Many companies see IT as a black box that generates significant costs; few business managers know exactly what they are paying for and why their outlays keep rising. By making these costs transparent, the IT organization can fundamentally change the way business units consume IT resources, drive down total enterprise IT costs, and focus on IT spending that delivers real business value. The CIO who leads this change can usher in a new era of strategic IT management—and true partnership with the business.

IT cost transparency is a key component of what we call the "next-generation infrastructure."¹ This new approach to managing infrastructure involves discarding the traditional build-to-order mind-set in favor of creating standard, reusable IT "products," such as storage and telephone service. Cost transparency provides the business with three things: a catalog of IT products that specifies features, prices, and service levels; bills showing the infrastructure assets consumed by these products and the cost of their consumption; and management reports that roll up total costs by product type and business unit (Exhibit 1).

Once business executives understand how user demand for IT drives consumption...