CIOs Should Learn To Seduce Shareholders

A question that pops up from time to time is about the value that IT generates for businesses. I have to face uncomfortable situations in IT board meetings wherein all that is asked to me is “what projects have you done?” or “how much have you saved?”. Beyond that nothing seems to be important for the senior leadership.

I guess that’s true for sourcing, HR or any other back-end function of a company. Just like they have questions for sales or marketing teams related to top-line growth or bottom-line growth, they hardly seem to have questions for finance fraternity. Though quite a large number of places (and I am sure most of you will disagree with me) CIO reports into the CFO, it’s ironic that some of these questions don’t get posed to the CFO or finance functions at all.

So I one day sat and thought aloud… what is the value generated by IT that I could possibly explain to the board at any point in time? We do a lot of projects that improve productivity, efficiency and bottom-line. Can we really articulate that in a manner explainable to the senior leadership or the board?

For example, if a CIO was to undertake a cloud initiative and he had to do a value argumentation, how would he place it for his senior leadership team? Another difficult example would be, if a CIO needs to create job roles for ‘IT Architecture’ or ‘Enterprise IT Architecture’ and needs a nod from the leadership, how would he probably prepare and present that it becomes an assailable argument. Since these were intangible, I had practical difficulties and felt it approved mostly on trust basis. On the other hand, tangible benefits can easily be addressed and approved as there are some financial numbers to it, probably a TCO, Payback, or whatever mechanism you may look at.

I am on a journey now to learn how to seduce shareholders through my approach to ‘Value Win’. I have looked at the few things a shareholder gets seduced by… and they are classically ‘Growth’ (top-line) and ‘Margins’ (bottom-line). Apart from that, they are also excited by the prospects of great employee base, great customer satisfaction focus, great managers and good societal causes. These all impact a shareholder’s passion with the company. However, top-line and bottom-line still rules the roost.

I tried doing this for my current role and put up a slide with all that I have done in the past eight years and mapped it to either ‘Margins’ or ‘Growth’. To my surprise I found that apart from top 30 items, I had to drop most of the others from a shareholder impact point of view. Some projects which I thought had negligible or no impact to the business yet stood out as high impact for the shareholder value. An example of both is as follows:

High effort, low impact: We undertook a MPLS project connecting the whole company on a dual metro Ethernet backbone that provided redundancy and speed. It was a very fruitful project for IT but when it comes to shareholder value it did not really have the same impact. If you look at any of the above forces it did not have a direct impact. I already had point-to-point leased lines connecting offices and had to manage the show through my internal telecom team.

However, it did not mean that it resulted in any revenue growth nor did it affect the margins. To top it all, the cash outflow increased rather than decreasing. But what it did was minimise my management effort, make the network more visible to my team, help monitor and run the show seamlessly as operators now had a view on their MUXes (Multiplexers) and connecting forms. So when I felt I had done a great job, it was great only from an IT satisfaction standpoint and not from a shareholder’s view.

An example where it was vice versa:

Low IT satisfaction, great shareholder value: A telecom company does a lot of outsourcing from operators and therefore it takes over the ‘management’ function of the telecom equipments/boxes/routers, etc. from the operators. Naturally it has to take over people, migrate the operator’s home grown environment, and integrate that with the current IT landscape of the outsourcer. Therefore, there is a cost and project impact.

When we did similar things for our managed services deals, I gave the sales guys a toolbox which is a simple excel sheet to fill in the kind of people to be in-sourced, tools those people use currently, migration activity to be undertaken, merging to separate user environment, etc. and the relevant costs associated with each of these activities. What happened was that the sales team did not really like the idea of filling in these details. But when they did their first and second managed services offers, they realised that the ballpark cost for doing these integration IT activities is around 10 percent of their overall quoted price. This gave them a great insight into how they could operationalise this cost and help them gain grounds over a competitor.

Such a project for me was a rudimentary project, which would help me understand the requirement and provide resources accordingly. But it turned out to be a great support to the overall sales tool. This definitely upped the shareholder value since it impacted the revenue growth agenda of the shareholder.

Therefore, as I end my long story, I believe there is life beyond RoI (Return on Investment), TCO (Total Cost of Ownership), IRR (Internal Rate of Return), NPV (Net Present Value), etc. which are financial justification of your investment. The root cause of IT’s existence can easily be defended if we could map each of our activities in the illustration above and be able to articulate that well.