When I see a pattern emerging I like to follow it, especially when it comes from 1 on 1 discussions with Senior IT Leadership.
In a recent conversation with Don Wiegner at Corporate Executive Board, I had a very interesting discussion with him about increasing share value of a company using IT. We got down this path because I told him a story of Karan Sorensen, formerly with Johnson and Johnson, on how she and her team of 178 CIOs across the world had increased the share holder value by a $0.01 penny a share one year for a $70 billion dollar a year company. You can reference her article here on my blog or on LinkedIn. This launched us into a discussion about some of the impact that his team has been able to accomplish. I hope you enjoy.
CIOs in publically traded companies need to think about the impact that their budget expenditures have on shareholder value and for private companies how this relates to the owners value. Each budget expenditure and reduction (savings) in cost has a net impact on bottom line. In the most basic view $1 of OPEX has a direct relationship to $1 less of margin/profitability for the company. CAPEX fluctuates slightly based on depreciation rules but is normally 1/3 or $ .33 per year per $1 spent based on 3 year depreciation.
In 2014 I have been able to gain the following reductions in cost:
- 1. $1.8 M in OPEX (telecom expenses) relating to a 3 cent per share positive impact ($600k in OPEX equals 1 cent savings per share for our company)
- 2. $1 M in OPEX (data center expenses) relating to about 1.5 cent per share positive impact and a $4 M CAPEX per year cost avoidance over a three year period relating to just over 2 cent per share impact in year 1, 4.5 cent per share in year 2 and just under 7 cent per share in year 3.
- 3. $600k in OPEX (multiple services – e.g. mobile) relating to a 1 cent per share positive impact.
So $0.055 cents positive impact per share from OPEX and $0.02 cent positive impact from CAPEX in 2014.
Of course these are positive savings which make CFOs and shareholders happy. The inverse also must be considered. When looking to invest for improvements in IT, CIOs must look at the overall value delivered to the business and also to the shareholder. For example, will the investment generate value greater than the per share impact? So if a project will cost $0.01 cent per share but will enable revenue to grow at $0.02+ cents per share, then the investment may be worth pursuing.
Where I pickup and wrap up……..
What I appreciate about Don’s approach is that he is in a success pattern of self improvement. He was not born thinking this way about IT; he had to build himself to this level.
1) He is committed to reinventing himself. He has partnered with sales, human resources, and finance to deepen his understanding of their challenges and what is at stake for them so he has a 360 view of the company.
2) He has partnered with sales leadership thus he knows how his company makes money and also why. See his sales book recommendation for CIOs below.
3) He makes sure that IT is solving real business problems and coaches key staff on what this means so that IT is not simply solving problems to make their own life easier, but that the focus is on paying close attention to the end user customer.
4) He is fluent in finance. See above
5) Books he recommends: The Challenger Sale – Taking Control of the Customer Conversation, The Phoenix Project, and Good to Great.
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