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

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