From cost centre to revenue generator

There are those in business that see the role of IT as a support function and therefore a cost centre. But in the technology-driven 21st Century, technology can generate revenues.

“Technology as a whole has made a huge leap forward in all businesses to become more and more important in delivering value to customers,” says Tony McAlister, Chief Technology Officer of betting exchange Betfair.

McAlister thinks that CIOs can only be successful in achieving revenue and customer value if they develop a broad understanding of the wider business strategy.

CIOs need to consider how they can use technology to solve their organisation’s business problems.

“Those who have successfully realised this have become hugely important to the strategy of the business as they are no longer just cranking a handle in the back office,” he says.

The evolution of mobile and internet business models means organisations have become more reliant on their CIOs to create services for their customers’ benefit.

This trend is supported by Forrester’s Forrsights Budgets and Priorities Tracker Survey, Q4 2010, which revealed that 52 per cent of businesses agree that technology is a fundamental part of their business model.

“Many companies are starting to use technology as a business differentiator, and many businesses rely on technology to provide critical information for making strategic business decisions,” says Forrester analyst Khalid Kark.

Kark also says that “empowered social, mobile, video and cloud technologies” are making it easier to bypass CIOs and IT departments as “they are easy to acquire and to bring into the corporate environment”.

To combat this, CIOs will need to adapt their roles to drive business growth and customer engagement, manage demand and orchestrate sourcing delivery.

They will have to become responsible for developing a strategic business technology plan and will also need to move beyond simply aligning IT with the business.

Kevin Gallagher, CIO at Channel 4, acknowledges this changing business role.

“I think historically it has always been fundamental to most businesses, but IT has been seen more as being about efficiency and automation to maximise the organisation’s return on investment, and yet the changes in technology enable us to reach more channels to connect with our viewers in a way that allows us to have a deeper relationship with them,” he explains.

By investing heavily in data and analytics, he can provide a more personalised experience and as a result the channel becomes more attractive to advertisers.

The focus is not on cost, but on improved service delivery.

Fleet of foot Addison Lee, a taxi company which has 3000 minicabs, 200 VIP cars and a van-and-motorbike courier fleet, is using technology to scale its business.

“We had an excess of demand that could only be serviced by switching to an IT-driven fleet,” says Peter Ingram, Addison Lee’s IT director.

He explains that the application of IT helped him to remove an ‘allocation bottleneck’, and helped the firm to manage a period of massive growth in revenue.

“More importantly, it allowed us to stop worrying about handling the day to day running of the business to start concentrating on making decisions to grow the business while improving service delivery,” he says.

The key revenue, growth and loyalty generators for Addison Lee sit around the handling of reservations and ensuring that a driver arrives at the pick-up point on time.

Addison Lee vehicles make 25,000 journeys a day and it serves more than 10,000 corporate clients. Ingram says the Addison Lee architecture is scalable, so expanding the business is just a matter of adding new hardware.

Yet one of the key revenue generators has been the introduction of an iPhone application, which has generated £21m worth of bookings from one million journeys.

This success has inspired the firm to roll out BlackBerry, Android, Symbian and Windows 7 Mobile versions of the application. Changes to the booking experience were also made to improve the firm’s attractiveness.

Betfair has also used mobile technologies to generate more revenue.

“We’ve seen 88 per cent growth in mobile revenues in the past year and 122 per cent growth in the number of customers betting through their mobiles with us,” says Raj Vemulapalli – the firm’s vice-president of mobile engineering.

To drive down costs, the firm is also consolidating its datacentres from six to two.

To raise revenue CTO McAlister has worked on developing the new mobile revenue stream, and says that an uplift in customer activity was created by developing mobile applications.

His team is also creating an iPad application, which he expects to cause the same increase in demand.

Richard Hewitt, head of mobile products at Betfair, believes that any retail and service-based industry is going to make use of a CIO’s skills in order to generate revenue like this.

“It’s an opportunity for companies to invest in themselves, and so they are now hiring people to take advantage of the mobile internet,” says Hewitt.

He mentions that traditional retailers were slow to react to the launch of eBay, while today, high street brands are more enthused by IT and its benefits.

To achieve results like these CIOs need to “translate their normal management practices into leadership language that executives and employees can understand and relate to,” says Colin Bannister, Chief Technology Officer at CA Technologies.

Bannister thinks CIOs should never miss an opportunity to underline the importance of technology when it comes to business strategy development and whenever they speak to senior management.

Yet they also need to match what they do with the expectations of the customers, and he cites Tesco’s creation of virtual store on the Seoul subway network as a prime example of this and as an example of how IT can be used to drive an enterprise into a new market.

The right channels According to Gallagher at Channel 4, CIOs also need to change their own behaviour to be able to amend the perceptions of their own organisational function.

This can be achieved by working with other parts of the organisation to remove any silos that may exist between the different departments.

His team, for instance, can work with marketing and product managers to ensure that any servicesChannel 4 develops are in line with how its viewers want to access its TV programmes, websites and other services.

“It is otherwise a matter of coming up with ideas and delivering them,” he concludes.

Yet Gallagher questions whether the right people are being brought into IT. A broader range of skills will be required as the role of the department widens, including people management and the ability to manage business-facing roles.

The future value of IT and CIOs also depends on whether organisations ensure that the UK has a new generation of technologists.

He hopes to introduce an IT apprenticeship in the next two years which will play a part in Channel 4’s development, proving that there are more ways than one for a CIO to contribute to the development of his or her organisation.

The introduction of new talent will help them generate new revenue well into the future.