Possibly the worst measure of IT ever made is the “What percentage of Revenue is IT” measure. That’s right, I said it, it’s the single worst measure ever utilized.
Why do we use this measure?
My belief is that businesses use the percent of revenue measure because it’s easy and it allows them to compare to their peers. We also use this measure because too many of us still think of IT as a mere cost center instead of a potential innovation center and revenue driver. What if you could assign a measure of value to every IT dollar spent? Let’s say that for every dollar spent on IT, the business brought in an additional five dollars in revenue. Would IT still be “too expensive” if it were 10% of revenue instead of 4%?
It’s an old story that won’t go away
In March 2012, the MIT Sloan Management Review came out with research suggesting that companies’ investments in IT increase profitability more than do their investments in advertising or R&D. That’s right—IT increases profitability more than advertising and R&D. I thought it was worth repeating. Don’t get me wrong, I think some of us are starting to say the right things. However, I still all too often see the purchase decisions that IT leaders make where old assumptions of value are still used.
How do we break the cycle?
For years, a wide range of options have been suggested for IT in order to help break the cycle; simple things include bettering the marketing of IT success stories and improving your ability to sell ideas and projects. What’s not so simple is changing the mindset of the C-Suite and providing real data on the success of projects. In my many, many years of delivering IT projects (most of which required an ROI/TCO study before being initiated), not once did anyone ask me for ROI/TCO results during any period after project completion. I’m sure there are some projects where the executive team has asked for “proven” ROI and TCO results, but I’m guessing they are few and far between.
Why isn’t IT expected to live up to a higher standard in demonstrating the benefits of projects and being more innovative in applying IT to the task of creating business value? I don’t think IT is expected to live to a higher standard because again, the average C-Suite doesn’t expect anything other than cost and risk management.
Strategy for making change
- The C-Suite needs to do a better job of hiring for innovation and business leadership and put less focus on table stakes like resiliency and cost containment
- The C-Suite should further foster the right attitude in IT by following their words with action and providing IT with incentives for innovation and business acceleration
- The CIO should be hired based on 4 (minimum) high level requirements
- Strong leadership skills
- Demonstrated ability to build and successfully lead innovation oriented teams
- History of working closely with each line of business to better understand their day-to-day functions to learn how and where IT solutions can provide new opportunity. Also, to use the exposure to identify and remove IT solutions that impede performance. “Think embedded IT staff”
- Shows no fear in the face of the need to make difficult decisions; like pulling the plug on a project after millions have been spent or pulling a solution that isn’t providing appropriate payback
Innovation is like a Viral Video
You can’t just demand innovation, like you can’t just demand that the next company video go viral. However, if you don’t have anyone working on videos, you can bet you’ll never have one go viral; with innovation, it’s the same. Giving your IT team the tools, commitment and resources required to take risks is a minimum requirement. Understanding and accepting that you might get five or more failures for every major success is key. Think of innovation like an investor thinks of a startup: for every 8-10 invested in, one is a blockbuster. In IT, one blockbuster new project can mean the difference between maintaining the status quo and dramatically accelerating the growth of your business.
Go Forth and Foster Innovation!
Plant the seeds of innovation, hire the right people, accept some level of risk, don’t be afraid to make tough decisions in real time, and maximize the opportunity that is locked up in information technology. This doesn’t mean you do everything internally, and it doesn’t mean the opposite. What it means is that your teams learn to accept the notion that innovative thinking can come from anywhere; how you leverage it is what is really important. We need to stop thinking about IT from a cost perspective alone and start considering it as an engine of innovation; otherwise, you will be left behind by your smarter competitor.
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Blog Professionally Copy Edited by Kestine Thiele (@ImKestinaMarie)