Tuesday, July 9, 2013

How to Transform IT from a Cost Center into a Profit Creator

Branding IT as an enabler of revenue growth creates more interesting conversations around the business. 

In most cases, the IT department isn't producing anything that is saleable and, therefore, many in the organization will view IT as something that seems to ceaselessly suck up money with the little-perceived return. First and foremost a CIO needs to show that IT isn't just a cost center but is a deliverer of value, what’re the effective approaches in doing so?

Listen: The best way to achieve partnership is to listen to what the business says they need, develop and socialize a strategic business plan that aligns both business strategies and technical direction. If you give away some of the IT decision-making power and share the load with the business leaders then you'll garner support and the feeling that IT is something that everybody needs and wants. As a result, you'll have an organization that is viewed as a business partner that adds business value. To gain credibility, ensure delivery to meet customer satisfaction.
Goal setting: IT can become known as a revenue rainmaker by associating its efforts directly with sources of income. You are able to spot the opportunities to increase revenues. Looking for solutions which will directly benefit the external end customer will improve the competitive advantage and in-turn bring in increased revenue. Business people with revenue-enhancement projects often don't request IT projects to support them because they don't know what IT can do. You have to find these projects and then talk with the business managers responsible for them about what could be done.
Charge 'forward,' not 'back': Branding IT as an enabler of revenue growth creates more interesting conversations around the business. Revenue improvement is harder to present, as companies that use ROI calculations when they select projects to have a built-in bias toward cost-reduction projects because everybody in the business understands "savings”, but you can translate it into hard dollars by forecasting the higher revenues that should result from the completed project.  From there, the cost-benefit analysis is the same as for cost-cutting projects, The focus on delivering solutions that are designed to maximize the opportunities and competitive advantage for the organization. CIOs should work to prove the overall contribution, profitability improvements and value IT delivers to the business.
Balanced scoreboard: CIOs can use a Balanced Scorecard-based Vendor and Engagement Management framework to translate strategy into business objectives and to monitor key results. This helps to monitor, finding out gap areas and taking corrective actions. It's also up to the CIO to show that IT adds value by implementing end to end metrics on performance and availability and insists on KPIs to measure your success. Set up an IT steering committee if you can. It will make IT decision-making more of a collective responsibility, create an atmosphere of transparency and, the committee has some of the major players in your organization on board, it will ensure that the right people are backing the big decisions and communicating them to their areas of the business.

A CIO must also be able to develop and optimize the IT operational function within itself. It is one thing to have the IT resource aligned with the business strategies/ objectives (IT Effectiveness) - it is also something to have the IT resources (people and operational IT processes) refined to the point that they are nimble, can adapt to changing business demands in a timely fashion, can be reapplied to altering business priorities and be effective with little down curve (IT Efficiency). When a CIO is able to position and maintain the IT organization to ensure it addresses both "IT Effectiveness" and "IT Efficiency," they have earned their stripes. 
How can a CIO help the business to improve net profit? Improving revenue alone without improving net will become meaningless as stakeholders will be more interested to see how much net generated from the business rather than revenue. A CIO can help business to improve net, by reducing cost of doing business by various means such as right sourcing & sizing, keeping IT cost flat while at the same time maximizing its output so when the business revenue increase, IT cost remains the same which will improve net or  what will improve the top line and at the same time decrease expenses to improve the bottom line.  
A good CIO needs to be "commercial" and has some sales/marketing expertise: For the CIO to help the organization generate revenue, he/she needs to get in front of the customers. CIOs will contribute to revenue generation when they are part of the senior exec team responsible for the revenue targets. On one side, CIOs work with the business on plugging revenue leakages, on the other side, business unit managers need back to back KPIs with CIOs on applications/service deliveries, so the organization sees "oneness."
Be patient, but persistent; it takes the time to transform IT image from a cost center to a profit center. Doing so demands quality time spent on sales/marketing, operations, finance leaders and even end customers. The CIO has to foresee, anticipate business needs for information and then prepare and gear up the information systems to not only make readily pertinent information to top business decision makers but also preempt the need and present the value accordingly.


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