In-Depth

Take IT from Bottom-Line Expense to Strategic Investment

How can IT—which takes 4.5 of a company's revenue—show itself to be a positive force on the company's bottom line?

• By James D. Roberts
• 11/29/2005

If your company were routinely spending 4.5 percent of its revenues on something, you’d want to know how it was contributing to the bottom line. That’s what the average company spends on IT, according to recent studies from Gartner and Forrester. Such a percent of revenues is a big number for any company, and too few understand what they are getting for their money.

To change the bottom-line impact from a negative to a positive, companies need to focus on the value of IT (its support of business process) and the value drivers (people, process, and perception).

People

It’s the people end of the equation that is often overlooked when determining how IT can bring value to a business. In short, it is the CIO, the IT staff, and the way IT serves its internal customers—not the technology they use—that make IT show up on the bottom line.

Leading the IT staff is the CIO, whose effectiveness can make the difference between good and great IT people. A CIO must maintain a balance between being a business strategist, an IT strategist, the functional leader of the organization, the technology advocate, and the change agent. Balancing the demands of these functions is the key to the CIO's success.

Successful CIOs spend time with external customers, internal customers, suppliers, the company's own IT management and staff, and CIOs in other organizations. Naturally, CIOs also must spend time with their CEOs—the organization’s leader and the visionary. When CIOs are at their most effective, they are building their technology organizations to match the CEO’s vision of where the company is going.

CIOs who take their leadership role seriously create an atmosphere in which the members of the IT department are satisfied. When that happens, IT delivers, and does so daily. CIOs work well individually and in teams, and make sure IT people are properly motivated, appropriately trained, suitably directed, and given appropriate resources. IT staff have access to the proper tools, processes, and procedures. Good performance yields personal rewards that go beyond compensation to benefits, and even to the workplace itself. IT workers work in an environment that’s conducive to their jobs—an environment that recognizes that their jobs require a combination of individual "think time" and collaborative teamwork. IT staff also feel they are working with capable, competent professionals. In fact, most view working with their equally talented peers as an important part of their personal rewards.

The last part of the “people equation” is the internal customer. The CIO is the leader, the IT staff delivers, and the internal customer is the consumer. Consumers not satisfied with value of IT will call IT into question. Internal customers are not a captive audience for the IT department. Unhappy “consumers” have a myriad of options: they can urge the CIO be replaced, develop their own “skunk works” operations, or push for outsourcing. In fact, it is the IT department that has few options. It is stuck with its internal customers, but the internal customers aren’t stuck with the IT department. They have—and will use—alternative ways of getting the job done.

Process

You build the process by getting IT on the same page as the business. It’s like building a house. If you’re the architect, you must understand what your customer’s all about to design and build it. If you’ve decided to build a McMansion for a customer who wants a log cabin, you can be sure your customer won’t be happy.

It’s the same thing with IT. As the architect and builders of the systems and the providers of technology, IT has to understand what the business is all about, and demonstrate that understanding in its strategy, organization, business planning, resource allocation, and spending control.

The internal customer is going to live with the IT process. The architect is going to design the home and move on, but the homeowner is going to reside there. IT may build a system and move on to the next product, but their customers are going to live with their systems for some time (longer than the IT department will spend maintaining it), giving the customer a greater incentive to be involved with the process.

Perception

The IT provider and the customer have different views of reality and, as a business-within-the-business, IT needs to recognize that these probably don’t coincide.

For example, if IT were a stand-alone business, its value could be measured by conventional accounting devices such as balance sheets and income statements. But as a business-within-a-business, the IT view of the world is that its worth to the organization is measured by its ability to deliver support and solutions. IT people believe their customers should be happy if they are supporting and providing business solutions. Does the customer perceive that support and the solutions IT delivers to be effective? How often does the customer see what IT does as providing solutions to the wrong problems?

Judge effectiveness upon what’s important to the internal customers. For example, IT measures effectiveness by how much their systems are available (uptime) whereas the typical customers don't really care about uptime but rather about what happens to them at their desktop.

In the world outside the corporation, organizations offering products and services market to their potential customers. In the world inside the corporation, IT departments would be wise to steal a page from that book by marketing their services within their organizations. Any marketing campaign aims at managing the customer’s expectations and molding the customer’s view of reality. It’s called developing a brand. A brand has been described as a promise that brings customers comfort. Walk into McDonald’s and you know what to expect. Walk into a Starbucks and you know what you’ll find.

IT departments need to develop their own brands, conducting their own forms of internal public relations, direct marketing, and even “advertising” to manage customers’ expectations and mold customers’ view of reality. It’s not good enough for IT organization to deliver systems on-time and on-budget. IT must tell someone about its successes and do it frequently. All too often most of the business community will not be aware of the good things your IT staff has done. They are only going to be personally aware of the bad things they’ve encountered.

Most people think of their IT department like they think of the electric company. Does anyone celebrate when a light goes on? Of course not. However, we surely take notice when it doesn’t. It’s a level of performance that we’ve come to expect. When service is there we don’t notice it. When it’s not, we’re beside ourselves with anger and frustration. That's often a tough analogy for IT people to swallow.

The Bottom Line

Too often, IT departments believe technology is the value they deliver. In reality, technology is only a means to an end in business processes; it is a way to get the job done. The bottom line value of IT is a combination of the people, processes, and perceptions that bridge the changes that occur in both business and technology.

In the end, that makes the 4.5 percent of revenue spent on IT look like an investment that builds value through the years.