It’s very popular to consider the internal users of IT services as customers, acting like IT is an in-house service provider that the rest of the company purchases services from. The goal behind this is usually a reaction to a real or imagined belief that IT isn’t being responsive to the needs and budget of the rest of the company. The thinking goes that by having IT think of the rest of the company like an outside organization would of its customers, you can ensure better accountability and buy-in. Typically, organizations that go down this road also adopt a charge-back model where the IT organization charges back all or nearly all of its costs directly to the other divisions within the company that are consuming those services.

While there are several positive aspects that can come from this approach, there are several problems that can easily be created that stem from the problem that in most cases the rest of the company really isn’t a customer in the classical sense. Why? Because they lack a true buying choice. Furthermore, it generally isn’t in a company’s overall best interest for their divisions to really be customers of their own organization.

The original motivation for taking these approach is usually to address several issues:

• Division buy-in on costs and priorities: If they are directly paying the bill, they are going to pay for what they want and not ask you for things they aren’t willing to pay for.
• Clear status and communication: The project reporting and communication model is simpler for everyone to get their head around if it’s based on something we’ve very familiar with. Each player can figure out their part.

If you model the relationship between the IT organization and the rest of the company as a service provider – customer relationship, it’s easy to miss the transitive qualities of this: if they are your customer, you are their vendor. The word Vendor casts things in a different light: If you’re a sufficiently large organization you probably have a vendor management office whose sole job is to ensure you pay the least you can for things and fosters competition between vendors. Their job is largely to keep the company from getting too cozy with any one vendor. Are you ready to be just another vendor, like the one that bids annually to supply fresh coffee or office supplies?

Benefits

There are several good things that this model will tend to create.

• Defensible functional requirements: Unreasonable requirements tend to be expensive relative to their value, and the division is more ready to discard them.
• Role Clarity: The Vendor/Customer relationship is relatively easy to understand, and each party can generally determine their role quickly. When there are disputes, there’s a natural framework for resolution.

Challenge One: Buying Choice

It isn’t a long road from treating your internal divisions as customers until they look at you as a vendor. Once they consider you just another vendor (like the one they selected to provide fresh coffee to the office, or office supplies) they’ll want the advantages that come along with being a customer. For example, it’ll seem clear to them that it should be optional to use your services. This will feel very reasonable to upper management – it’s all part of the transitive nature of IT being accountable.  If IT can’t deliver a service at the best price, why not go to another provider?

This will likely start with something that will be difficult to argue against – such as a large software development project, perhaps in a language that your in-house talent isn’t familiar with.  Now, what about hosting for that product?  If you are charging back true costs for your data center to each division, you are unlikely competitively priced with what a division could get from Rackspace or Peer1.  It isn’t necessarily that those companies are more efficient than you are at doing the same thing (indeed, if they are then you should broker your own contract with them) but instead that it isn’t an apples-to-apples comparison.

Challenge Two: Implied Requirements

Whenever an internal IT organization takes on a project, there are a number of implied requirements that affect cost and schedule. Some of these requirements are from the IT organization itself (like technology choices) and others are from the corporation (role of internal staff and contractors, project management and reporting standards, etc.). When a division looks to bid out work to an external source, these requirements are usually unstated because in many cases they aren’t requirements the division has on the solution.

Another way to look at it is that any constraint on the solution that the customer (the division in this case) doesn’t have or care about is an implied requirement and likely a competitive disadvantage when comparing internal IT costs with external costs. In broad strokes, the difference in requirements is that a division’s requirements are almost entirely about outcomes, not methods: They care about the results their users get, not how they are achieved. IT organizations often focus their requirements on how results are achieved (using this technology, in that enterprise architecture, developed with our RUP-based approved process, tracked by our PMO) and they defer to the division the functional requirements.

Local Maxima and Minima

When each division or cost center is free to chose what services they are willing to pay for, they will converge over time on only those services that are good for them. Establishing shared services is generally challenging because each party will want to ensure that everyone is paying their fair share. This is often tricky to define – should it be proportioned by feature usage? Capacity?  This often creates a “first mover disadvantage” scenario where no part of the company wants to be the first to get a new service such as a database server or SharePoint Portal because they’ll be hit with the entire cost of it unless someone else comes along.

Secondarily, upgrading services gets challenging because no drop of rain believes it is responsible for the flood: If you want to upgrade to Exchange 2007 from Exchange 2003, one division can easily say that they don’t believe it’s necessary and thus decline the costs. If you need a larger server to house SharePoint, who is going to get the bill? A game of chicken often gets created where multiple parties all want a service, but no one wants to be the first to ask and risk subsidizing everyone else.

With each cost center pushing to only pay for those things it perceives sufficient direct value to take on, they are making decisions only based on what gives them the best cost or maximum value. This isn’t likely to align with providing the overall lowest costs for the company. For example, three separate departments could easily decide to implement their own direct attach storage for disk because none of them feels they can justify the cost of a SAN, however together it would be less expensive to construct and maintain a central SAN environment with SAN backup.

There are some straightforward exceptions to this problem where shared services are generally easy to get consensus on and cost out. Typically these are raw infrastructure services such as email or file storage where there are clear units of measure that allow for proportional billing (mailboxes and gigabytes used, for example).

An Alternative: Clients, not Customers

If the Customer/Vendor model isn’t the overall best approach for a company, what alternative model can provide the benefits without the unintended consequences? How about a term that’s between User (which has accumulated a substantially negative connotation) and Customer – Client. A quick trip to the dictionary shows that a client is any person or group that is the party for which professional services are rendered, which fits reasonably enough.

As your clients, they still are entitled to a great deal, just like customers would be. As the client of the project, they:

• Determine success & failure: Your project isn’t successful just because it follows the corporate processes or works on the corporate approved IT infrastructure; those are the constraints on how you solve problems that are immaterial to your client. Success is determined by whether you achieved the goals the client created. That may mean you need to do some extra communication to make sure your client knows that their goals were met, even if that’s not in the standard process.
• Decide if it’s worth the price: In the end, the problem may just not be worth solving.  Many things can be done but the cost in time and distraction exceeds the value.

Unlike a customer, since you’re part of the same organization you can share with the client your insight into the costs and risks of the project in a way that no vendor ever could.  In the end this creates the best partnership that delivers long lasting results.

A final note

If you don’t treat your users as clients, odds are very good they will eventually get themselves a buying choice. When they do, they won’t chose you. Don’t let it come to that, it isn’t ultimately in their interest, your interest, or your company’s interest.