Cut Costs Or Grow Profits: What Should A CIO Do?

What is more important to a CIO: costs or profits?
What is more important to a CIO: costs or profits?

Image Credit: Susy Morris

Here’s a quick question for you: what is more important for a CIO to do – cut costs or boost revenues? I think that it’s fair to say that because of the importance of information technology, we are called on to do both at the same time; however, they can’t both be of equal value. One has to be more important than the other. Which one should we be spending more time on?

How Investing In IT Boosts The Company’s Bottom Line

In the past, research has not been able to show that investments in a company’s IT department had any relation to how successful the company was. More recent research is now producing different results. What is being found is that investments in IT can have a direct impact on the company’s bottom line.

Data from over 400 companies from around the world was examined. What the researchers found was that investments in the IT department can have a positive impact on the company’s profits. The impact in some cases can be even bigger than the impact of spending on advertising for the company!

The researchers dug a bit deeper in order to determine what types of IT projects had the greatest impact on a company’s bottom line. What they discovered was that IT projects that focused on raising revenue had the greatest impact on the company’s bottom line. This was in contrast to projects that focused on cutting costs.

Why Growth IT Projects Have The Greatest Return

These results are very good news for those of us in the CIO position. This of course leads to the question of just how much impact an IT project can have on the company’s bottom line. Let’s face it, some CIOs do a better job of getting a profit out of an IT project than others do.

The researchers report that when a CIO invests in a growth-orientated IT project they can expect to see positive bottom line results. The study showed that an increase in IT spending of US$1 per employee could be associated with an increase in sales of $12 per employee.

What this all means for CIOs is pretty clear. Going forward we need to keep these results in mind. When we are presented with an opportunity to invest in a project that will create revenue growth or cut costs, we should invest in the one that will create revenue growth.

What All Of This Means For You

Having the CIO job means that you always have a lot to do. You have to be making decisions about what kind of projects your IT department will be working on: cost saving projects or revenue generating projects. Both would seem to have a positive impact on the company’s bottom line, which one is the best bet for you?

Studies have revealed that investments in IT can have a positive impact on a company’s revenues. The projects that your department works on that are focused on raising revenues are the ones that will have the greatest bottom line impact.

You can’t make a simple choice: one or the other. Rather, as CIO you are going to have to have the IT department work on both cost savings and revenue generating projects. However, when you have a choice, it’s pretty clear that spending more time working on revenue generating projects will yield a greater return on your efforts.

– Dr. Jim Anderson
Blue Elephant Consulting –
Your Source For Real World IT Department Leadership Skills™

Question For You: Do you think that a CIO can make a case that more should be spent on IT because IT can generate a profit?

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What We’ll Be Talking About Next Time

As CIOs we tend to focus on the immediate problems that are in front of us. These include such things as growing the number of servers that the company is using, picking the right data center, and implementing yet another company wide application. However, it turns out that there is an issue that may be lurking in the background that we really should be spending some time on: IP issues.