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The Untapped Potential of IT Chargeback1

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Information Technology Governance and Strategy Accounting and Organizational Management Outsourcing and Supply Chain Management

Abstract

The received wisdom on IT chargeback is that a chargeback system with certain key characteristics, such as usage-based charges, stable rates, understandable bills, and so forth, will help firms make effective decisions on IT investment and use. Eccles' model of transfer pricing provides a theoretical framework for this claim, and it also explains why chargeback systems can raise issues of fairness or create conflict between IT and its clients, as the IT literature has pointed out. Applying Eccles' model, this paper reports on a study of 10 organizations' IT chargeback systems and their impacts on business managers' economic decisions and on evaluations of IT and business unit performance. Respondents in just four of the 10 firms reported that chargeback had significantly influenced IT investment decisions. In addition, the business unit respondents at those same four firms offered more positive assessments of IT than their counterparts at other sites. These differences in chargeback-related outcomes could not be accounted for by looking at differences in the chargeback characteristics that are most commonly described in the IT literature. What was different in these four firms was that chargeback was being used to foster communication between IT and the business units. This communication was generating a rich shared understanding for both parties of the costs and benefits of alternative IT investments and service offerings. The literature on partnership argues that complex IT investment decisions demand a strong IT-business partnership. The analysis suggests that IT units in just four of the 10 firms were tapping into the potential of chargeback to facilitate the development of a partnership with their business unit counterparts.

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References

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