In some mid-sized businesses IT has developed unique insights and services that could, in theory at least, be productised and sold to existing customers as a value-add, thereby creating revenue from a function that has traditionally only operated as a cost-centre.
But just because this is possible and usually puts a smile on the faces of business executives, doesn’t necessarily mean it is a good idea.
How should the IT leader think about and approach such an opportunity?
One of our IT Leader Mastermind groups recently tackled this question. Here is a summarised version of the outcomes.
The Mastermind Answer
The short answer is that IT has become so integral to the future success of businesses that it would in most scenarios be a grave mistake to go down this route.
There are just too many opportunities for adding massive business value internally as well as accelerate the overall transformation to digital across the business (read “SMEs Potentially Biggest Losers of Digital Disruption” to learn why this is so important).
A special case, however, exists when the proposed service is complementary to core business operations and when the internal IT function already delivers on the above expectations, has spare capacity and has an IT leader who likes to experiment and engage with customers.
In such a scenario, treating the productization of specific internal IT as just another business technology project that needs to be executed could very well lead to exciting new revenue streams from the existing customer base.
Key to the success of such an initiative would be to carefully consider the strategic implications (e.g. how would customers and partners respond) and to agree that this new capability would at some stage have to transition out of IT.
Some More Insights
- Wearing too many leadership hats in a business is usually a bad thing. Consider this: the IT leader usually operates at VP1 (at a backend, platform level), developing a new service requires VP3 capabilities (R&D and customer knowledge) and operating with the view of generating revenue requires VP2 capabilities (concerned with managing core operations). There is no way that a single IT leader can simultaneously focus on all three VPs and still do a good job. See article “A Mid-Sized Business Needs at Least 4 Strategic IT Leaders” for more info on the Value Propositions (VP) of digital.
- Providing chargeable services to customers is fundamentally different from providing internal IT services as it creates customer expectations and is very tightly linked to market perceptions of the company. When going down this route be very careful to experiment and eliminate risks by working with a small number of test clients before moving forward to make this a regular part of the service offering.
- The safest approach would be to treat the productization of specific IP as an innovation project (under IT) with a clear end-date after which a decision will be made about who will continue to build out this new capability. Ideally this should not be the IT leader.
- It is easy to overlook the requirements of the internal user base when considering the lure of generating external revenue. As the IT leader has less time for the usual IT responsibilities, other IT staff should be empowered to fill the void.
- To have any success with productising IT knowledge and selling it on as a service to customers requires leadership and technological capabilities that are not always easy to find in a mid-sized business. The question of what will happen to the service if this leader leaves should be carefully considered before going down this path.
- Warning bells should go off if the primary motivation for the initiative is that the IT leader doesn’t enjoy internal IT work and would rather prefer to be customer facing. Every mid-sized business who wants to continue doing well needs a committed, internal IT leader.