IT's new assignment: Generate revenue
Sure, all CIOs seek to add value, but some are taking their quest outside the walls of the enterprise by targeting customers directly.
James Quinn was primarily thinking about helping customers, not making money, when he gave his IT team a task.
The PHI Inc. CIO challenged his staffers to find ways to deepen the level of engagement between PHI, a Lafayette, La.-based provider of helicopter services, and its customers, including some of the world's biggest energy companies -- which rely on PHI for transportation to oil rigs in the Gulf of Mexico.
But Quinn was perfectly happy when the suggestions went beyond customer engagement to include actual revenue.
"I tasked the IT department to come up with ways to integrate with customers, so they'd have some loss if they moved away from us," he explains. "We were looking for some value-add, and it just happened to turn into a revenue-generating set of products."
One of those products was Helipass, a full-size kiosk that connects to a Web-based application to provide customers with passenger and baggage manifests. Others included new hardware and SaaS offerings.
Quinn projects that the products will bring in $1.3 million to $1.5 million the first year and $20 million in annual revenue by year five. PHI took in nearly $540 million in revenue in 2011.
It's no mistake that Quinn's 76-member team hit pay dirt by turning its focus from internal PHI operations to the operations of its external customers. It's an endeavor outside the traditional scope of work for IT departments but increasingly on the radar of forward-thinking CIOs.
"Most CIOs are internally focused, and that's a big enough job as it is," says Frank Scavo, an analyst at Constellation Research. "When it comes to delivering smart products to customers, it's usually in the product development or marketing group. It's unusual to see CIOs stretch into that role, but CIOs are looking at ways to deliver more value to the organization."
Here's a look at how Quinn and other IT leaders got their teams involved in revenue-generating endeavors.
PHI: Filling a Customer Void
Two years ago, Quinn's staffers identified a gap in how the company's clients tracked shipping and travel information. As the former owner of a software development company, Quinn drew on his entrepreneurial experience to come up a five-year plan to develop software and hardware to fill that void.
His team developed a system that includes kiosks, small wall-mounted machines akin to ATMs and Web-based software that tracks employees and freight from helicopter and ferry terminals out to sea and back. The software, which PHI sells and supports in a software-as-a-service model, also tracks employee HR information, such as compliance with safety and training requirements. It's designed to work on a range of devices, from tablets to desktop PCs, says Quinn.
Protect Your Intellectual Property
As IT departments dip their toes into the waters of the commercial marketplace, they need to be mindful of the twin needs to protect their intellectual property and avoid infringing on the intellectual property rights of others.
After all, you don't want to develop a critical application only to later learn that some piece of code wasn't yours to use, or find that a competitor managed to come to market with something similar because you didn't take necessary legal precautions.
That's why the development process in the IT department at GE Power Generation Services includes a review by an internal control and compliance team. That team looks at whether a proposed project could infringe on any other entity's intellectual property rights or whether it needs any IP protection to guard against infringement by others.
"We're taught very early in our careers at GE to think about infringement and protection," says Jim Fowler, CIO for GE Power Generation Services. IT workers attend training on copyright and IP protections so they learn to keep these issues in mind as they work, he explains.
IP attorneys say that's a smart strategy, since technology increasingly is what differentiates one company from the competition.
"Any time you [develop] software or hardware, you want to make sure, first, that you can do that -- that you're not violating someone else's IP rights," says attorney David Burns, a partner in the Boston office of McCarter & English. Second, companies need to ensure that they're safeguarding their investments via some sort of IP protection, he says.
Robert J. Tosti, a partner in the Boston office of Brown Rudnick, says companies should follow these three basic steps, whether they're developing something for internal use or external sale:
• Determine whether the proposed product violates someone else's IP rights, including a licensing agreement or a patent.
• Ask what kind of protection might be needed. Software is automatically protected by copyright, but copyright protection has limits. Some applications can be patented, which offers a higher level of protection, Tosti says.
• Consider asking employees to sign confidentiality and nondisclosure agreements to ensure that anyone who leaves the company won't share proprietary information.
The cost of taking those steps in advance may reach into the thousands, say Tosti and other IP attorneys, but the cost of addressing an IP problem later on is often much higher.
The kiosks (designed by PHI tech workers and built by an outside vendor) can sit anywhere a client needs them, including third-party transportation terminals. PHI also offers a handheld device that uses fingerprint scans to quickly account for and track workers during evacuations of deep-sea rigs.
The combination of software and hardware is a boon for PHI clients who were tracking travel and shipping data in spreadsheets or even on paper, Quinn says. Loyal customers are worth much more over the long term than the nice but comparatively small amounts of revenue the products bring in, he adds.
"That was the strategy all along -- to have a happier customer," Quinn says. "We set some goals of what we wanted to do and what was going to differentiate us. We wanted to develop something unique and customer-focused."
GE: Driving Profitable Growth
At GE Oil & Gas, CIO Anup Sharma's IT shop built a monitoring and diagnostics platform for the company's external customers.
Like their counterparts at PHI, GE Oil & Gas IT staffers looked for opportunities to add value for existing customers. One idea was to give them access to GE's big data systems and analytics tools.
A few technologists worked with a product leader and an engineer over a period of 18 months to develop a Web-based application called iBox that's designed to allow customers to monitor and assess the health and performance of heavy-duty aeroderivative gas turbine trains and other equipment, such as compressors, generators and pumps. Using data that GE has compiled over the years, iBox helps customers enable quick startups, maintain optimal operating conditions and avoid negative conditions like turbine trips.
The software is sold as part of a package of support services offered by GE, Sharma explains. Customers can buy the turbines without buying the services, and they can buy the support services, including the software, to monitor turbines made by other companies as well.
Meanwhile, Jim Fowler, CIO for GE Power Generation Services, oversees the IT department that developed a Web-based application called MyFleet that gives its customers -- owners and operators of thermal power-generating plants -- access to information that helps them to more efficiently manage and maintain their GE turbines. Fowler says his team took about four months to deliver MyFleet, launching the first release in 2011.
"It really came from the recognition that the data we use to run our own business and operations could be used to make our customers more profitable. It's that value that our customers want, and that's a win for both of us," Fowler says.
Fowler and Sharma decline to disclose just how much revenue their software brings in, but they do confirm that the products both add to the company's bottom line and increase GE's competitiveness in the marketplace. "We think about it as driving profitable growth," Sharma says.
How to Cultivate Revenue-generating IT Teams
• Be spot-on in delivering internal IT services and support. If your department isn't delivering the basics with excellence, higher-ups aren't going to trust you to try innovative projects, says GE Oil & Gas CIO Anup Sharma.
• Forge strong relationships with other departments. An IT team that has a deep understanding of the company's business is much more apt to be able to spot opportunities for external revenue-generating projects. Once they get the green light, technologists will most likely be required to work closely with experts in other departments to identify customer needs and market products.
Sharma's team was able to identify opportunities for products because he had IT workers embedded in business units. "We had a level of industry domain and technical expertise to really make it happen," Sharma says.
• Foster an entrepreneurial culture. Employees -- and their leaders -- must feel comfortable taking risks, Sharma says. "A CIO can drive this by having the right environment by encouraging people to be curious," he says.
At the highest corporate level, GE has established a software center of excellence to support innovation in IT departments across the various GE divisions, says Jim Fowler, CIO for GE Power Generation Services.
The center of excellence will enable GE's various IT teams to share components, such as user interfaces, that could be used in multiple products designed for client use.
"It will help us grow faster," Fowler says.
Purdue University: IP Generates Revenue
Despite such success stories, Constellation analyst Scavo says he doesn't expect revenue generation to become the norm for IT departments. "Many CIOs don't have the skills or interest," he says.
Chris Curran, chief technologist for the PricewaterhouseCoopers advisory practice, agrees. While successful CIOs will continue to collaborate with C-suite colleagues to create value internally, he says, only a small number of CIOs are able to bring products to market. Such ventures tend to be one-time results of opportunistic activities rather than ongoing objectives.
The one exception might be in nonprofits and industries where organizations don't directly compete with one another, Scavo says. In sectors like public transportation, healthcare and government, IT leaders could explore the prospect of turning their internally developed software and systems into money-making products without worrying that they're providing rivals with a competitive advantage.
At Purdue University, Gerry McCartney, CIO and vice president of IT, is looking at selling internally developed software to other universities.
Educational institutions, like many businesses, are seeking new revenue streams, and IT is a logical partner to help in that quest, McCartney explains.
"We produce a lot of intellectual property, and we have not historically done a very good job of turning [that IP] into revenue," says McCartney, who, as inaugural director of Purdue's Innovation and Commercialization Center, is overseeing the push to change that.
One project that's part of that push involves an application called Course Signals. Developed by the Purdue IT team, Course Signals is designed to monitor student behavior and academic performance to identify individuals who may be at risk of earning low grades. IT can prompt faculty members to intervene and suggest actions they could take to help students improve their grades.
Purdue has licensed Course Signals for distribution, demonstrating how initiatives that initially draw attention to the quality of work done internally by IT can generate revenue, McCartney says. One good rule of thumb, he says: "If internal people will pay for it, there's a very high likelihood others will, too."
Pratt is a Computerworld contributing writer in Waltham, Mass. You can contact her at firstname.lastname@example.org.
This version of this story was originally published in Computerworld's print edition. It was adapted from an article that appeared earlier on Computerworld.com.
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