Profit center conversion strategies for your IT department

Here are tried and tested formulas from two CIOs who have successfully managed the transformation of IT from being a cost center to a profit center.

It's a common perception that the IT department is nothing but a mere cost center. In fact, the perception only deepens, since most IT teams continue to neglect this critical aspect which can endanger their existence itself. This is the story of how two innovative CIOs are trying to change this myth in their respective organizations, and their success with transformation of IT into a profit center.   

Case I: Services on a capital and revenue model
Ravikiran Mankikar, the general manager of IT for Shamrao Vithal Co-operative (SVC) Bank, Mumbai, is one of the few CIOs who have managed to turn their IT departments into the profit center that others only dream of. Mankikar always believed that IT was an investment tool to further an organization's business strategy, even though information technology brings benefits only over a period of time.

Mankikar didn't start off with a grand plan to turn the bank's IT department into its profit center status of today, selling solutions to other industry players. After SVC's solutions were rolled out internally, word spread about the difference made by these solutions to the bank's functioning. As soon as this started to happen, the bank began to get requests from other banks for providing solutions.

The toughest part was too much of internal resistance, and that was challenging. Ultimately, you have to show them the benefits.
Ravikiran Mankikar
GM-ITShamrao Vithal Co-operative Bank

Mankikar explains the business model he has adopted for converting IT into a profit center. "We provide solutions to other small co-operative banks, which do not understand technology—let alone have an IT team. We offer them our services on a capital and revenue model, and give the customers a choice according to their fund supply. The solutions are sold outright or rented, depending on the clients' needs and budgets."

The journey of converting SVC's IT team into a profit center hasn't been a cakewalk. Recollects Mankikar: "We had to sell this proposal of offering assistance to smaller co-operative banks to our management. We emphasized that since we had gained expertise over certain technology aspects, we were more than willing to share it. We got buy-in on this principle of help and co-operation, but it wasn't easy—we had to face a certain amount of skepticism and hesitation. Questions were raised about acceptability of the products, and whether this business model would really work." Today, Mankikar and his team can boast of having acquired 20 clients in the span of a mere two years.

But how was the change to the profit center mindset accepted within the team? Mankikar admits, "This was the toughest part because there was too much of internal resistance, and that was challenging. Ultimately, you have to show them the benefits. In our case, it was tough to illustrate the value of IT as a profit center till the first project was over. But once they saw the recognition they got for their efforts they became enthusiastic, and now they look forward to every new project."

Case II: Become an internal service provider
Dhiren Savla, the CIO of Crisil India, is experienced when it comes to setting up a different model to make an organization perceive its IT unit as a profit center. Savla firmly believes that an IT department can turn from a cost center into a profit center, and that IT can move on from its traditional setup to a service-oriented model. "One of the best ways to convert IT into a profit center is to provide services to all business divisions in a billable form. You generate a bill for the services offered to any business division, and thus provide a measure for your effort. In this case, the business relationship has to move from an informal to a formal setup. But attempt the profit center strategy only if you are extremely sure of delivery."

The biggest challenge in the profit center model for IT lies in bringing about a change in the mindset. In this case, it's essential to not just think technology, but also think business. When a CIO fixes his vision on such a profit center plan, he has to be exceptionally good at numbers, at client servicing, and at managing the brand. Indeed, he has to have all the qualities that a successful CEO needs.

Savla points out that it's essential to strive towards becoming a service-oriented organization. Your entire team should be delivery-focused. The junior members of the team should think differently for this transformation. "Realize that you are going to be judged by the delivery. There should be a shift from traditional approaches to the profit center approach. You have to show benefits of the profit center model to the individual. You should also possess the right attitude, so that you can celebrate successes and accept the failures."

But how do you bring in the change? The evolution towards becoming a profit center is brought about by the IT leader. The CIO has to be a leader who has a vision, who can sell dreams. One of the crucial things he has to create is a second line of command who understands the vision of IT as a profit center. They have to speak the same language and share the thought process, so that it percolates to the organization's grass root levels. It's not the battle of the single guy, and he might not win it alone.

Talking about internal resistance after the billable model is introduced, Savla notes, "Suddenly, it becomes to 'you' and 'me' instead of 'we.' The initial phase of this profit center model is extremely demanding, and it's one of those testing times. Ultimately, success lies in how well you manage your client. The more good you do, the more they become your brand ambassadors." This definitely helps to get visibility for the team.

Savla strikes a note of caution when it comes to moving on to service an external client. "Although the response within your company might tempt you to service external clients, that option must be considered only in a latter phase. First, the entire profit model system has to settle down and adapt and function smoothly. Only then should you consider moving on to the next phase of offering your services externally." The time frame to settle in this profit center model typically ranges from 12-24 months, but can vary across companies.

While both these CIOs take a different approach, both believe that the core principle of running IT as a profit center is patience. It's only through the virtue of patience that the CIO can achieve the feat of turning the IT department from the cost center it is, into the profit center he wants it to be.

Read more on CW500 and IT leadership skills

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