Money (That's What They Want)
- 05 September, 2006 09:00
After years of focusing on the bottom line, CIOs are setting their sights on top-line growth
- Can't afford an R&D group? Make innovative thinking everyone's job to inspire leading-edge work
- Keep core customers happy. Test a new technology and its revenue-generating potential but spread its benefit to as many constituents as possible
Money was very much on the mind of Dr O'Neal Smitherman as he tested and implemented a bleeding-edge broadband wireless network for Ball State University and the surrounding community in 2004. University president Jo Anne Gora had just challenged administrators and educators to develop new business opportunities that could generate much-needed revenue. The VP for information technology knew his organization was as capable of contributing moneymaking ideas to support the university's core business - developing and distributing knowledge - as any other academic or administrative department. And the wireless project had real revenue potential.
Smitherman had secured $US850,000 in US federal government funding and an additional $US500,000 in donations to test the educational and social value of delivering high-bandwidth wireless technology to local elementary schools, surrounding homes and Ball State itself. "We were learning things that everyone else in need of wireless solutions had been struggling with and would want to know," he says. "We were discovering the answers and realized we could generate revenue by providing them [to others] for a fee."
The Digital Middletown Project, as the wireless initiative was called, won the respect of telecommunications companies who now view the university as an essential resource for developing and testing long-distance wireless technologies. Its most impressive achievement, however, is the $US500,000 to $US1 million in annual revenue generated by the Office of Wireless Research and Mapping, the business IT spun off the wireless project. Smitherman expects that revenue stream to grow 10 percent each year. "As [US] state-level support declines and the cost of providing education increases, universities are looking for alternative ways of supporting themselves," he says. "The general perception has been that IT is a cost rather than an opportunity to generate revenue. We're changing that perception."
Smitherman is not alone. Smart CIOs are reclaiming their roles as revenue enablers (which diminished during the cost-cutting years) either on their own or in response to renewed interest from the top. "IT is playing a more central role in revenue generation," says Jeanne Ross, principal research scientist at Centre for Information Systems Research (CISR), who's studying the IT organization of the future. "It's partly because there may not be a lot more costs to cut, and the efficiency gains left to be made are marginal."
And during their cost-cutting days, she notes, many CIOs "got sophisticated in their knowledge of IT-enabled business process and have put themselves in a better position to enable new ways of doing things".
It's not just happening in industries where technology is the business, like financial services or software. Organizations contributing to the top line range from law firms to universities to trucking companies. "The Holy Grail of IT is: 'How do we become better business partners? How do we get a seat at the table?'," says Michael Rapken, CIO of YRC Worldwide.
YRC focused on seeking M&A efficiencies over the past few years but is increasing IT's involvement in making money again. "If we in the technology group don't have a focus on cultivating new business opportunities and revenue," says Rapken, "we're nothing more than a cost clog."
IT is uniquely situated to help the business identify and generate new revenue opportunities. For one thing, says Laurie Orlov, VP and research director at Forrester, "there aren't too many revenue-generating ideas left in the world that aren't dependent on technology". In addition, IT is the gatekeeper of data across the enterprise and understands business processes intimately after years of streamlining.
Introducing revenue generation into IT's portfolio of responsibilities has its challenges. Years of emphasizing consolidation and standards to keep costs low have created a rigid IT environment that's resistant to change and unfriendly to the needs of new business opportunities. IT also tends to be removed from the end customer, from whence all new revenue generates. Finally, many technology organizations are stretched too thin to invest in revenue-generating projects that may - or may not - work out.
But CIOs who want to contribute to the top line should take a page from the CIOs in this story, who are putting in new processes or reviving dormant ones to support this revenue-generating renaissance: harnessing the creativity that exists in IT, engaging with the end customer, ramping up for high-speed projects and letting go of some rules to take a chance on revenue-generating opportunities.
Harnessing IT Creativity
After 2001, every IT cost was under attack, even R&D. Casualties included the best minds in the department. "I met one CIO who basically got rid of all those people who were creative and helpful," says Orlov. "IT R&D departments typically only remain in the most partner-player IT organizations, where IT is tightly integrated with customer strategy. A lot of that emerging technology research within IT went away." But new technology can be the key to competitive advantage, and therefore, revenue growth.
At YRC Worldwide, however, there's a growing emphasis on IT R&D. When CIO Rapken joined the company last year, he doubled the size of its R&D group. The group watches trends and conducts trials on everything from GPS to RFID to determine which hold the most promise for the trucking business. "I didn't feel we had enough people to keep up with the ideas that the business wanted help evaluating," Rapken explains. "By investing more resources we'll get a greater return on innovation. When people see this, they believe you are serious and are more willing to contribute ideas."
That's a big step, says Orlov. "You have to create an idea-generating framework and a good process to go with it to make sure great ideas for generating revenue are acknowledged and incented and sponsored at the top," she says. "There are creative people and good ideas in IT. You just have to figure out how to tap them."
By reintroducing R&D, YRC's IT projects are now weighted about 70 percent toward cutting costs as the company digests recent acquisitions and 30 percent toward enabling revenue growth. Getting projects in the latter category funded can sometimes be a challenge. "It's difficult to create a business case for some projects because they're scrutinized by finance people who want tangible benefits," Rapken explains. "It's easier to quantify that on the cost-cutting side."
One strategy for success is to make the $US8.7 billion company and its systems easier to do business with, says Rapken. This not only tends to increase revenue but provides the cost-cutting benefit as well. "By improving processes, you make yourselves more attractive to customers and grow revenue," says George Westerman, a research scientist at CISR.
One such initiative is YRC's Web-based customer service system in its Roadway Express division. The customer service department comprised three separate groups. They all used the same system but each worked with its own set of screens and programs. Between them they used more than 60 screens, many with identical functions. IT realized the department could be more productive if the screens were streamlined into a single browser-based system that eliminated duplication and was more user-friendly. Indeed, after spending $US1.8 million on the corporate sales centre application, the company's call centre reps were able to increase outbound calls, cross-sell other YRC services and close more sales. Roadway Express revenue shot up an average of 20 percent over a two-year period in five product areas.
What if you don't have the luxury of a separate R&D group? Make creative thinking part of everyone's job, says Ball State's Smitherman. "Looking for innovation is a key day-to-day task," he says.
Smitherman also relies on the draw of leading-edge work - such as the wireless initiative - to inspire active participation by staff. "IT stepped up and they did this as overload work," he explains. "People were willing to go beyond the demands of their jobs because of the excitement of it."
To give his staff more time to explore the moneymaking possibilities of the wireless project, Smitherman also used some of the government grants to hire additional workers for it. "We're stretched very thin and asked to do more with less every year," he says. "This gave us that first edge to enable us to innovate."
Closer to the Mission and the Customer
An important step to making IT a contributor to the top line is getting closer to the customer at the end of the line. At Discover Financial Services, that's a no-brainer. Technology is the business for the $US3.5 billion credit card company, and the IT department partners with its various functions. "IT is not any different than the call centre guy," says Discover CIO Diane Offereins. "Everyone is focused on how our work impacts the business because our product is delivered by technology."
Offereins has a robust R&D group within IT that analyzes the business opportunities presented by new customer-facing products enabled by technology, such as mobile phone wallets and teen or family cards, and a new project forum that "positions us well for new revenue-generating opportunities", she says.
One of the company's top priorities is to pursue new growth opportunities in emerging international markets. IT's close alignment with that mission enabled an alliance with China UnionPay to proceed quickly. IT teams throughout Discover, including the Pulse, security and engineering departments, worked cooperatively with their respective business customers on the project from day one. At each step, IT was there to "make sure we're able to capitalize on opportunities like this", says Offereins. "It's different from what goes on in the product development group where you're testing all kinds of different things and taking them to market."
The long-term agreement signed last May will lead to the acceptance of Discover Network brand cards at UnionPay ATMs and point-of-sale terminals in China and acceptance of China UnionPay debit cards (920 million and growing) on Discover's Pulse network in the United States. The network will be fully operational by the end of the year, making Discover the most widely accepted US credit card in China.
"For IT departments to contribute to revenue growth, they have to understand and share in the mission of the company," says Forrester's Orlov. "It's important to introduce processes to help the IT organization understand the mission through sending them out into the business and making sure businesspeople know IT."
At Discover, IT and business are joined at the hip. But that's not the case everywhere. At Foley & Lardner, CIO Douglas Caddell and his team had to sell management on the idea of IT as a strategic partner that could bring new revenue into the $US610 million corporate law firm.
To do that he went straight to the clients to find out what technologies the firm could offer to support their businesses. After attending countless conferences and forums to talk to corporate general counsel, he figured it out. "GCs [general counsels] are at the bottom of the IT food chain in their corporations. They're looking for anything that might make their life better," says Caddell. "If a law firm can provide them tools that will make their jobs easier, that goes a long way toward creating a tighter bond with them and getting more business."
Caddell began developing a suite of Web-based technologies tailored to the needs of the law firm's clients, such as a case management system, litigation tools and a best practices repository. "I had an idea of what I thought the customers were looking for," he says. "I didn't do it in a vacuum, but I didn't ask for permission either."
Called Foley:ClientSuite, the system was rolled out in 2003 to 150 of Foley's most IT-savvy lawyers to offer as a free incentive to grow business with existing clients. It worked: The system helped the firm expand its business with Bank of America. "Our chairman, Ralf-Reinhard Boer, said it's what got him in the door down in North Carolina [at Bank of America]," says Caddell. "Senior leadership now recognizes it as a true competitive advantage for increasing business value."
Though he isn't able to quantify the amount of business that can be attributed solely to the introduction of ClientSuite, today half of Foley's attorneys and 450 clients use the system.
Caddell has since hired a full-time technology consultant and salesperson to engage internal users and external customers in further system development. "She works with the lawyers to help the customers understand the value of the technology and how they might be able to implement it," he says. "She finds out what will make it work better for them."
The IT department is on its third version of ClientSuite, which offers such enhancements as a more robust searching function, advanced security and integration with MS Outlook. And IT has become a top-line partner at the firm. "This increased our credibility," says Caddell. "We're not just an expense to minimize. We're an investment."
The Need for Speed
The benefit of a revenue-enabling project can be fleeting - what creates competitive advantage and new business growth today can be the cost of doing business tomorrow. At Foley & Lardner, Caddell knew it was only a matter of time before rival firms would develop systems similar to ClientSuite. To keep its advantage, IT would have to quickly develop and roll out enhancements.
Doing so meant creating an internal development staff to get the technology built and updated as fast as possible. Caddell employs seven developers - a lot for a law firm. Overall, his IT department grew 14 percent over the past three years, and Caddell has realigned his resources around client-facing technologies and Web development. "It's a whole new level of challenge and responsibility. If it doesn't work, it's going to be a revenue disabler. And that's not what you want," he says.
The IT team was able to develop and roll out each version of ClientSuite in less than six months. "It's been fairly robust and rapid development. But we don't impose any artificial deadlines," says Caddell. "You have to be willing to take a risk, but don't be risky."
Discover's Offereins says there's often more urgency around IT projects that enable revenue. And there's no shortage of people who want to work on such projects. "Revenue generation has a naturally positive, expansive aspect to it. People are more enthusiastic about it, particularly people in the technology department," she says. But staffing such projects properly is important.
The shared network with China UnionPay, for example, needed to deploy quickly to leapfrog the competition and prepare for the increase in US-China travel that will accompany the Beijing Olympic games in 2008. It also involved a great deal of complexity, from technology standards to time zones. Offereins and her technology management team needed to decide quickly who was most qualified to lead and staff the project. To speed staffing ramp-up, she relies on a core group of people whose skill sets make them ideal for complex, high-profile projects.
"You have to know your people and capabilities to quickly pull a team together to meet the demand when opportunities like this come along," Offereins explains. As a result, Discover was able to process the first successful China UnionPay transaction on its US network less than five months after the deal was inked.
During the past few years, technology organizations got really good at consolidating systems and introducing standards across the enterprise - perhaps too good. "It should be a benefit," says CISR's Ross. "But the risk is that some people assume that if some standards are good, more are better and most are best. You develop a culture or mind-set that can't let go of cost-cutting constraints."
To enable top-line growth, IT departments have to loosen up. "You have to be more flexible to seek out new revenue," says Tom Bugnitz, senior consultant with the Cutter Consortium.
Developing the Web-based corporate sales centre application at YRC required IT to loosen up and retool its thought processes about Web development. It meant abandoning its traditional ASP, back-end server approach to developing presentation and content delivery in one program for a more dynamic Ajax-like approach to deliver XML data separately from the static presentation page directly to a user's Web browser. The potential benefit was clear: It would minimize CPU, bandwidth and end- user response time. But at the time, the acronym Ajax didn't even exist and the approach was neither widely employed nor well understood.
It was critical to manage the risks associated with the changes the new system would require of both IT and the system's users. To get buy-in from the IT staff, project leaders explained the advantages of the new Web development approach and how it would work. To make sure the affected customer service constituency was on board, YRC used a team-based approach to gather requirements and develop the application, involving representatives from the eight business groups affected. The team employed an appreciative inquiry tool that allowed them to envision the new call centre improvements and build consensus around the proposed changes in business processes.
"Having processes and standards shouldn't discourage creativity, as long as there is a part of your process for problem solving," says YRC CIO Rapken. "You have to continue to encourage folks to think creatively, position it as a problem to solve, and then get out of their way." (For a view on how a misguided obsession with process improvement could well be killing innovation, read "Disrupt and Prosper, Conform and Languish", page 60.)
The new mix of technologies and Web development methodology is now being used to enable top-line growth for other YRC projects that require a rich and high-speed end-user experience. "Enabling revenue generation will be a continued focus," says Rapken. "That's good for the business. And it's good for IT."
At Ball State, IT's role has transformed rapidly from enforcing standards and technology choices to exploring and testing the newest technology and its revenue-generating potential. But Smitherman is careful to make sure IT does not abandon its core customers as it pursues emerging technologies.
"If you're going to take risks like this, you need to mediate the imposition on the rest of your customers," says Smitherman. "And spread the benefit to as many constituencies as possible."
For example, Smitherman positioned the Digital Middletown Project and the Office of Wireless Research and Mapping that grew out of it as an opportunity for Ball State's students to get work experience to make them more marketable and for faculty to do applied research in their areas of study. Internal constituents such as the geography department and the Teacher's College got involved and benefited.
With the project, IT proved its flexibility and out-of-the-box thinking - and its ability to make money. "Every time you have a success, that gives you more credibility," says Smitherman. "It gives us the freedom to do other things that will not only continue to cut the institution's costs but also have the possibility to generate revenue."
Smitherman and his team are currently looking at the success of such ventures as rich media site JibJab and social networking site FaceBook and exploring the ways in which Ball State might profit from such IT applications. Perhaps, there's even a business spin-off in there somewhere.
"The real opportunities for generating revenue all come from the intelligent use of technology," says Smitherman. "And what better place is there to do that than in IT?"