It's tough to convince clients to fund your infrastructure and your processes of innovation.

Challenge

Organizations that are expected to fully recover their costs from sales to clients often find it difficult to get funding for self-improvement -- infrastructure, internal process improvements, technology innovation, etc.

When clients consider other vendors, these are not costs they have to pay. And what's in it for them? From a purely parochial point of view, clients would rather pay only for the products and services they receive.

To incent clients to provide the funding, some organizations have imbedded the costs of additional infrastructure in projects they do for clients. For example, in an IT department, the cost of additional computer servers was embedded in applications-development projects.

Then, clients think they own a piece of the infrastructure, and the organization has a hard time managing it. This IT organization ran into resistance when they proposed to save money by consolidating servers or enforcing the replacement cycle.

Solution

When a business needs more infrastructure, they rarely ask their customers to ante up the money. They borrow the money from their bank, and pay it back through a mortgage formula.

Like any other business, an internal service provider needs a "bank" -- the enterprise treasury. Funding should be supplied directly to the organization for any significant investment in its capabilities (infrastructure, major process improvements, new service start-ups).

Then, depreciation on assets (where appropriate) should be embedded in the rates for services sold to clients which utilize those assets.

Comprehensive solution....

Other Resources

Column: Who Owns Your Infrastructure?....

Column: Funding Innovation....

Anecdote: Chargebacks Are Killing Us
how implementing chargebacks can make things worse if you don't have the right tools and methods

Anecdote: Begging for Infrastructure
if clients pay for infrastructure as part of they're projects, they'll think they own it

Speech abstract: Realistic Rates
how to calculate the true cost of your products and services