IT Is No Longer Just a Cost to Be Cut
Many crucial changes in life require a mindset shift. IT as a revenue generator is one of them. In the past, IT was seen as an expense. Something to be cut and kept as small as possible. If you view IT as an expense, then logically that makes sense: a business’ job is to be profitable and cutting expenses is one way to do that.
However, in the last 10-15 years, the power of technology has grown exponentially. Ever heard of Moore’s law? It states that every 18 months the amount of computing power on a computer chip will double.
So, in 15 years … that’s 2 to the 10th power. In other words, technology has gotten A LOT more powerful in a very short amount of time. Just look around and you will see this to be true. How popular were smartphones 15 years ago? What about laptops? If you bought a computer three to four years ago, how does it compare against the computers released today?
All of this evidence points toward one conclusion: The reality of technology has drastically changed how business is conducted and our mindsets and viewpoints toward technology must change accordingly.
As an Economist Intelligence Unit report says, quoting Nick Gray, vice-president for IT EMEA states:
“Mr Gray sums up the change in approach toward IT spend at UPS: “Lines between IT and the business started blurring about seven to 10 years ago, when we realised as a business that without technology we couldn’t compete. When I joined 19 years ago, IT was an expense; now it’s an investment.”
Digital Immigrants and Digital Natives
This mindset shift is harder for certain groups of people to accept than others. April Rudin, writing for the Enterprising Investor, classifies people into two groups.
Group #1: Digital immigrants. “These people were born before the existence of digital technology and thus adopted the use of email, smartphones and other tech tools late in their careers. If you can remember what it was like to have only black-and-white television or not to have a computer in the house, you are in this group….
They are the ones who, when faced with a potential tech-related expense for their firms, say things like, “If it’s not broke, why fix it?” and “The last thing we need is another expense.”
Group #2: Digital natives. “These people are young and show a level of comfort and confidence with digital technology that digital immigrants can only dream of. Quite simply, that is because these young whippersnappers grew up using digital technology.
They have never known a work environment without email and video conferencing, and they view Facebook, LinkedIn and other social media as an integral part of their personal and professional lives.”
April says that a lot of the conflict between cost cutters and revenue generators comes from a generational difference between the two groups. The digital natives intuitively know how IT can make money, while the digital immigrants have trouble (understandably) adapting to this new paradigm.
And the kicker? The digital immigrants are usually the people in positions of power in most businesses, as they are the older and more experienced group. This can lead to corporate cultures where creativity (and revenue generation) in the IT department is regarded with suspicion.
As a CIO article states,
“Years of emphasizing consolidation and standards to keep costs low have created a rigid IT environment that’s resistant to change and unfriendly to the needs of new business opportunities.”
The article goes on to quote Laurie Orlov, VP and research director at Forrester, who says that due to a culture of IT cost cutting, “I met one CIO who basically got rid of all those people who were creative and helpful.”
The Negative Side Effects of an IT Cost-Cutting Culture
For one, young, creative and talented IT professionals with a business inclination are likely to leave for greener pastures. This is a shame, because this kind of young, fresh talent that is aligned with technology is exactly what many businesses need to stay competitive. Additionally, cost cutting has a limit. Eventually, you reach a point of marginal returns where you are putting a lot of effort and/or man hours into cost-cutting measures that don’t actually save much money.
Finally, there is the opportunity cost of cost cutting. (That’s a mouthful, huh?!). If you need a little refresher on opportunity costs, here’s the idea: your staff only has so much time and energy. Any time and energy they spend on cost cutting in IT is time and energy that won’t be used in other areas.
Areas such as seizing an opportunity for creating new revenue, for example.
The Key Mindset Shift: IT As an Investment
In order to justify putting money into IT, you have to view it like an investment. Of course you expect a ROI from your investments – but you might not see returns immediately or directly. However, you must make a shift from bottom line thinking to top line thinking. If you want a fun metaphor, think about making the pie bigger instead of finding a more frugal way to make the pie.
This can provide a cultural benefit to your company. Growth-oriented projects are inherently more exciting for your staff to work on than cost-cutting projects. And certain research suggests this key mindset shift is already happening: The Economist Intelligence Unit report we cited earlier also states that only 10% of their survey respondents view cost cutting as their primary focus of IT.
3 Examples of IT As a Revenue Generator
The bad news is that due to the very fluid nature of technology, we can’t give you specific examples of how your business should use technology to generate revenue. Without knowing all the context and details of your business, it would be impossible to do so.
The good news is we can give you examples of how other companies have made money from their IT departments. Hopefully these examples will give you several useful ideas you can apply (with a little bit of creativity, of course) to your own business.
A CIO article titled: “IT Innovations That Generate Revenue and Get You More Customers” has a wealth of practical examples of how companies successfully generated new revenue through IT.
Example #1: Washington Mutual’s Extremely Convenient Online Banking
Online banking is a great example of how companies can make more money by providing customers with what they want through technology.
Consider the usual pain points of banking:
- It’s a hassle to go into a bank (especially when you have a 9-5 job)
- Banks are notorious for only open for limited hours
- Using a lunch break to go to the bank is not a good use of time
Online banking solves these issues, but for a long time Washington Mutual’s customers had to go into a physical location in order to start an online banking account.
Theoretically, this would lead to less new accounts opened (and less business for Washington Mutual). However, like many other growth-oriented investments, it was hard to exactly quantify this. Additionally, it used to take 45 days (!!!) for a WaMu account to be opened.
IT tech changed all of that. Their initiative, called Instant Checking, made it possible for customers to open a bank account in less than 10 minutes and deposit checks using a digital signature without ever having to go to a physical Washington Mutual location. The result? WaMu used to receive 100 online account applications a day… now they received around 2,700.
Additionally, Washington Mutual is actually saving millions, as they have eliminated a lot of paperwork and back office support by using tech. Sounds like a win-win to us!
Example #2: Best Buy’s Purchase Path
Best Buy, a company that sells electronics to consumers, is embracing their inner techie to make more money. Using a technology called Purchase Path, Best Buy has been able to analyze droves of consumer purchasing behavior to come up with useful, actionable trends. For example, the Purchase Path data might show that when consumers buy a particular laptop, a large portion of them also buy a specific pair of headphones.
Best Buy management can use that information to place those headphones right next to the laptop, making consumers even more likely to buy the two of them together.
That’s a classic upsell – making more money off existing sales.
Example #3: Hilton Hotel’s e-Events
Hilton Hotels not only makes a considerable amount of money from people wanting to sleep in a nice bed for a night, they make a significant sum off of event services as well. In the past, sales reps would talk to customers about booking rooms for events, conferences and parties. This meant that if a busy customer wanted to talk to a rep during nonbusiness hours, they would have to leave a message and wait for their call to be returned sometimes leading to the sale being lost.
IT tech to the rescue!
Hilton started an initiative called e-Events (which cost $1.5 million to deploy) allowing customers to do the entire event planning booking process, including food, drink, meeting spaces,and audio/visual equipment completely online, at any time. This brought them $2.6 million in new revenue the first year it was deployed and $10 million the next year.
While viewing IT as an investment and a revenue center rather than an expense is a mindset shift, that doesn’t mean it’s “all in your head.” As we’ve shown in this article, there are Fortune 500 companies out there who are successfully making money from their IT departments – and a lot of it at that. If you work at a company that embraces creativity and innovation, you may want to pitch your boss on some new ideas that you generated from this article.
But if you work at a company where innovation is discouraged, you may want to head to a different company. Because while you can always work on your own mindsets, changing the perspective of other people is much harder…