For CIOs and the IT organizations they lead, what is their role in value creation? Can IT create value or are they simply an enabler to value creation? And can the implementation of technology really create value? Those seem to be hot topics of contention today.
First, let’s take a look at what value is and where it comes from. There are two types of value sources in a business organization: Those that contribute to lowering ‘bottom line’ expenses and those that contribute to ‘top line’ revenue growth. Some of the most valuable contributions to a company come in the form of top line revenue growth.
So, what is IT’s contribution to value and where does it come from? In past years, IT was perceived as a cost center. In essence, IT was an expense that pulled from the bottom line. IT was seen as simply a support organization that users engaged when technology is needed or broken. IT, in turn, looks for ways to lower the hurdles and to use technology more efficiently. In this paradigm, much of the ‘value’ IT provided came from cost efficiencies that contributed to bottom-line operational savings. The paradigm considers IT as a service ‘delivery’ organization to the company and business units. For many IT organizations, they still work within this paradigm today.
It is time to change the paradigm. IT needs to think of itself as a business organization that drives value rather than simply a delivery or technology organization. And transformational IT CIOs are doing just that. There are many who question IT’s ability to contribute to top line value. Based on the traditional paradigm, the question is well supported. However, in the new paradigm, IT can provide top line value creation through new revenue streams. Examples might include online portals or ecommerce activities. IT essentially creates new revenue streams not previously possible.
But not every CIO or IT organization is ready for this level of transformation. Even so, at a minimum, the transformational IT organization should provide value enablement. In other words, enabling others within the company to contribute top line revenue growth rather than directly driving it. In either case, IT plays a central role in driving the conversation and opportunity for value creation.
Of late, the subject of cloud computing has been suggested as an opportunity for value creation. Technology does not create value; at least not by itself. Technology is, however, an enabler to create value (top line and/or bottom line). And, cloud is one of the most significant opportunities to leverage for value creation today. It provides two significant opportunities for IT organizations: 1) It provides the ability to maximize efficient use of traditional infrastructure and capital resources. And 2) it enables IT organizations to change their paradigm from focusing on infrastructure to focusing on value creation.
Earlier this year, I wrote a piece titled “Transforming IT Requires a Three-Legged Race.” The premise of the piece talked about the need for IT transformation and how there are three components that need to change: 1) the CIO, 2) the IT organization and 3) the business’ perception/ expectations of IT. In order for IT to create value (value creation or value enablement), these three components will need to be considered. And the CIO should lead the charge to do so.
So, going back to the original question: What is IT’s role in value creation? The bottom line is that IT’s role in creating value is significant. Whether IT creates value or enables value, the opportunity is there waiting. Changing the paradigm is not trivial, but needs to happen across the industry, not just with a few leading CIOs. The question is what will you contribute to the evolution?