As an enterprise software development program matures, it produces more and more effective output. At some point, as the value of this output continues to increase, the program begins to bridge across the classical accounting definitions of cost and profit center. This can be an extremely powerful change agent for the enterprise.
Of course, the large majority of enterprises consider software development to be simply a task necessary to their business. By definition, revenue cannot be attributed to it; it is purely a cost center. These organizations are focused only on the direct benefits of development.
But hidden in this stereotype is an enormous opportunity for companies that get it right. Developing software within the enterprise has both direct and indirect benefits. To see these as simply cost oriented, is to be blind to the most important aspects of these programs.
In general, successful development of software within an enterprise produces two categories of benefit to the organization: direct, and indirect. The direct benefits are exceptionally powerful. But it’s the indirect benefits that have the potential to create the kind of truly compelling business impact we’re talking about.
Direct benefits of developing software within the enterprise
The main driver for development of software within an organization, is reduction of cost. Common targets include automation of repetitive human activities, reduction of errors, streamlining of processes, and increased repeatability. All of these involve reduced business expense; they are cost benefits.
Indirect benefits of developing software from within the enterprise
The indirect benefits are less clear, but more important:
- Speed of implementation: an organization developing software correctly will become more and more efficient at doing so. As a consequence, functionality is delivered faster, and business revenues are realized earlier. The difference in the revenue curve between expected and accelerated delivery must be attributed to the software development program itself.
- Delivery of key functionality: as software development continues successfully, key business stakeholders will become more aware and involved in the effort. This results in increasingly focused delivery of target functionality, and earlier realization of revenue. In fact the difference in revenue curves can be incredibly compelling. These must be attributed to the software development program.
- Operational support: Functionality that simplifies operations, also widens throughput. In turn, sales channels widen – and revenue increases – because operations success attracts market success.
- Culture and synergy: Successful delivery of software creates an upward spiral of optimization and efficiency as new teams join the effort. This very powerful movement creates measurable revenue impact that must be attributed to the software development organization.
- Flexibility: The positive upward spiral of successful software development also creates increased organizational flexibility, enabling the enterprise to move more quickly, and to realize revenues earlier than before. This positive difference in the revenue curve must be attributed to the software development program.
An organization developing software successfully within an enterprise, is in fact a bridge between the two classical accounting concepts of cost and profit, because it can be both.
Controversial? Definitely. The categorization of business units as either cost or profit center is an established and trusted accounting concept. It’s absolutely problematic for this venerable system to account for strategic IT, which has the potential to bridge these definitions and switch quickly between them.
That potential is enormous. It can drive tremendous, positive change across the enterprise.
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