Should IT Still Be Considered a Cost Center?

For many years, the traditional financial classification of a company's IT (Information Technology) department is that of a cost center. The classification as a "cost center" essentially means that IT departments are viewed as an expense for your business rather than a department that will generate revenue. As with just about everything else in the rapidly changing field of technology, this idea of IT as a cost center is shifting as well.

This shift in thinking is a good thing, especially if you consider the negative connection with the term "cost center." Cost centers can be seen as places to cut spending, or even as a drain on an organization's resources. Of course for many other departments labeled as cost centers, this is arguably true. However, an IT department is in a fairly unique position in that it clearly impacts a company's revenues. The IT department's contributions may be indirect, but it is important to recognize these contributions so that resources can be allocated your IT department to ensure it is a healthy contributor to your business operations.

IT departments are responsible for many important business processes within a company. For example, the IT department enables efficient communication with customers using email, Internet, and telecommunications technologies. In fact there are several IT based systems created entirely for customer relationship management (CRM). The IT department is also critical in ensuring information flows through all business processes using technology such as web based ERP (enterprise resource planning) systems. IT departments are also responsible for the processes that allow for paying and billing customers, purchasing the goods and materials necessary to run your business, managing employee payroll, and many other integral business processes. It could be said that IT touches just about every aspect of running a business.

In light of this, many organizational leaders are beginning to reclassify their IT department more accurately as an investment or even as a "business partner." The IT infrastructure of a company obviously plays a huge role in allowing the company to run its business processes, so investing in this facet of an organization makes sound business sense. Business leaders today realize that their IT department should not be viewed as merely an expense to the company, but rather a highly important part of a business that requires an investment of time and money.

An investment or upgrade in the IT functions of your business can allow your organization to generate more profit or increase revenues. An IT investment can also reduce costs and spending in one or more areas of your business process. It is this unique characteristic of IT departments that calls for a departure from the outdated classification of IT as cost center and a reclassification to investment. Smart business leaders are taking note of this new trend and reevaluating their take on the IT department.