How to Align IT with Income
In conversations with other CFOs, I have found that the CIOs who are getting incremental fund increases all tend to have solved a very common problem: They have learned that funding correlates not only to strategic technology initiatives, but also to teams and people being associated with making money for the business.
IT can become known as a revenue rainmaker by associating its efforts directly with sources of income. While it takes time and effort, I believe these basic steps will move you closer to this goal.
I realize that P&L forecasts are not things IT professionals think about first thing in the morning. And its true IT investments rarely track straight into future revenues and income. To facilitate this association, IT leaders need to know where their business is making money and growing. They can most effectively do this with open communication with sales leaders and their CFO.
By engaging in ongoing conversations about business goals and objectives, you can start to target where to align your time, people and capital. And thats precisely where the IT alignment path begins. I recommend these three basic steps to get started:
Ensure projects are aligned. Today, its table stakes to align your projects with a core business strategy. But good IT project management alone doesnt guarantee funding. You need to show that money spent on IT today helps your organization earn more money tomorrow. You have to show IT value.
Lets say, for example, your business is expanding its geographic footprint causing IT to require a network upgrade. Savvy IT managers dont just base spending needs on new functionality or vendor price-breaks, they interview users and build a business case that shows how the network upgrade will drive sales gains and enable more at-bats for sales reps. This kind of focus frames IT spending as an enabler for sales growth.
Review your results. An important next step is making time for regular post-launch analysis. This is perhaps the most common oversight Ive seen. I just cant understand why some IT teams consistently stop short of reviewing their projects and publicizing how they contributed to increased revenue.
An IT team I heard about recently provides a great example of how it should be done: They had implemented an ERP system and they followed-up and got metrics from finance that showed a dramatic improvement in receivable collections and cash flow after the new system went live. Because they took time to review their results, this diligent IT team associated its efforts with positive financial metrics all year long.
Share successes. Successful IT leaders must be good story tellers and be able to back up their stories with facts that resonate with business leaders like how sales rose 30 percent after a new distribution center came online. The best IT storytellers are able to pinpoint an exciting business event, and show (in non-technical terms) how IT helped make it happen.
Having IT managers sit in on sales team calls is a good opportunity to literally show that IT is listening as well as to share success stories. Examples of this kind of team spirit also make a CFO much more comfortable approving future funding requests.
Charge forward not back
Some time ago it was popular to allocate IT overhead costs and charge them back to specific business units. The result of these efforts many times were complaints that the charges were unfair and the net result was that IT was viewed as a tax collector. Instead of doing charge-backs, more leaders today are working to associate their support with high potential profit areas. While it may take more thought, you can creatively do this by showing things like:
- How many sales leads marketing gets from the IT enabled website;
- How many new customers were acquired since a product launched; or
- How much airfare costs fell with a new video conferencing system.
Changing the conversation
Branding IT spending as an enabler of revenue growth creates more interesting conversations around the office and helps loosen a CFOs grip on the corporate checkbook. Aligning IT spending with revenue fuels faster innovation by focusing IT resources where the business action is. Sharing business objectives also boosts team morale because IT is more tightly associated with business wins.
It takes time to transform your image from a cost center to a profit center. Doing so demands quality time spent with sales, operations and finance leaders. Its all about asking questions that demonstrate IT wants to learn about sales and income trends, and how their efforts later reflect on the income statement. Its about making everyone believe your core competency is supporting user applications, customer needs and business growth ― not just the blinking lights in the data center.
When you can draw clear lines between your IT costs and business income, you make IT far more relevant in the process. And Im willing to bet next years budget gets bigger as well.
Greg Baker is the chief financial officer for Logicalis, an international provider of integrated information and communications technology solutions and services, where he oversees finance, accounting, treasury and strategic planning. Prior to joining Logicalis, Mr. Baker held key finance positions with Thomson Reuters, a Tier-1 automotive supplier, private equity firm Talon LLC, and PricewaterhouseCoopers.