Make Your Shop A Profit Center

Most chief information officers don’t get the respect they deserve. Nor do they get the freedom to contribute to their companies as powerfully as they could. That is because the in-house IT shop is usually perceived as — and functions as — a cost center. There’s much to be gained by turning it into an opportunity-driven, value-creating profit center. The journey from here to there may take a while but let’s look at how it could go.

Typically the IT shop exists in a hemmed-in state, confined by its budget. Of the money allocated for the year, about 60% to 80% goes to operating expenses, such as people costs and data center costs. This leaves a small part for capital projects, and a lot of the small part might get swallowed up by projects that are essentially mandatory maintenance, like upgrading an old ERP system because the vendor won’t support it any longer. You are chronically crunched to the point where it’s hard to propose anything innovative, which would increase revenue or otherwise add value, and still fit within the remnants of the budget.

The key is not to let that stop you. Propose a promising idea anyway, backed by data that shows the potential for net positive returns. For example, imagine the company has a high rate of customer attrition. 20% of existing customers don’t renew from one year to the next. There’s a new artificial intelligence technology that could help. The AI can sift through data on interactions with customers … identify patterns that often lead to a customer defecting (such as repeated complaint calls without a resolution) … and trigger interventions that would keep the customer on board. Ideally, there is even some industry data showing the relative effectiveness of the AI.

You, the CIO, sit with the CMO and come up with a credible projection of how much the AI could cut your attrition rate: say, from 20% to 15%. This can be translated to dollars gained per year. If the numbers clearly exceed the estimated cost of implementing and running the AI, you have a potential winner. Then, together with the CMO, you go to the CFO or even the CEO and present your case: “We’d like to invest in a new AI package for reducing customer attrition. The cost would run over what the budget currently allows. But look at the payback we’ve projected.”

You might come away with partial success, such as approval for a limited pilot, or a promise to consider the AI in the next budget deliberations. Whatever the outcome, you keep going in this vein. Initially you may go after projects that are low-hanging fruit, to score some “easy” wins and build credibility. As you move along you get better at choosing your battles, at projecting numbers, at delivering on what’s projected. And ultimately, the IT shop is transformed. You accrue bigger budgets, funding a higher percentage of projects that add revenue, increase profit margins, or both.

This is a process for the long term: five or six years, perhaps. If you are a CIO who’s unable to quantify in hard KPIs the tangible value that tech investment is bringing to the company’s top or bottom line, start the journey now. And keep in mind that it may require a change of mindset. IT people tend to be good at recognizing and articulating risk — “If we don’t do X, the system will crash.” Such conversations come straight from the realm of IT expertise. The trick is to get adept at recognizing and pursuing ideas to create value. For many in IT, that’s new mental territory. But it is where your future, and your company’s future, can be found.