The Manufacturer's Cost Centre Problem
A manufacturer spends EUR 180 million on IT, split 70% run, 20% change and 10% grow. It charges business units by headcount. Shadow IT is estimated at EUR 22 million, demand arrives by email, and 140 initiatives are tracked as projects with no formal retirement gate. Six business units each negotiate separately with the same suppliers. The CFO believes IT is a cost centre with poor cost transparency; the CIO believes the business bypasses IT because the process is slow. The CEO wants IT to be run as a business within 18 months. The programme office reports monthly on budget consumed, not value delivered. You are asked how IT4IT value streams, portfolio data and consumption-based charging should be used to change behaviour, and which measures would tell whether the change is real.
1. Where should shadow IT demand and spend be brought into the IT4IT value streams, and what should change first to make that credible?
Read the worked answer
Shadow IT is demand that has bypassed S2P demand management and R2F consumption. The first move is not a crackdown; it is to make the sanctioned path faster and more transparent. In IT4IT terms, publish a Service Offering and catalogue with clear prices and lead times, route demand through a single intake with published decision criteria, and give business units a subscription view of what they consume. Portfolio Management should record the shadow spend as an investment for the service it actually buys, even if the supplier is external, so the portfolio reflects reality.
The first change should be demand intake and offering transparency, because the current email process and headcount charge give the business no reason to comply. The second is a retirement gate: 140 initiatives without retirement means the portfolio only grows. The third is to connect supplier agreements to service offerings so six separate negotiations become visible as one spend category.
Risk: if chargeback is tightened before the catalogue is trustworthy, shadow IT will move further out of sight. Sequence transparency before enforcement.
2. Would you replace headcount-based chargeback with consumption-based charging immediately? Reason through the behavioural and data risks.
Read the worked answer
Not immediately, and not everywhere. Headcount charging is cheap and predictable but it rewards the wrong behaviour: business units cannot see the cost of what they consume, and IT cannot show the cost of a service. Consumption-based charging is more IT4IT-aligned because it uses subscriptions, entitlements and charges from R2F, and it links to service offerings. But it depends on trustworthy offering and subscription data, which the manufacturer does not yet have.
A staged approach: first publish showback by service and business unit, using the same data that would later drive chargeback. Second, pilot consumption charging on two well-understood services with stable demand, such as workplace and hosting. Third, keep a fixed platform fee for shared services to avoid volatile bills that drive hoarding. Fourth, only then extend.
The behavioural risk is that business units optimise for the charge rather than the outcome, or shift spend to shadow channels. The data risk is that unlinked subscriptions undercharge and the CFO loses confidence. Immediate replacement would create both risks at once.
3. Which measures would show that IT is being run as a business, and which popular measures would mislead?
Read the worked answer
Use measures tied to the value chain: run/change/grow ratio and its trend; unit cost per service offering; demand funnel conversion and time from idea to investment decision; percentage of the portfolio retired or decommissioned; subscription and entitlement accuracy; and cost per active subscription. These show whether investment follows value and whether consumption is visible.
Misleading measures include ticket volume, utilisation, number of projects and total tool count. Ticket volume can rise while service improves; utilisation encourages over-supply; project count rewards starting work rather than finishing or retiring it. A balanced scorecard should pair a flow measure, such as lead time from demand to contract, with an economic measure, such as unit cost, and a portfolio measure, such as retirement rate. If IT reports only cost and SLA attainment, it is still reporting as a cost centre.