October 24, 2018

In the digital world,

IT is an investment not a cost

A recent survey of 199 IT leaders showed the wide spectrum of how CEOs and Boards view CIOs and IT:

  • 52% said the role of CIO is viewed by the CEO and Board as more strategic
  • 32% said their CEO does not fully understand their role
  • 38% said the CEO and Board still see IT as a cost center not a revenue generator
  • Only 7% strongly agreed that their CEO and Board view the technology organization as a revenue generator

Most of you reading this blog are now fully immersed in your company’s annual planning and budgeting process for 2019. Unfortunately, many IT shops still go into this exercise with a defensive mindset that tries to avoid budget reductions rather than an offensive mindset that makes a compelling business case for new technology investments. By taking this defensive approach, you both reinforce the attitudes above and make it virtually impossible to move IT from a cost center/support function role to a business enabler role and eventually to a strategic partner role as shown on the slide below:

CIOs and their senior leadership teams who are early adopters of the 4 Zones Model have used our framework to build programs that move IT up the evolutionary steps above. They start by asking the question “how much value does IT add to the business and which step is IT on today?”

For many organizations, IT’s value is only measured by its ability to reduce costs and optimize the capital expense depreciation of large hardware and software licenses. For others, it’s based on their ability to provide applications and services that enable employees to be more productive. In some cases, IT is seen as a valuable resource and contributor to enabling business units to meet or exceed their revenue, margin and profit targets.

In order to change and expand the current perception of how much value IT brings to your organization, you can use the 4 Zones Model below to illustrate how IT can add business value in all four zones:

The 4 Zones IT Business Value Story

Not unlike a personal investment portfolio where risk and return are spread across multiple investment options, the 4 Zones investment portfolio is designed to deliver value and returns in four different categories.

Productivity Zone value is created by providing secure and stable operations and maintenance of the company’s systems of record. While most of the ROI from these investments has been realized, they are still an important and necessary component to the successful operation of any organization. CIOs can increase value in this zone by deploying our trapped value recovery tool to identify ways to optimize the costs of maintaining SORs through eliminating, consolidating, replacing, simplifying or better leveraging them and redeploy those recovered resources and budget against higher value technology investments.

Performance Zone value is created by delivering a series of user-centric tools, services and solutions e.g. Social, Mobile, Cloud and Data Analytics that enable the company’s business units to better engage with customers, supply chain partners and other key stakeholders. CIOs and their leadership teams use our Collaborative IT Investment portfolio model to better align future IT investment priorities with critical business outcomes. By contributing directly to creating valuable and enduring customer experiences, IT can demonstrate its ability to help accelerate customer adoption and utilization resulting in new revenues and profits.

Incubation Zone value is created through IT identifying, testing and validating next generation product, service and business ideas and leveraging digital technology enabled innovation to deploy them. Utilizing Agile, Lean and DevOps processes will allow IT to significantly increase speed to market and time to value for all IT investments.

Transformation Zone value is created by IT’s ability to develop and deploy disruptive digital technologies that enable the company to launch and scale a material net new line of business. It also serves as a way to evaluate the onboarding of new strategic partners or acquisitions and determine how much value additional technology resources and investments will bring to the company.

The 4 Zone investment portfolio approach provides a structure and common vocabulary to resolve risk and reward discussions between IT and its internal business partners across multiple investment options. It also enables the CIO to characterize and justify IT’s investment recommendations, whether to the C-Suite or Board of Directors, augmented by specific business cases that highlight the value and ROI from each one.

Building an IT Collaborative Investment Portfolio

In my early work with CIOs and their senior leadership teams, we have constructed IT investment portfolios in collaboration with internal business partners and other key stakeholders. This approach has enabled us to reach mutual agreement on how to segment and prioritize multiple IT investments across all four zones as shown below:

We start our collaborative dialogue by asking some fundamental value-based questions:

  • What is currently making it difficult for you and your team to achieve your desired business outcomes?
  • What can IT do to better enable your critical business capabilities?
  • What new products and services are our customers asking for?
  • What new digital technologies could disrupt our current customer relationships?

Armed with the answers to these and other questions, we can begin to talk through multiple technology investment options and collectively agree on which ones most directly impact the desired outcomes we want to achieve.

Document and communicate IT’s ability to increase its value to the business

The best way for you to change the narrative within your organization about the value that IT brings to the business is to document and communicate some compelling use cases.

Here are some examples of IT shops that have significantly increased their business value:

  • AIG deployed five “virtual engineers” inside its infrastructure to collect and analyze system performance data. A typical network device outage would go into a queue and take engineers 3.5 hours to address. Using virtual assistants most outages were fixed in ten minutes and over the first year returned 23,000 hours of productivity back to employees.
  • Former Intel CIO, Kim Stevenson, issued an annual report that documented IT’s performance over the previous 12 months which included these results:
    • Forecasted the right product mix and customer demand to drive $265 million in revenue uplift over the previous two years
    • Customized the reseller customer engagement process to deliver 2500 new customers and $200 million in incremental revenue
  • A large state government agency launched a $650 million innovation project, returning $4.7 billion in additional tax revenue a 7x ROI, by enabling self-service access on the web and becoming more adept at using taxpayer data.

Creating and effectively communicating a compelling IT business value story is not an easy task. Overcoming legacy mindsets about the role, impact and value of IT requires a strong framework like the 4 Zones model; a well-balanced risk & reward investment portfolio strategy aligned with business performance goals and deliverables; a new development and delivery process that is in sync with the fast cycle market cadence of digital enterprises and a solid resolve to evolve IT from a cost center/support function to a strategic partner role.

I’ve seen first-hand that when CIOs have used these tools and employed this approach they can make a very compelling business case that IT is an investment not a cost.

As always, I am interested in your comments, feedback and perspectives on the ideas put forth in this blog. Please e-mail them to me here. And, if this content could be useful to someone you know please share it here: