Corporate America treats IT organizations as "Cost Centers" better known as second class citizens. This goes back to my previous post on "Corporate Finance for Techies...". Most of corporate IT comprises professionals from an architecture, application development and IT operations background with the "degree in eliteness" in descending order. Architects think they drive technology in the enterprise, Application Development Teams (if there are any - mostly the architects are embedded in these teams. They still consider themeselves the elites) think they do the "Real Work" and IT Operations laugh at the other two and think "if it were not for us...you guys would be nowhere".
On a more serious note, I often think why is this the case? Firstly, why is a department that is the latest addition to the other more conventional ones such as Finance, Sales and Marketing, perceived as a "Cost Center". Simple answer - CIOs don't do a good job of two things. Firstly - they do a poor job of correlating the value of their organization's output to the Enterprise Value of the firm. This is because they are incapable or going after the "quick wins" and "low hanging fruits" - which are tactical and mostly do not add or augment Enterprise Value of the firm. Secondly - they are not "forward looking". In other words, they do not "think" about using "IT as a Revenue Generating" catalyst as much as a "Cost cutting tool". Those that do, come up with disruptive and Killer Apps - Internet Retail Banking, Online Payments, Online Trading...I can go on. One can argue whether these ideas originated from the business or from the technology community. I would argue - they orginated from technologists who were interested in making their firms "earn more money" than "save more money". They were thinking of what Gary Hamel terms as the "Opportunity Share" of a market that is non-existent at that point of time.
So why are IT organizations second class citizens? Finance does not bring in revenue - but does not have a reputation like IT. I think it is due to this inherent nature of technologist to experiment, perfect and be proud to flaunt a "cool new gadget" or "solution" and NOT focus on trying to help their firms generate more revenue. It also due to their nature about trying to solve the 20% of the problems which have insignificant or a very low impact (positive or negative) on the firm's bottom line. Basically it is also due to the "Capex heavy" and "Opex bleeding" nature of the department. Every business case for a new IT project has a "Hardware", "Software" and "Professional Services" sections. All this adds up to a VERY LARGE NUMBER which DOES NOT TRANSLATE to ENTERPRISE VALUE" - I am just a stickler for Enterprise Value. Every department's existence in Corporate America or any other economy must be contingent about their ability to add "value" to their firm.
IT Organizations (comprising architects, developers, testers and operations personnel) have to think "Revenue" NOT "Cost". It is not a paradigm shift - it is just trying to figure out a way to extend their thought-process to transform the "coolness factor" of a "new gadget or solution" to "add value" to the firm. Putting it simply - they have to get out of the "solution mode" and start their thought process from "What business problem am I solving" or better still "How can the coolness of this new technology add value by generating more Revenue for my firm". Believe me if they just start thinking on these lines - we would have more killer apps. Killer apps are an after thought - though technologists think they know what is a killer app. Suppliers of IT products and services consider their products no less than a killer app. However, it is the problem that these apps finally solve makes them a killer app. On the demand-side of IT, the CTO organization is rarely thinking of "value" or "revenue". They think in terms of "cost", "process automation", "reduction in manual processes" - all geared towards automating manual business process with the use of technology. Why is it that they do not learn from the examples of Online Banking and Online Payments that IT can be also be used to generate revenue...
What is really tragic is the mypoic perspective of CIOs and CTOs. They are there to "fix" a problem. But they are fixing the symptoms or saving their jobs. Hence the short life span - 18-24 months on an average. I think they are to be blamed for turning the IT Organization into a second-class citizen. CIOs and CTOs assume that their job is to cut costs by automating business processes (which is not a bad beginnning) and "keep the lights on" - as they say. As more CIOs/CTOs try and introduce visionary and breakthrough solutions to existing and anticipated business problems, this trend may change. Companies with those kinds of CIOs/CTOs fall in the top 10% of the leading companies in any industry vertical - Schwab in Financial Services, DELL in Online Hardware Retail, Amazon in Online Retail Aggregation to name a few...Others are mediocre companies that do not believe in IT as a differentiator - or I would say that there CIOs/CTOs do not have the courage to think so as they "assume" too much about their job responsibilities and do not want to make a difference...
I also believe that techies are seldom taught to think abt the value they bring to business. It has to start at the grass root level, where every techie is taught to always remember that business comes first - technology is just a means to an end. When these CIO/CTO's start talking business rather than technology solutions, then they shall find themselves as business managers and not just techie managers. The future requires more business managers who have a strong technical background to bridge the gap between business and technology. Till that happens, IT leaders will only be regarded as 'solution providers' and not 'revenue generators'.
Posted by: Parag Doshi | June 24, 2008 at 01:40 PM