What CIOs Can Learn from Corporate Turnarounds

Guest blog by Bruce Myers, Managing Director at AlixPartners, a business and technology consulting firm.

Over the past 30 years of working with a wide range of companies – from those who are restructuring under bankruptcy protection to those who are at the top of their industry in terms of profitability and growth – I have found that there are several IT lessons learned from troubled companies that CIOs at healthy companies should apply to their organizations.

Companies in turnaround situations quickly develop a different mindset – in fact, it is amazing what a shortage of cash does to focus companies on what is really important!  The entire organization becomes laser-focused on only those activities that actually have a bottom line impact on cash earnings. Specifically; they focus on driving costs down and only spending money that is very clearly tied to increasing operating profit, a mindset that every company would be well served to take. 

Build an IT Culture Obsessed with Improving Operating Profit

CIOs of healthy companies can use this mindset to build an IT culture focused on driving IT cost down, and ensuring that any IT projects have a very clear line-of-sight to how they will help increase operating profit – and doing it rapidly. 

Building and reinforcing this kind of culture helps IT become a truly value-added partner for the overall business, regardless of the financial state of the company.  There is no reason that IT cannot be a leader of this type of thinking within any company.

IT is viewed by some business executives as a “cost to be minimized,” and by others as a “potential source of competitive advantage”.  The fact is, it is both, and proactive CIOs can take a page from turnaround situations for handling both types of IT expenditures.

Drive Down Unit Costs for Keeping IT Running Year-Over-Year

Clearly define the IT costs required to “keep the business running”, which include application support, hardware and software maintenance, the data center and telecommunications operations, security, desktop support, and help-desk costs.  CIOs should set specific cost reduction targets and focus the IT organization on driving down the unit costs for “keeping IT running” year over year.  By doing this, the CIO can demonstrate that IT is doing its share to minimize corporate selling, general and administrative (SG&A) costs and can shift the discussion to IT investments to help improve operating profit. 

IT should charge the business units and business functions for their portion of the “keep IT running” costs.  Even if IT reduces the unit costs, only the business units and functions can impact volume.  This does not need to be the complex exercise that some companies make it, but can be done with eight to ten transparent metrics, such as number of users of PCs, laptops, email, cell phones and specific applications.  By implementing a transparent method of charging the business for the “keep IT running” costs, the business will be able to make trade-off decisions regarding who to give access to which technology.       

In addition to continuously driving down the IT cost of keeping the business running, the CIO should be very proactive in bringing ideas to the business for how IT can help increase operating profit through investing in new and enhanced applications.

Become Very Proactive in Bringing Operating Profit Improvement Ideas to the Business

In too many companies, IT is just an order-taker, waiting for the business to tell IT what is needed.  But, in turnaround situations, when very strong leadership is needed, I’ve found that IT is often in the best position to develop ideas for improving the business.  That’s because IT is the one area within the business that best understands how cross-functional business processes work, and what information can be provided to the business to help it make better decisions.

There are two ways that IT can generate ideas for improving operating profit:

1. Use a decision engineering approach – Work with each business unit and function to identify the business decisions they make on what frequency.  For example, what price to charge, what products to make, how much inventory to carry, how to incent the sales force, etc.  For each of those decisions, what information do they have today to help make the decision, and what information would they like to have to make the decision.  Based on the gap, develop a very targeted business intelligence approach for getting the data, developing new analyses, and providing the new information to the business.
   
   
2. Use a business process improvement approach – Work with each business unit and function to determine which of their business processes could benefit from improving flexibility and speed, and reducing cost.  Based on that, identify those application features and functions that could actually improve the flexibility, speed, and cost structure of the process.

Both of these approaches can help IT to develop “bite-size” ideas to share with the business to help them improve the bottom-line

So, whether it’s driving down the IT cost of keeping the business running, or proactively bringing ideas for how IT can improve the performance of the business, CIOs can use the “turnaround mindset” to help their IT organization take its performance to another level, and can set an example for the rest of the company.