Rate Cards and Sticker Shock

By Tim Moran  |  Posted 2009-06-04 Print this article Print

To ensure that the executives in its brands and business units understand and are responsible for their IT costs, 1-800-Flowers implemented a chargeback system in which everyone benefits.

Rate Cards and Sticker Shock

Tenenbaum, his internal IT people and ComSci started by coming up with a “rate card” to help determine what the technology product categories were to be and the best way to charge the brands and business units for those products and services.

“For instance, we said we were going to charge back for desktops,” Tenenbaum explains. “Desktop charges include the purchase of the machine, 24/7 maintenance and so on. We determined what the cost of a desktop would be based on those costs divided by the number of desktops in the company.” This same process was applied to all the product categories on the rate card.

Before any of that could be done, however, all the files and information to create the rate card had to be uploaded into ComSci. “That was a daunting task,” Tenenbaum acknowledges, “because, with so many brands, we have a lot of servers, and we had to get them all aligned. We went server by server, and, in some cases, a server was shared by several brands.”

At the beginning of the process, Tenenbaum thought it would be one of the hardest assignments he had ever undertaken. In reality, he explains, it turned out to be a great project. “Basically, all we had to do on our end was find the data that was pertinent to IT chargebacks, collect it and upload it to ComSci’s Web-based tool,” he explains.

According to Bozzo, the initial setup took about six months. He had working files in three months, and it took about another three months to make sure the files were accurate. But he was not about to go live with the system right off the bat. Instead, he decided that for a period of time, he would send out mock bills to get the brand presidents comfortable with receiving invoices of IT charges.

“We started sending out the mock bills to give ourselves nine months to make sure everything was 100 percent accurate,” Bozzo says. “Initially, there was a bit of sticker shock on the part of the brands because they had never been charged for anything IT-related before. But when the brand leaders realized that we were trying to help them, things got better.”

Bozzo is certain that this would not have worked if he had just sent the brands a bill and told them to pay up. “We get to the bottom of the costs to help them plan what’s going on,” he explains. “It provides a very useful checks and balances.”

The first real invoices will be sent out this July, at the beginning of the company’s fiscal year, and the IT dollars will get posted to the brands’ P&L. “We’ll adjust everybody’s budget,” Bozzo says.

The chargeback system “has forced the brand presidents to look more closely at everything,” says Tenenbaum. “Before, when they weren’t charged for IT, it wasn’t that important. Now they can scrutinize everything: ‘Does this person really need a BlackBerry? Do I really need all these servers?’ Now they can keep tight reins on their IT spending.”

In addition, there are now monthly business relationship management meetings with the brand presidents. One of the major agenda items at these meetings is the chargebacks: “What’s good about it, what’s bad about it, what’s accurate, what’s not, etc.,” Bozzo says. “We just had a meeting with one of our business units, and chargebacks came up. They went through a litany of concerns, but, in the end, they were saving money.”

Tim Moran is a freelance writer for Baseline magazine.

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