Cost, Value & ROI

Shifting IT from an Operational Cost to a Driver of Value

When it comes to information technology, business leaders typically take one of two hard lines: either they perceive IT as a driver of value to their organizations, or they see it only as a hefty line item in the budget. In truth, either could be correct, depending on the situation, how the organization has structured its IT department, and how they deploy that technology. If your IT falls into the latter category, it’s time for an organizational shift so that IT is no longer the dead weight holding you back, but the engine driving you forward.

Standard vs Value-Add: The Heart of the Struggle

All companies exist to do something. They create strategies and goals around doing that something. They devise organizational structures, hire staff, and develop business processes, all to do smaller things that support the larger something.

In business analyst terminology, these things are called business functions. Every department from Marketing, to Product Development, to Customer Service carries out business functions to do their part in the company’s larger efforts to do its something better than the competition. Business functions are the center piece of all company activity and the easiest way to analyze a company’s workings.

Because business function is a bit of an abstract term, they are often referred to as services. These services are delivered via a combination of staff, business processes, and these days usually some sort of technology solution. IT, like all other departments, is responsible for a set of business functions, or services, it provides on behalf of the company. For IT, clearly these services are related to technology. Every technology service, from infrastructure to software can be classified as either standard or value-added.

Standard services – usually things such as servers, networks, telephones, email, and the like, are all necessary for daily operations, and they typically fall into the “cost” category. Managing them is akin to keeping the lights on. Standard services are usually identified in that they provide the same function at every organization. Email is email and servers are servers no matter what your unique products or services may be. Your organization needs them, but chances are they do not, by their own merits, improve efficiency, increase productivity, enable business insight, or help the organization reach its goals.

Value-added technology services, on the other hand, are the services that drive the business forward and help achieve strategic goals. These might be software services such as CRM, BI dashboards, or financial systems. They might be unique pieces of hardware that provide competitive advantage. There is no cookie cutter definition of what is value-added; it depends on the strategy and goals of your company. As with IT, all business units must categorize their services as standard or value-added. This categorization at the business level will have a strong influence on the categorization of the aligned services at the technology level.

Take Stock of Your Organization’s IT Expenditures

So is your IT service catalog standard, or does it provide real value? To make that assessment, inventory every technology service on the books and classify each piece into either the standard or value-added bucket.


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When a significant portion of the IT budget and resources are going to standard services, it could indicate that spending is out of balance if it isn’t clear how these service support your business strategy. It’s far easier to determine this with value-add technology, and to allot the necessary budget for resources and staff because these technologies by nature help drive business goals – but that doesn’t automatically mean that standard services aren’t worth their budget – just that it’s worth verifying.

Once all systems have been classified and this IT “health check” has been completed, it paints a clear picture of where your organization spends its IT dollars, and whether those investments add value or fall into a cost center. This exercise can often be eye-opening for leadership. Most companies – especially well-established, large organizations – simply aren’t aware of how much time and effort their teams focus on basic standard functions.

When Do IT Costs Overshadow Value?

Technology evolves rapidly and organizational leaders often have to make investment decisions based on immediate needs such as server breakdowns or software licenses for new staff. As the business grows, so must basic investments in infrastructure, hardware, and software.

Without evidence that increasing the IT budget will also provide value, CIOs can have difficulty persuading the CFO that IT is worth the investment. The same can be said of IT staff: these highly skilled professional often command hefty salaries; when they are bogged down in standard services, they have less time to work on the value-added projects that keep organizations competitive.

That’s why it’s crucial that organizations correctly differentiate between standard and value-added, categorize each project or service, and budget accordingly.

Rethink the Role of the CIO to See IT Value

The role of the CIO has evolved significantly over the last decade, and continues to evolve as technology becomes more complex. In order to understand this evolution, it is valuable to take a look at the three main types of CIOs today:

  • The Operational CIO – The traditional role of the CIO is operational, focusing on managing legacy systems and utilities that support daily operations. Their priorities are often a result of far-removed decisions and years of organizational growth. They want to be more involved in strategy decisions, but they simply do not have the time or personal bandwidth to make that shift.
  • The Transformer – Like Operational CIOs, Transformers have significant operational duties, but they also put a high priority on enhancing efficiencies. They are tasked with delivering IT services in better, faster, and cheaper methods, evolving the way employees conduct their work within the current operational framework. However, the Transformer is not typically invited into the table to plan strategic initiatives that help the organization realize its goals.
  • The Strategic CIO – When the CIO has evolved from focusing on operations management into a business-enabling role, they have become a Strategist. This CIO has insight into both business and technology, and they have a seat at the table for all strategic planning sessions. Their insights help guide the executive leadership team when it comes to IT investments and their expertise is essential in choosing investments that will have a high impact on business strategy and goals.

Many organizations find themselves tangled in their cost-centered model of IT that does not allow for the funding of strategic IT investments, nor foster the type of culture where this evolution can flourish. To free CIOs to move IT out of an operations mode into a strategic mode, there must be open communication. Without the insight of technology leaders, organizations cannot hope to move IT beyond operations, and they will miss the opportunity to innovate and see value from their technology investments.

Not every organization needs a Strategist in IT leadership. But business leaders won’t know what their organization needs without a process of organizational introspection and planning. The goal should be to make a shift that allows the IT strategy and business strategy to align.

Setting up for a Successful Transition

The shift from an operational IT department to a strategic IT department requires a commitment from executive leadership and a focused investment of time and resources. Once leaders have completed their “health check”, they must determine what steps to take to reduce the cost and distraction of managing standard services; this may mean outsourcing certain functions, or selecting an off-the shelf solution. In other cases, it might mean reallocating internal resources to streamline efficiencies when it comes to managing those utilities, freeing up teams to focus on strategic initiatives.

But it’s really important for the leadership staff to examine IT through the lens of their overarching business strategies. From there, they can determine if and when value-added projects or critical standard services need new investments. Those services and projects that align with the organizational goals and help the company become more efficient, productive, and profitable are worth investing in. A plan must be put in place to implement and manage those investments. These changes could mean a significant shift in the way the IT department is staffed, and the structure of the IT leadership team itself.

In order to strategically utilize technology, organizational leaders must be willing to take a deep, introspective look at the way they have made spending decisions and where they have allocated IT resources. With this clarity, CIOs and business leaders should work together to develop a strategy that reduces the cost of operating standard services and funnels resources into those services that allow the company to become more agile, giving them a competitive edge in the marketplace.