Managing the Costs of IT

This is a very intriguing and enlightening chapter outlining the importance of cost allocation in terms of managing old technologies versus implementing new technologies and extending services. As I pointed out at the end of my Lesson 1 Journal Entry, new businesses have a significant cost advantage in the constantly changing World of IT. New businesses only need to manage costs of implementing new technologies in the beginning, thus avoiding the costs associated with maintaining legacy systems. Also, newer companies have the luxury of observing the competition and learning from their accomplishments and mistakes. Along with the latter, newer companies have recent market information to refer to when deciphering what is valued and what is redundant in terms of services and information for the desired marketplace. On the contrast, more mature companies, and also as new businesses mature, it becomes increasingly important to manage how costs are allocated across the firm as well as within the IT department.

Let's take Sasktel for example. Sasktel was required to expend a significant amount of monetary and human resources maintaining obsolete and archaic legacy systems, along with the inflated consulting costs to learn how to adapt their business models to make them profitable in the competitive and dynamic telecommunications industry. Although they understand the requirement to convert to new technologies and did their best in order to do so, as the organization and it's technologies became more mature, the more expensive it became to maintain them and the more difficult it was to transition to newer and more efficient and effective business models, processes, and functions. In an effort to keep up with new technologies and continue to extend resources into research and development, maintenance on old systems suffered and thus customers using these platforms were neglected. The drop in customer service caused a loss of customer loyalty due to the implementation of provincial legislations that created more competition in the telecommunications industry.

Sasktel was forced to adapt, restructuring the entire organizational structure to become more efficient, ridding of expensive union senior management positions and making way for more junior-level positions to focus on new developments. My father actually was forced into retirement because of these circumstances. The rationale behind this, to which I am in agreement, is that senior level management made up the majority of human resource costs and they were reaching an age where their expertise was becoming obsolete relative to the cost-skills tradeoff of hiring highly trained junior staff. Sasktel was now getting more bang for their buck, so-to-speak, albeit at the cost of the livelihood of several senior managers. 

The impact of managing costs of IT extends far beyond the costs of doing one specific project. A large organization may have several thousand smaller projects occurring simultaneously across five continents with head and regional offices, all with their own set of problems and possibly different levels of technology adoption in the marketplace. The formula to calculate where resources should be spent, that is on new technologies, or the maintenance of older systems, becomes a convoluted series of variables each with their own subsets of potential variables and variances that affect the creation of said formulae.

In a conversation between Davies and Barton, where Barton shows his distaste at the fact that Davies is the only person that understands the formula for determining where costs should be allocated during the fiscal year. Barton requests that Davies create a presentation to explain how the formula has been derived and how the adjustments are made to it, such as which variables are accounted for and where they derived. Barton's distates and final decision is extremely valid, in my opinion.

In the event that Davies were to leave the organization, the formula would be virtually unusable without spending a significant amount of redundant time by highly skilled and trained profesionnal(s) in order to make the formula of value to the company. By making documentation of the formula and making it available across the organization would only catalyze it's progression, as well as to ensure that the formula is not biased or conflicting with the organization's goals. It is difficult to decipher whether it is Barton's fault for not having policies and procedures in place for managing cost allocation, or if Davies is to blame for not bringing it to the attention of his superiors sooner. However, hindsight is 20/20 as they say, the important thing is that the problem was swiftly assessed and rectified. 

Austin, R. D., Nolan, R. L., & O'Donnell, S. (2009). The adventures of an IT leader. Boston, MA: Harvard Business Press.

McKeen, J. D., & Smith, H. A. (2012). IT strategy: Issues and practices. Boston: Prentice Hall.