Management Report: IT Leaders Must Create Revenue

IT managers who focus on cutting costs and driving efficiencies risk working themselves out of a job, according to two recent reports. Instead, technology leaders need to create value by generating revenue.

“If you’re 50 years old and you think you’re going to be working for 15 more years in IT and your work is based on cost reduction, I’d be worried,” says Rob Austin, a professor at Harvard Business School and a Cutter Consortium fellow. In a report for Cutter, Austin says the belt-tightening of the past five years has pushed IT leaders too far into the cost-cutting role. Now, they need to encourage innovation among employees and budget for projects that could create new revenue sources.

The problem is, they don’t know how. According to a recent study by Mercer Delta Executive Learning Center, today’s enterprise leaders—not only CIOs—have been bred to cut costs in a marketplace that rewarded constant budget trimming. Now that there is nothing left to cut, they are having trouble creating value.

From a survey of 223 senior executives in 44 countries (16 percent of whom are CIOs), Mercer Delta identified four key challenges to generating revenue that business leaders currently face: increased competitive pressure, the need to respond quickly to changing market conditions, the need to innovate and the need to satisfy customer expectations. Nearly one-third of respondents said their companies do not understand well the leadership capabilities required to overcome these challenges. Although 72 percent said their companies plan to close these leadership gaps, only half of the executives surveyed have made sufficient investments to do so.

“Companies that recognize that their leaders are a source of competitive advantage are making sure that leadership development is an important investment area,” says Tom Knighton, partner at Mercer Delta. “It’s becoming an issue that’s on the CEO’s agenda.”

Cutter’s Austin says one way IT leaders can adopt a moneymaking mind-set is to list the ways IT could help their company generate revenue and then educate senior management about the importance of such projects. He also recommends remaining open to suggestions from employees who are always looking for new ways of doing things. “These people have the motivation you need to tap to create novel and valuable outcomes,” Austin says.