From Cost Cutting to Value Addition

At a recent meeting a CIO asked me how it is possible for him to become a
business leader. "I have spent nearly twenty years in understanding
technology, now I have to understand business," he said. It should be
possible, I told him. Politicians do not always understand governance but they
understand the people who vote. Therefore, they govern. So, if you understand
technology-and technology is the business-there is no reason why you should
not be the CEO. Indeed, for many industries today, technology and business are a
seamless whole. And this trend is only likely to increase. Therefore, it becomes
imperative that the CIO thinks about making this happen as the big challenge.
Yet, in a recent survey by PC Quest, only 20% CIOs indicated this as their
biggest challenge. By contrast, 43% felt that deploying new products and
technologies was their biggest challenge. And, 37% thought that it was managing
service providers and vendors. This indicates that a mindset change among CIOs
is the call of the day.

Take the banking industry. It still manages money but more and more functions
are technology dependent, and it is technology that is opening new business
opportunities. The travel and tourism industry still moves people around, but
all its functions, from selling to bookings to billings, are technology driven.
Telecom business opportunities like SMS and ring tones are completely driven by
technology. So, the real challenge is to dream of new business options that are
possible with the aid of technology, and not figuring out how technology can
make the existing businesses work better. Not that the latter is irrelevant. It
is just that the real value-add to an organization comes with the former. IT
enabled products and services provide the competitive edge that all
organizations are striving for.

Shyam Malhotra The biggest challenge facing a CIO should be integrating business and technology; the fact that it's not so indicates the need for a major mindset change

Operational excellence in IT, for the existing businesses, is the hygiene
factor. It is no more the distinguishing or the critical factor. An AT Kearney
report indicates that operational excellence in IT impacts the margins of a
company by only 3-5%, whereas adding value by product innovations, supply chain
management, customer relationships and the whole set of new tools and techniques
impacts the margins by 20-30%.

If that is accepted, the mind game acquires a new paradigm.

In the services industry the growth options are obvious-more and more
services that are IT based. The whole BPO industry is an example of that.
Similarly, banking, insurance, stocks, tourism, education and many other such
sectors, are rapidly creating new service offerings, which give them a lead over
competition. In the manufacturing and allied industries it is more difficult to
imagine services that would create new revenue streams. Here, the focus has to
be on quick product innovations that are possible through IT.

The two emerging areas in which growth will happen and that can be used to
gain competitive advantage are: the Internet and its associate technologies like
broadband, and wireless and mobility. From these will emerge many new business
models that will give organizations the growth engines and the competitive edge
creators over the next 3-5 years. They will not only cut costs of operation but
will also create value additions to the top lines by creating new revenue
streams-for those who can imagine them. They will also help some CIOs become
CEOs.

The author is Editor-in-Chief of CyberMedia, the publishers of Dataquest
(Based on the opening address at CIOL's C-Change, held in January 2005)Shyam
Malhotra