Hey, No Charge!

Michael Armstrong is CIO of Des Moines, Iowa. Government Technology named him to its Top 25 list of IT thought leaders last year.

I came to Des Moines, Iowa, in the fall of 1997 to build a new IT Department and help change the organization.

I found an aging mainframe environment and an IT operation that lost respect from the rest of the organization. I also found an excellent charge-back application -- the most sophisticated application we had. It did exactly what it was supposed to do, did it very well -- and everyone hated it! In a charge-back system, IT usage is tracked and charged to departments according to the technology they use. Talking to stakeholders throughout the organization, I realized the charge-back application came to symbolize much that was wrong with the IT operation in Des Moines.

The first question asked of a department needing assistance was, "How are you going to pay for this?" This was coupled with assessing the entire development cost of a new report or application to the initial requestor, with subsequent users paying only incremental costs for the same application or report.

Des Moines also lacked other elements that would make a charge-back application useful -- a governance structure, a technology investment strategy and a clear explanation of how the system worked.


Not Fitting the Mold
The system was seen as both obstructive and unfair -- with predictable results.

The IT operation was ignored as individual departments built their own incompatible systems. Multiple manufacturers and platforms proliferated, and there was a definite "haves vs. have-nots" mentality in the organization. Individual departments submitted separate technology budget requests with little coordination, and IT involvement with server-based systems that departments were building was minimal.

There was great frustration within the organization about the inability to deploy modern technology, and a great hunger and willingness to move in a different direction.

There were other reasons to examine how IT was funded.

City Manager Eric Anderson was determined to change the culture of the organization and develop a view of the city as a single enterprise. He envisioned a collaborative and cooperative organization that would operate horizontally across departments, as well as vertically within the traditional government service structure.

He saw IT as a tool to promote that change. It was clear that a charge-back system, as it existed then, would be counterproductive to this goal. Individual budget battles for IT funding and the perpetuation of an uneven playing field would inhibit us rather than move us forward. We both wanted an IT model involving central coordination and funding, with strong emphasis on building an enterprise.

The organization was about to enter a period of rapid change -- both in IT and overall management. Part of that change was to move from a mainframe environment to a distributed server-based system. Our charge-back model would not fit this new environment. We also planned to reduce staff substantially, and re-creating and operating a charge-back system would be difficult.

Both Anderson and I believe radical change requires rapid movement. We didn't envision an evolutionary path for IT, but determined that the existing model should be "blown up" -- and blow it up we did.

Finally, as a new CIO, I was concerned about the position of IT within the organizational food chain. I thought building an organization dedicated to excellence required that IT be strategic, that technology become an essential part of the organizational infrastructure. IT must operate politically on equal footing with other back-office departments, such as finance and human resources. If these departments don't charge for their services, why should IT?

If IT were to assume a leadership role in the organization, and it absolutely should, it could not be viewed as an internal vendor from which services were purchased.


Making the Change
Having determined that a charge-back system was not presently useful to us, and would not help us in the future, I approached the CFO.

Finance and budgeting were the principal beneficiaries of data from the charge-back system. To their great credit, the CFO and budget officer understood my viewpoint and agreed to the change in business model I proposed. We determined that an existing, indirect cost-allocation system could distribute costs sufficiently across the enterprise for their purposes.

The early 1998 announcement of our decision to discontinue the charge-back system for IT services was met with great enthusiasm by other departments.

The accompanying announcement that all technology funding would be consolidated in the IT Department budget was greeted a bit less enthusiastically, but was accepted nonetheless.

The decision to eliminate the charge-back system was only one of a half dozen decisions that have guided us over the intervening years. Taken as a group, these decisions let us move very rapidly from a position of technical challenge and frustration to one of national prominence in IT use.

Des Moines has never finished lower than third in the Center for Digital Government's Digital Cities Survey (finishing first in 2002 and 2004), our Web site was a Best of the Web finalist in 2004, and many of our enterprise applications received national attention. Des Moines is a very different organization today than it was in 1998. I'm very proud of the role IT played in that development process.


Practical Assessment
So, after living without charge-back for six years, what are the upsides and downsides of that decision?

The good:

We made a valuable symbolic statement, indicating early on we were determined to make radical changes and provide better service to city departments.

We forced a partnership model through which all department-specific initiatives became joint ventures, with IT joining departments in funding battles and implementations.

We moved IT investment decisions to an enterprise level, with all departments participating in those decisions. IT is now viewed as an enterprise, not a departmental, matter.

IT became a "rising tide." As we changed how our IT investments were made, departments realized it was useful to have IT capability in departments other than their own. All boats were lifted. During budget hearings the following year, every department had something good to say about IT in their presentation.

Standards implementation became much simpler. It's amazing how quickly brand loyalty can disappear when someone else is paying the bill.

Budgeting for IT has become easier for departments.

We have maintained a focus on building enterprise IT, with all departments coming to understand they are important parts of a whole. Making the enterprise stronger made them more effective.

We reduced costs substantially through application of standards, enterprise focus and better investment decisions.

The bad:

We no longer have a "demand throttle." IT resource allocation decisions have become more problematic.

Enterprise versus departmental tension remains an issue, though we have successfully maintained an adequate balance thus far.

Planning is a bit more complex, though as we have improved our enterprise capability, our response has been much better.

Budget difficulties shed by departments have accrued to IT.

IT staffing has become an enterprise issue.

Cost allocation is imperfect.


Worst Practice
Would I make the same decision again? In a heartbeat.

Although at least one Gartner analyst calls lack of a charge-back system a "worst practice," I am convinced it was the right decision for our vision and our organization.

Other organizations have charge-back systems that work very well. For the strategic role that IT plays in Des Moines, however, our new model has served us very well indeed.