Business income gets generated in two basic flavors: higher sales or lower costs. This year, sales growth is clearly the focus as customer wallets start to open a bit wider. And to support growth across the business, most IT leaders now face a conundrum: how to meet higher user demands with budgets still very tightly held.
In conversations with other CFOs, I have found that the CIOs who are getting budget increases have all learned that financial funding correlates not only to strategic 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 basic steps 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 take a straight shot into future revenues and income. But 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 that’s precisely where the IT alignment path begins.
To accomplish this task, I recommend three basic steps:
Ensure projects are aligned. Today its table stakes to align your projects with a core business strategy. But that alone doesn’t guarantee funding. You need to show that money spent on IT today helps your organization earn more money tomorrow. Let’s say, for example, your business is expanding its geographic footprint forcing IT into a network upgrade. Savvy IT managers don’t 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 as an enabler of sales growth.
Review your results. An important next step is making time for post-launch analysis. This is perhaps the most common oversight I’ve seen. I just can’t 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 implemented an ERP system and followed-up with 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 story tellers 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. Often, the result of these efforts were complaints that the charges were unfair. The net result was 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. How much airfare costs fell with a new videoconferencing system.
Branding IT as an enabler of revenue growth creates more interesting conversations around the office and (take it from me) helps loosen a CFOs grip on the checkbook. Aligning IT 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.
Be patient, but persistent; 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. It’s 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. It’s about making everyone believe your core competency is supporting user applications, customer needs and business growth, not just 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 I’m willing to bet next year’s 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.