Looking for Projects--and Payoffs
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Looking for Projects--and Payoffs
Another story illustrates how it is sometimes easy to find revenue-enhancement projects, and how big the payoff can be. Aerospace 1, a manufacturing company and primary government contractor with revenues in the $5 billion range, was assessed by CogniTech twice within a 13-month period.
Its IS Contribution score at the time of its first measurement was only 40.7--well below the average of 50 and the IS Contribution score of 48--which indicates that the IT organization was making little contribution to the managers' ability to meet their goals and strategic targets.
CogniTech held meetings with the CIO and business leaders and shared its findings. As a result, the executives identified a previously undiscovered business need that was not included on any business manager's IT request forms.
They found that the biggest deterrent to obtaining new government contracts was the manual proposal process. This involved bringing team members from all over the world to one location, where each member was responsible for gathering the required information to complete one section of the proposal. This lengthy, paper-based process resulted in proposals that missed deadlines or were incomplete, making the company lose bids.
Based on these meetings, the business managers across several business units funded the development of an IT-based proposal system that took only six months to complete. As a result of the new proposal process, the company was able to complete a complex government proposal in only six weeks--rather than the six-month estimated time without the new system--and landed a $2 billion contract.
IS Contribution scores increased to 53.3 in the second measurement from the initial 40.7, clearly reflecting the improved IT support for business managers' goals. At the same time, profits beyond the increase in the industry average totaled $58.1 million in that year.
As a CIO, you're going to look for revenue-improvement opportunities among your IT clients. But how do these projects stack up when it's priority-setting time? Companies that use ROI calculations when they select projects have a built-in bias toward cost-reduction projects because everybody in the business understands "savings."
Revenue improvement is harder to present, but you can translate it into hard dollars by forecasting the higher revenues that should result from the completed project. From there, the cost-benefit analysis is the same as for cost-cutting projects.
CIOs who want to engineer revenue improvements can learn some lessons from the examples we've discussed.
1) Revenue-enhancement projects can contribute as much to bottom-line profitability as cost-cutting and efficiency projects do.
2) Businesspeople with revenue-enhancement projects often don't request IT projects to support them because they don't know what IT can do. You have to find these projects and then talk with the business managers responsible for them about what could be done.
3) The typical request process in many companies must be augmented by direct interaction between IT and line-of-business managers.
4) Standard ROI calculations are biased toward cost reduction--not revenue enhancement--because everyone understands savings, whether or not they are ever audited.
5) There is no substitute for the IT organization knowing the business of its clients. The old saw, "I am aligned with the business because I do what they request," no longer works--if it ever did.
Kay Lewis Redditt is co-founder and CEO of CogniTech Services. She has a background in labor economics research and has held the positions of MIS director and division CFO at American Express, as well as division COO and CIO at MacMillan Publishing.
Thomas M. Lodahl is co-founder and principal of CogniTech Services. Previously, he was director of office automation at the Diebold Group. Lodahl held professorships at both MIT and Cornell, and, for 10 years, he was the editor of Administrative Science Quarterly.