Re-Thinking HR: What Every CIO Needs to Know About Tomorrow's Workforce
These visible IT capabilities--along with IT participation in the project identification process--can drive the infusion of IT into revenue-improvement projects in much the same way as IT has leveraged cost-cutting and efficiency.
Here are some examples of what CIOs can do to drive the revenue side of the profit margin.
At Beta Retail, a major apparel retailer with more than 300 stores, the CIO found that, across the company, revenue goals ranked third in importance, at 11 percent. But he found no projects in his entire portfolio that dealt with revenue improvement, not even in merchandising, where revenue goals ranked first. And IT's contribution to merchandisers' revenue goal achievement was 48, below average. (A score of 50 is average, and IT impact on profitability begins at an IS Contribution score of 48.)
The CIO held a number of discussions with the merchandising managers and learned about a major problem: All the stores were plagued with both stockouts and overstocks. This meant that they could not sell some of the hottest merchandise because they did not have it, and they had to sell leftovers at big discounts.
Reason: The merchandisers used an "average store" model to determine stocking orders, based on sales averages across all the stores. Although the merchandisers knew there were major regional differences in what sells, none of their systems could access the existing data on item sales by individual stores to let them create custom orders by store.
Once he understood the problem, the CIO knew there was an IT solution: Bring all the relevant data together into a data warehouse and put a business analytics front end on it so merchandisers could make the right decisions for each store. The merchandisers--not being IT people--did not know such a solution was available. Once they understood what was possible, they helped draw up a proposal for building the data warehouse. It was expensive in the merchandisers' terms: It would cost more than $1.5 million and take about a year to complete--one of the biggest projects IT had ever undertaken.
The warehouse, which was approved and built in less than a year, solved the problem. Overstocks and stockouts declined drastically, IT's contribution improved from 53 to 60, and profit margins went up substantially--from 2 percent over the apparel industry average to just over 4 percent--compared with other divisions in Beta Holding, Beta Retail's parent company (See Figure 3 in downloadable PDF).
By talking with the client and understanding the revenue issues, the CIO engineered a revenue-improvement solution that went right to the bottom line. In doing this, he bypassed the normal "request" process, which wasn't working because the merchandisers didn't know enough about IT to make the right requests.
That's probably true in a majority of companies today, so the first lesson here is: If you are not getting revenue-improvement requests for IT support, find out why you aren't. Talk to the marketing and sales people, the product developers and others whose main goals are improving revenue. Find out what their issues are, and figure out what IT can do to help.
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