Performance Improvement

June 10, 2016

IT as a Profit Center

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For decades, IT departments have been a characterized as a cost center. The services and capabilities information technology provides are often treated on par with legal, accounting, or human resources – as strategically vital, but cost-heavy functions. While it’s always true there are expenses associated with IT, there’s also historically been generated value. The issue is that this value historically does not accrue within IT, which means there isn’t a true revenue side within IT. The value instead is what accrues across the entire business.

It is our contention that IT has become a profit center for the organization as it is driving sales, revenue, and growth

One could argue that IT has become a legitimate profit center when considering purely technology driven B2C or even C2C sales paradigms. Let’s examine the case of an e-tailer and the centrality of IT to facilitating the revenue generation process: IT as a Profit Center

In the example above, which is a real world example, the IT applications are generating and processing actual sales from inception through closure. IT is ostensibly facilitating the sale. Does this not make it a revenue producing unit? IT systems are the sole methods of the organization generating revenue. Models such as PayPal, Verisign, or even Amazon are demonstrative of this concept. While an e-tailing scenario may present an obvious case for IT, many non e-tail revenue dependent business processes are facilitated by IT services.

It is true that certain aspects of IT such as provision of networks and infrastructure will remain part of a cost center as they are legitimate overhead to the organization and resources that are shared by all. However, when specialized suites of application software take sole ownership of:

  • Customer sales,
  • Sales tracking,
  • Product delivery, and
  • Payments and collections

The case can be made by the IT department as a legitimate profit center to which revenue generation should be attributed. Historically, revenue recognition would be in the domains of Sales or Marketing but without these specialized suites of IT applications, revenue would not be created.

So, is IT a cost or profit center? We can treat IT in a conventional manner (as a cost center) or we can recognize the systems architecture for what it is: a true and strategic business driver that is generating tangible revenue for organizations.

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