Bill the Customers
Getting someone else to pay for the cost of your IT projects is a popular tactic used by low-margin CIOs as a way to extend the reach of a limited budget. All it takes is imagination and business sense.
Phil Go, CIO of Barton Malow, a Michigan-based construction company (2001 profit margin: less than 1 per cent), says he needed a way to differentiate his company from others in the highly competitive construction field without draining his $US5 million budget. He mapped out a strategy for using IT to speed up construction projects, a plan that could put his company ahead of rivals. But his budget would only go so far. So he decided to deal with the cost of technology the same way his company managed the cost of concrete or labour crews: he billed the client.
"We are a professional services firm,"Go says. "When IT projects relate to a client's construction contract, we pass the cost on to them."
Go began using an ASP (though he declined to say which one) to handle all aspects of project management, a move that few other construction companies have made. The result: buildings are completed on schedule about 50 per cent more often than they used to be. He also set up a WAN at each construction site that maximised efficiency by linking the construction sites to Barton Malow's headquarters.
The monthly cost of both the ASP and the WAN are written into the contract and billed to the client site as part of the job cost, Go says. (If it's not written into a client's contract, different operating groups at Barton Malow absorb the costs.) This way, Go is able to help the business and fund projects without dipping into his own budget.
"These are investments we must make in order for the job site to be more efficient and for projects to be completed on time,"Go says. "Not many companies do that because they don't see an immediate return, but we're getting very positive feedback from our clients."
Hang a Shingle
Steve Hassell, CIO of the Northrop Grumman Newport News Shipyard (2000 profit margin: 4.5 per cent), took a different route than Go to reach a similar advantageous spot.
In early 2001, in concert with business leaders at the Virginia-based company, Hassell made his IT department a wholly owned subsidiary of the Shipyard. As president of the new entity called Naptheon, Hassell (who retains his CIO title) signed a five-year service-level agreement with the parent company, Newport News Shipyard, and now the IT department operates like a paid consultant. Hassell bills Newport News for all costs related to the department and its services. "Before, we used to have emotional yearly debates about the cost of IT,"Hassell says. "This step took all the emotion out of it. Now we have cost and quality numbers based on standalone research, and we can do an objective business case for any project just like any other service provider."
The move helped Hassell get his arms around the total cost of IT, from maintenance and projects to how much it cost his employees to park their cars. It also gave him a definitive way to ensure his department's service levels are up to par. His department benchmarks itself against other IT service providers to ensure good cost benefit. Another benefit: the IT and business sides are collaborating more than ever. Each business unit vice president is assigned an IT partner, whose job is to understand how IT can help the unit. When the Shipyard's engineering division needed to implement a CAD package, creating a project team comprising engineering and IT resources was a piece of cake, Hassell says.
"We didn't have a turf war over who was in charge or who would control resources,"he says. "They trusted each other and had been integrated for long enough that they were used to working together as a team. Even the engineering vice president had no problem letting the divisional CIO take leadership of the project."
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