For years now, we CIOs have been hard at work consolidating data centers, systems and software licenses. We’ve saved our companies millions. But as the saying goes, “You can’t save your way to greatness.” Greatness in business requires making money.
And so we need to change our thinking about what IT contributes to an organization. We’re used to viewing computing as a back-office function–a cost center. But we have to turn it into a profit center. We need to ask ourselves what we can do with IT that our customers will pay for.
CIOs must exercise leadership here because IT is becoming central to how companies make money in our global economy. While important for all CIOs, it’s essential for CIOs at mid-market companies, where survival depends on finding new revenue opportunities.
Think like a salesperson
Using IT to make money means getting close to your sales force and helping them sell more of your company’s products. It’s that simple. But it takes commitment to shift from a money-saving to a moneymaking frame of mind.
The first thing to do is delegate cost cutting to some of those very competent people who report to you. Lay out any remaining money-saving plans you may have, encourage your team to develop their own ideas and let them run. Stay informed, but leave the day-to-day decision making to them. Now you have cleared your desk and you can focus on making money.
Next, get to know your company’s salespeople, the products and services they sell, and the customers who buy these products. Go on sales calls. Take note of how the salespeople talk about products and the questions that customers ask. Concentrate on what customers like and don’t like about your products. Find out what your competitors are doing. How do their products and prices compare with yours?
Now ask yourself, what will make the products your company sells more attractive? How can IT improve the things customers like and eliminate those that they don’t like? As you ponder these questions, remember that all products have two components. The first component is the basic product or service itself. The second component is the information that surrounds the product. This information is what enables customers to search for and select your product, understand how to use it, and get the results and benefits they want from it.
Most products quickly become commodities because your competitors have similar products, and the prices you can charge for them get ratcheted down. This makes the information component more valuable. Through creative use of the information component, you can wrap any commodity product with a mix of value-added services that make it more useful, and for which customers will pay. Let’s say your company sells electrical wire to building contractors. You can increase the value of the wire by collecting information about the builders’ needs. You can use this information to offer wire precut into the lengths customers require, to splice specified plug connectors onto each end and to deliver the wire to job sites right when it is needed. Your company can charge builders extra for these services.
Because value-added services are information based, the CIO is a key enabler of them. CIOs are best equipped to design ways to collect information about customer needs. And CIOs understand best how to present this information to the people in their companies who deliver new services to customers.
The value-added paper cup
For the past six years I was the CIO of Network Services, a mid-market distributor of food-service disposables and janitorial supplies for restaurant chains, property managers and grocery stores. We’re talking paper cups, plastic forks, paper towels and floor wax. A paper cup is a commodity product if there ever was one. What do you suppose is the profit margin on a paper cup? The answer is “not much,” and it gets lower every year. So the challenge was to use IT to make those paper cups more valuable. (Network Services is honored with a 2006 CIO 100 Award. To learn about how other CIO 100 honorees used IT to generate revenue, turn to “Money (That’s What They Want).”
Here’s how we did it. In collaboration with the company’s sales, customer service and finance organizations, we devised a menu of value-added services that salespeople could mix and match to meet specific customer needs.
We made it very easy and convenient for customers to find and order our cups by providing an online product catalog that let them search on many different product parameters. We also set up the catalog to remind them to order other items that normally go along with cups, like lids and sleeves.
We let customers place and track their orders online so they could know when their supplies would be delivered. We also created customized labels so that when cups were delivered, customers could quickly receive, store and retrieve them.
We enhanced our billing system to streamline the processing of invoices by customers and reduce their costs of doing business with us. We sent invoices in whatever format customers wanted so they could automatically import them into their accounts payable systems. We even preprocessed invoices, inserting customers’ general ledger codes into every line item on invoices so those costs could be automatically disbursed to their general ledger systems.
Finally, we provided customers with easy-to-use Web-based reporting that lets them see how many cups they ordered at each of their ordering locations over any period of time from one day to two years. They could monitor their spending and get detailed data for planning and budgeting, along with real-time insight into usage patterns and purchasing trends.
In short, we turned our products into tailored solutions that solved important problems for our customers. And therefore, we could sell our paper cups for a few percentage points more than our competitors.
Every company has its equivalent of the paper cup. Figure out how you can leverage the information about the products your company sells, and how you can use IT to deliver a customized mix of services that enhances those products, and you will earn the right to call your IT organization a profit center. You can take that straight to the bottom line.
–Mike Hugos is the former CIO of Network Services and the author of two books, Building the Real-Time Enterprise and Essentials of Supply Chain Management. He can be reached at www.michaelhugos.com. Send your comments to firstname.lastname@example.org.
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