie expenses to specific improvement in a step in the insurance process. "You can't offer that equation if you don't run your IT business to say what IT's costs and drivers are," Miller says. How well can Nationwide do that? "We do this well in some areas," he says.

We've written before (see the Revenue Of IT) about how companies struggle to communicate the returns on IT, and not just the cost. It's critical to the IT organization, since "if you're a black hole cost center, the company's only goal is to make you cheaper," Miller says. More than that, though, Miller sees this ability as a competitive "differentiator" for companies.

How good is your company at understanding the economics of IT? What works, and doesn't, to make the discussion about more than just the costs?

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