by Eric Feldman | @EricJFeldman
A recent Wall Street Journal article described how Google parent Alphabet Inc. is going to charge its operating companies for using corporate services. (Google Parent to Ask Subsidiaries to Pay for Corporate Services, Alistair Barr, Wall St. Journal, 11/24/2015).
Corporate services can include anything consumed across the enterprise such as information technology, procurement, finance, and human resources.
Their key reason, according to the article? To make the operating companies more accountable for costs, which hopefully will lead to reduced spending on services, and greater ability to boost spending on new technologies.
The desire to "chargeback" for enterprise services is nothing new. Companies have been doing this since mainframe timeshare days, although the business drivers have shifted from the pooling of costs to better accountability. But in today's modern datacenter, part of the challenge of charging for IT Services is that there is no single metric that serves as a proxy for consumption.
What is this concept of a proxy? To help illustrate, we can look at the power generation industry to see how they charge for services. Think about all the costs associated with power and the electric grid. There are infrastructure costs to create power (gas, coal, nuclear, solar, wind, hydro, etc.). And the infrastructure costs of transmission include high powered transmission lines and towers, electrical substations, underground cables and conduits, and local utility poles.
And yet, with all that complexity, the charges for electric power are encapsulated within a single metric called a "kilowatt hour" (kWh) that is used as a unit of measure for both the supply of power (consumption) and the delivery of power (capacity).
There have always been challenges with charging for IT services due to their nature. There are databases, operating systems, middleware, and enterprise applications, along with all of the associated software licenses. There are hardware costs, including PCs, network equipment and datacenter infrastructure. And don't forget overhead costs such as power and HVAC. In contrast to the electric utility example, there is not a single metric that encapsulates all of IT similar to how a kilowatt hour represents the generation and delivery of electricity. A likely reason for this is the wide array of systems and services being provided by IT.
But if a chargeback initiative is on your radar, where do you begin? You may want look at an area of IT that represents 20-35% of your total enterprise IT spend, your software estate. As in the Google example, a fair and equitable chargeback process can make your business units more accountable for their use of strategic software assets. This can help keep costs under control for the area of IT spending that is growing the fastest—software. And effective management and optimization of your software estate will not only help reduce your software costs, it can also mitigate software audit risk.
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