Here’s an interesting question to ponder: what role do CIOs play in generating revenue for their companies? It’s no longer fashionable to see information technology as solely a drain on the bottom line but how do chief information officers be seen as revenue producers?
It’s a question explored by Abbie Lundberg at her blog Lundberg Media. She cites a report she co-authored for Harvard Business Review Analytic Services, an independent sponsored research unit within Harvard Business Review Group. It shows “28% of respondents said their company has commercialized internal IT initiatives.”
In effect, companies were taking processes working so well within their organization – and developed by their IT staff – and selling them to companies with similar needs.
As Lundberg explains, “Finally … finally! you have the chance to redefine IT not as a cost center but as a profit driver. That completely changes the game. And it changes business models.”
Red Hat, a provider of open source solutions, sponsored the report that Lundberg co-wrote. It’s CEO, Jim Whitehurst, said in the foreword, “The … research Red Hat sponsored … is meant to inspire conversations about IT innovation between CIOs and other corporate executives. Why? Only one-fifth of CIOs are considered trusted partners. And with only 16% considered peers or business game changers, it’s clear that more conversations need to happen.”
The Harvard Business Review Analytic Services report found Some companies are accelerating transformation that brings more mobility to their operations and products “by pursuing IT-enabled business innovation as a core strategy throughout their organization.” It’s a trend where companies are considered “Innovation Accelerators.”
The report says Innovation Accelerators share six characteristics:
- Their commitment to technology-driven business innovation starts at the top with the CEO.
- Their approach to innovation is structured and managed—but they value speed over perfection and cut through bureaucracy.
- They value diversity of thought and experience, collaborating fluidly across functions, hierarchy, and traditional corporate boundaries.
- Their CIOs are significantly more likely to spend their time on activities that are strategic to the business.
- They have strong IT departments that actively and productively contribute to the corporate innovation agenda.
- They are more likely to invest in and reward innovation
It is in this innovation accelerators where CIOs can actually flourish. That assumes they want to break out of their role being solely technologically driven and focus on the bigger financial picture of their companies.
Here are four specific areas that CIOs are helping their companies make money through information technology products:
- Use IT to make products/services smarter and sell information around them
- Offer internally developed capability as cloud-based service
- Make analytics capability available for a fee
- Redefine product values chain as a service to others
IT Business Driven Transformation is going to be a profitable trend for companies committed to it. The report says, “Such transformations can have significant payoff, as long as the goals are clearly defined. For example, a $650 million innovation project at a large state government agency is returning $4.7 billion to the state in additional tax revenue—a 7:1 return on investment—by aggressively pursuing self-service on the web and becoming a lot more sophisticated in their use of taxpayer data.”
There is an interesting example cited in the report that focuses on real estate that companies own and manage. As one executive noted, real estate has always been perceived as a cost center but the evolution of technology has changed that. “We’re turning that around to show our customers how real estate can add value,” the executive said. He cited as an example using analytics to determine the best location for a new manufacturing plant, factoring in everything from energy costs to supply chain factors, and showing how those factors fits into the client’s overall global strategy. “We’re helping them see the future,” he added.
One good nugget is buried in the middle of the report. It’s worth noting that the leaders surveyed discovered that information technology changes can be done more smoothly with a good marketing campaign. As the CIO of an East Coast university commented, “You
have to have a sales and marketing mentality. All our services have to be desired—that’s how you get a fast uptake.”
It’s a lot to comprehend but it appears chief information officers are going to do best when their companies are innovation accelerators. It’s an environment worth developing to maintain a more dominant role and eventually become a CEO.