Transformational CIOs spend a lot of time changing the culture of the IT organization to one that is more conscious of return on investment, but what about our broader business relationships? How can we collaborate with our business partners and help make them more knowledgeable about the true costs of IT and jointly become more accountable for both business outcomes and total IT ROI?
Stephen Gold, who has been CIO of CVS Health since 2012 and was just promoted to EVP of Business and Technology Operations, knows the answer: run IT like a business.
Three Steps to Running IT Like a Business
Step 1: Treat the money as if it were your own: “Ask yourself,” suggests Gold, “’If this IT organization were my own business, would I be spending my money this way? Is this how I would be managing my investments and projects?’ Your first step in running IT like a business is to stop thinking of IT investments as OPM (other people’s money) and treat it as if it was your own.”
Step 2: Educate and collaborate with your partners: When Gold joined CVS Health, he and members of his leadership team put in place a series of “IT 101” sessions for fellow executives sharing, at increasing levels of detail, what IT is all about. “We start with the structure of the business and the corresponding structure of IT; then we show how the financials of IT tie back to the activities of the business. Then we move on to the systems that support the business, the staffing, and a breakdown of our expenditures and how each area is performing.”
Step 3: Focus on continuity of value: Once leaders across the business have a foundational understanding of IT’s cost structure, you are ready for the final step in running IT like a business: establishing continuity of value. “When CIOs tell their CEOs and CFOs that they want to spend $100M on new investments, they will hear, ‘That’s too much money. We can’t afford that right now.’ But that’s because they are working with only half the equation,” says Gold. “If those same CIOs were to say, here is the $100M investment; and for this $40M we’ll return $75M and for this $60M, we’ll return $90M, they are telling a different story.”
Gold calls this the “CIO theory of reciprocity”. “Let’s say the head of sales of a given company suggests, ‘If I had a real-time inventory management system, I could increase revenue by $500M,” says Gold. “By the CIO theory of reciprocity, that means that if IT builds a real-time inventory management system, the head of sales should commit to taking up his or her revenue forecast by $500M. If they are not willing to do that, then the theory breaks down and the project should be questioned.”
When all IT investments tie into the P&L, you are in a state of continuity of value, and IT and its business partners are true collaborators in getting the most bang for the IT buck.
So there you have it: Three simple steps toward IT investment nirvana. Not so fast, says Gold. “This is a major cultural and operational change, and a long journey,” he says. “It takes hard work and collaboration to get to continuity of value.”
Moving the Business Toward Continuity of Value
Establish an investment committee: IT and business leaders have formed an investment committee that meets monthly to go through a project review process for potential IT investments and their return. They look at the business case, the confidence level in the potential return and the category of the investment (regulatory, strategic, operational, etc.); then they weigh each investment and draw a waterline to divide what can and cannot fit into the current business plan.
“We stack rank the investments and draw a line at, let’s say, $500M,” says Gold. “Investments that don’t make the waterline are queued, and those that do, pass through for activation and execution. We then work with our finance partners to ensure that the benefits projected from each approved investment flow through to the P&L. That’s continuity of value.”
Remember the ongoing investments: “The continuity of value program is not only for new investments, but for ongoing investments as well,” says Gold. “When the program is running at full maturity, the IT and business teams hold ourselves accountable for what it will cost to build, deliver and run a program year after year, and not just for the initial costs.”
Sell the concept and incentivize: “Find one willing partner with one viable project and then use that success to get more partners on board,” suggests Gold. “If you show how continuity of value strengthens the business case and helps the project get funded, you have built an incentive to participate in the program. Then it’s just wash, rinse and repeat as you move from projects to departments to divisions to the enterprise.”
About Stephen Gold
Stephen Gold is joined CVS Health in July 2012, and is the company’s Executive Vice President of Business and Technology Operations and Chief Information Officer. In this role, Stephen is the company’s senior technology executive and has responsibility for all information systems and technology operations, including information technology strategy, application development, technology infrastructure, and business and technology operations. Before coming to CVS Health, he was Senior Vice President and CIO for Avaya. Prior to that, Stephen was EVP, CIO and Global CTO with GSI Commerce, and VP and CIO with Merck. He has an undergraduate degree in computer science from Saint John’s University, and currently serves as a member of their advisory board.
About CVS Health
CVS Health is a pharmacy innovation company helping people on their path to better health. Through its 7,800 retail pharmacies, more than 900 walk-in medical clinics, 65 million pharmacy benefit manager plan members, and expanding specialty pharmacy services, CVS Health enables people, businesses and communities to manage health in more affordable, effective ways. This unique integrated model increases access to quality care, helps deliver better health outcomes, and lowers overall health care costs.
This story, "Tie your IT investments into revenue" was originally published by CIO.