CIOs today need to understand and push IT's contribution to the top line, not just the bottom.
Back in the 1990s and into the early part of the 2000s, we ran an awards program at CIO magazine called the Enterprise Value Awards.
This was a unique and truly outstanding awards program that scrutinized the work being done by CIOs and their business partners — and the results being delivered — through the use of information technology. Every nomination had to have a CIO and a business leader as joint sponsors. They had to prove claimed financial value by having the company's CFO sign off on the numbers. Every finalist received a site visit from an experienced reviewer who met in person with company leaders and users of the system to vet the claims being made. These review board members then presented their findings to a blue-ribbon panel of CIOs at a day-long meeting in Boston. The winners were recognized at an annual Enterprise Value Retreat.
As you can imagine, this was a very expensive program to run. For years it was underwritten by various sponsors, but we had to retire the program as the economy contracted in the early 2000s. Before we did so, however, we began to notice a trend.
We had defined a number of different categories of IT-enabled value. These included financial, customer and strategic impact; we even recognized social impact (typically awarded to a non-profit). We did not accept vendor submissions; that is, a technology vendor could not submit its product or service for consideration. But after the turn of the millennium, applications began cropping up that confounded our neat categorization.
The first was with a trucking company that had developed such a great system for running its own logistics that it was licensing its use to other companies. That year the judges tried to focus on the internal value derived by the company's own use of the system, discounting the revenue from the sale of services to other companies as a "product" and therefore not qualifying for this award. You see, it was novel; we didn't really know what to make of it.
While that was the first, it certainly wasn't the last. In the next few years, more of these hybrids surfaced, and we realized something new was going on. IT was contributing the top line in some very direct ways.
Today this is becoming commonplace. In a recent research project with Harvard Business Review Analytic Services, 28% of respondents said their company has commercialized internal IT initiatives. Companies with a sustained commitment to innovation were at 40%.
The #1 means of commercializing IT was to make the company's own products/services "smarter" and to sell information services around them (think embedded sensors in manufacturing control systems or automobiles); two-thirds of commericalizers were doing this. This was followed by offering an internally developed capability as a cloud-based service to others in their industry — named by 37%. A quarter were making their analytics capability available to their customers for a fee; another quarter were redefining part of their product value chain as a service to sell to other companies (remember the trucking company I mentioned).
This presents a huge opportunity for CIOs. 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. According to CIO David Guzman, IT has been central to a dramatic shift in revenue at his former employer, health products company Owens & Minor. When he left, close to $4 billion of its over $8 billion in revenue was coming from services such as logistics, supply management and analytics — not the devices and other health products they sold. (Guzman is leading a similar transformation at HD Smith.)
If you're a CIO today, opportunities for commercializing IT abound. Helping your CEO and line of business leaders decide which opportunities are best for your company is absolutely the CIO's job.