Profit, Not Always

As I sat

down to write this column, the first thing that crossed my mind was: What is the

classic definition of a 'Cost Center'? So I tried out answers.com

and here is the answer: “Cost centers are divisions that add to the cost of

the organization, but only indirectly add to the profit of the company.”

So the business truth

is that IT is a cost center. In the same way that logistics, post sales service

etc are cost centers, IT is also indirectly adding to the profit of the company.

Today, more than anytime in industrial history, IT really creates the difference

between success and failure of a business. If Information is power, IT is the

generator of that power within an organization.

Arindam Bose head-IT, LG Electronics

But it breaks so many

people's heart to even think of IT as a cost center. People have gone to the

extent of saying that if the CIO reports to the CFO, then that organization sees

IT as an overhead. But no smart organization can afford to see IT as an

overhead. When we talk of IT as a cost center, do we talk of pure IT expense?

Yes and No. In pure accounting terminology, it is definitely expense but in biz

terms it is more like an investment. 

But the question needs

to be handled directly-Why IT has to be a cost center and not a profit center?

Can all IT initiatives generate profit directly? I think no. And I will try to

explain with an example relating to my organization-LG Electronics India.

When we launched our

operations in India, the market was cluttered with many aggressive players. But

we wanted to be different. We wanted to play in the premium segment and for that

our brand image was very important. We took a conscious call of creating

'Cyber LG' image among others. The result was the country's first B2C

portal in the consumer durable industry-lgezbuy.com. It became a great

success. Daily almost 100,000 visitors came to the site on an average. All these

are good points. But there were minimum orders, almost negligible. But lgezbuy

did what it was supposed to do. It played its role in making LGE India a brand

to reckon with.

If IT were to be a pure

profit center, would I as the CIO and head of the profit center have taken up

such a loss making cause. Tough Call, isn't it?

Profit centers are for

instant gratification. IT is far more strategic in nature. Also IT is easily the

fastest changing facet of business. The IT function of an organization has to be

bold, experimental and always evolving for the better. IT is very similar to

marketing or R&D. When we see a nice hoarding, we do not simply run to get

the product or service it advertises. But the hoarding registers in our mind and

when we have a need, we buy or even if we don't have a need, we share with

others what we saw.

I have to admit that I

do not like to choose between cost center and profit center for IT. Yes, in

accounting terms, I feel that IT should be a cost center. But let us pause for a

moment and think what IT does for an organization. Behind all those huge

servers, light-weight laptops and cross continental networks, what is IT doing?

It is adding value to the organization. So data becomes information, and

information becomes business intelligence. IT, therefore, is a value center.

As told to Bhaswati Chakravorty  



bhaswatic@cybermedia.co.in