| The problem of central management's ability to control an information system (IS) department whose manager may have objectives that differ from those of the organization as a whole, and has informational advantages with regard to information system costs, is studied. A queueing model of a computing system is combined with a mechanism design approach for modeling the interaction between a firm's general management and its IS manager. Results are given, characterizing the optimal mechanisms for the above model for both cost center and profit center organizations for the IS department.; For cases with unlimited communication and no monitoring, by appealing to the revelation principle, my results show that the expected organizational net value is higher when the IS department is evaluated as a cost center governed by the optimal truth-revelation mechanism than when the IS department is evaluated as a profit center. This provides a general guideline on how the IS department should be controlled and evaluated. Our results may therefore help explain why organizing IS departments as a cost center rather than a profit center is more prevalent in practice.; By extending the basic model, the effects of three model variations are examined: (1) A finite feasible set of system choices; (2) A limited communication channel; (3) An imperfect, noiseless monitoring system about the IS department's reported costs.; Based on these results, a variety of managerial implications for evaluating and organizing IS departments are presented. |
