Forget ROI

: Make IT A Profit Center">

Forget ROI: Make IT A Profit Center
Viewpoint by Aaron Goldberg

Are CIOs just defensive by nature?

Consider how much of their time CIOs throughout the IT community spend trying to justify spending. It's all about self-protection and defending costs.

Why not go on the offensive? Now's the time for CIOs to position IT as a profit center that's just as deserving of attention and investment as any other revenue generating department in the company. After all, most new e-business applications are focused on improving operating results through cost reduction and revenue enhancement.

Become more aggressive when positioning IT systems and their value. Traditionally, there has been little impetus to push the numbers so that any financial benefits beyond recovering costs are calculated.

You need to do more than just develop new ROI numbers. Taking IT into profit-center mode requires rethinking some fundamentals. First, decide whether you will move the entire IT function and the services it provides to a profit model or if you will look to specific applications as distinct profit centers.

For those who go for the whole enchilada, the prevalent approach is the "utility" model. Individual users and departments are charged a monthly or annual fee for IT services. Under this plan, IT typically makes a profit by finding internal efficiencies that lower costs, creating a spread between the fees charged and the cost of supplying the services.

I'm not a fan of this approach. There's no "new" value created. The profit is essentially a phantom, driven either by negotiating fees that are advantageous to IT or by walking a tightrope between cutting costs and continuing to provide a reasonable level of service.

I prefer selecting projects that drive real revenue or new cost savings and pushing them into a profit model. Target, for example, a CRM system that measurably increases sales to your existing customers.

Another key benefit: In order to focus on new areas for returns, IT is often forced to align with one or several business units. For example, finding a new way to offer technical support online that reduces costs by 25 percent means that IT and customer service must act in lockstep to determine what the technology can provide, what customers expect, how much change staff can accept and how best to generate a return.

Creating new value, either cost savings or revenue growth, is what real profit centers do, and that attracts top management attention. Just taking current expenses and moving them around among different groups is nothing more than a shell game.

This article was originally published on 05-01-2001
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