Meeting the IT Profitability Objective
IT spending has been (and continues to be) a very popular topic of debate among industry professionals. As CIOs continued to experience increased pressure to reduce spending and do more, most organizations attack the “IT spend problem” through cost containment and capital expense reductions. While these steps can be necessary to contain a bloated IT department, with most Fortune 500 companies spending 4 percent of revenue or less on IT, there is little room to make the desired long-term gains, and a huge opportunity is missed to reposition IT to help grow and transform the business.
As CIO of CAI, a global IT services firm focused primarily on Application Support Outsourcing, I think the cost optimization imperative is actually an opportunity to reposition technology to assume new roles in meeting the objectives of the business. We established a small, versatile consulting and R&D team within our IT organization, which we call CAI Labs – the objective of which is to produce new products that ultimately diversify the company’s portfolio. By establishing a profit center within IT, product sales augment the IT budget and actually enable more reinvestment with the long-term goal of generating enough product revenue to cover the cost of IT for the rest of the business.
Introducing a revenue-generating model into an already taxed IT organization is a challenging thing, and requires the team to operate very much like a start-up: ideas are pitched, funding is sought, and approved ideas are pursued. To accomplish this, we implemented two complimentary methodologies to standardize our process and minimize our up-front investments in new, unproven ideas.
• The Business Model Canvas: All new ideas are put into a business model canvas, a 9-component model from Alexander Osterwalder and Yves Pigneur that defines the unique value to the business, probable buyers, and critical elements for each proposed idea. If we struggle to complete the canvas, it is not an opportunity to pursue. If we can complete a canvas, the output is then turned into a pitch presentation to get approval for the idea, and the canvas alone may be enough to approve creating a prototype prior to making the pitch. Additionally, the canvas serves as an approved guide through the product development lifecycle – we revisit it regularly and modify the canvas as we see a need to pivot our products.
Most organizations attack the “IT spend problem” through cost containment and capital expense reductions
• The Minimum Viable Product (MVP): Our new ideas do not begin with a comprehensive investment, but instead follow Eric Ries’ MVP method for creating only the principle features needed to vet the idea with the primary market. Failure to find an accepting market can stop a project before the investment is too high.
These methods together have allowed us to produce a variety of commercially available products outside the standard service offerings of CAI. While these product offerings open up new opportunities for customer engagement, they also represent additional services that can be offered to the existing client base.
For example, TestInSeconds, a test automation service offering that was actually developed for internal use, was ultimately productized and commercialized for sale. The application is a fully-automated browser compatibility tester that can assess discrepancies in page layout among any combination of browsers, including a full complement of mobile platforms. We had initially developed it internally because we were unable to find a third-party platform that could meet that need for our internal testing efforts, and now the application has been enhanced for self-service and is leveraged by a variety of customer verticals.
We similarly endeavored to solve significant technology problems in industry verticals outside of our normal client base. We looked for organizational inefficiencies that plague entire disciplines, and set the team to identifying solutions. How do health networks improve patient through-put in their Emergency Departments without increasing operating costs? How do extremely large development organizations (such as financial firms and retailers) better manage at scale? How do school districts know where their buses are, if they are running on schedule, and whether or not a student boarded the bus?
The Labs group inside of our IT organization has set out to solve all of these problems, and we currently have product offerings to address each of these needs. The same team of individuals who produced and marketed a test automation tool have also created a patient tracking solution that uses ultrasonic technology to pinpoint the location of patients in an Emergency Department, as well as all nurses, doctors, and other care-giving staff to create an automated tracking system that ensures that no patient goes beyond a prescribed length of time without attention from a health care provider. That same product will later be integrated into Electronic Medical Records to contribute to clinical diagnosis for patients and further drive efficiencies throughout the hospital. Similarly, the team created a predictive intelligence tool to help large development organizations better forecast output and improve long-term strategic plans, and created a school bus tracking application that monitors the location of each bus, provides route-specific directions to drivers, and allows a school district with over 150 buses to get students where they need to be (or get service to broken-down buses when they need it).
All of these are examples of IT repositioning technology within CAI to better satisfy the needs of the organization. The value of a small, dedicated team focused on revenue generation and product creation quickly transformed the IT cost-model within the company from an experiment in doing more with less to a self-sufficient organization that is generating its own investment revenue and trending toward the ultimate objective of a self-sufficient IT organization.