Potential IT-driven business opportunities to solve management challenges

First, let's explore the effectiveness of non-IT companies’ tech-driven businesses which aims at helping executives and IT departments solve their problems.

1. Profitable portfolios that generate synergies with the existing business

With the rapidly changing business environment in recent years, a growing number of companies, particularly those in a specialized field, have been expanding into new IT-driven businesses as part of risk management. However, diversifications outside its core industry or existing business could be seen as the dispersal of resources and cause the dilemma of not being able to get shareholders and investors on board, making it more difficult to conceptualize and create new businesses [1]. In contrast, new tech services originated in existing businesses are more likely to be well received by investors and markets because companies’ core strength and assets make up the most of the new services without requiring a ground-up investments, bringing in more promising business synergies. Such a service launch could be a feasible option to expand a profitable portfolio.

2. Breakthrough to solve issues faced by both executives and IT departments

It is nothing new for executives and business units to put pressures on the IT department to promote digital transformation and improve profitability, putting the IT departments in a difficult position to meet expectations because they used to just focus on consolidating resources and expertise for existing systems while reducing costs as requested [2]. For IT departments and CIOs concerning about increasing profits and improving business operations, and for executives wondering how to take advantage of the department’s capacity, IT departments has a significant potential to help solve the organization’s management issues once they could emerge as a value provider to boost profits.

Improving profitability with IT services: Model cases and the key to success

Table 1 shows the list of 14 businesses of 14 "non-IT companies that launched new IT services" in the past decade.
Given that cloud computing, IoT, AI, and 3D technology services have already been commercialized in various sectors, and many companies expect to expand these new businesses, we can see these initiatives can generate broader opportunities regardless of sectors. All of these companies offer new services in markets related to their sectors and operations of their core businesses.

Table 1: Fourteen companies that launched new IT services

The company ranked #1 in Table 1 is Amazon. As a pioneer of cloud platform services dominating the biggest market share, Amazon Web Services (AWS) is a successful example of how a company with a non-IT business background (Amazon was initially known as an e-commerce retailer) was able to bring in far more company-wide profits by delivering new IT solutions.

Back then, each time Amazon expanded its e-commerce business, they came across several months’ challenges to build a storage system and IT infrastructure. In an effort to find out a solution, the online retailer realized that they had already established essential capabilities to assemble inexpensive and stable IT infrastructure, and the scalable infrastructure service derived from the existing capabilities could be valuable for other companies as well [4]. Based on that hypothesis, they started to use the system for and launched the cloud computing platform rent out to other companies from e-commerce businesses to general businesses in phases. Since the launch of AWS as a separate Amazon division in 2006, the cloud computing business has grown to supply 70% of Amazon’s profit by 2019. With its strength in the existing e-commerce business as well as new IT infrastructures upgraded by internal developers, Amazon rolled out its cloud-based platform step by step to successfully generate a highly lucrative business.

Fig. 1: Overview of the deployment and growth of Amazon’s cloud service business (AWS)

As AWS case studies show, there are two key points for new IT businesses to successfully launch, continue, and expand in a market.

Strengths in IT services

The first point is creating values through synergy with existing businesses. It is important to build services that can leverage your strengths and knowledges gained through existing businesses, and to enter a target market where you can demonstrate a competitive edge.

Phased rollouts to demonstrate values

The second point is a phased rollout of IT services followed by internal test-run and product launch in a specific market. This enables your business to assess market prospects while running a proof of value (PoV) before making any investment or establishing a specialized subsidiary. A successful product launch will be attainable if companies could reduce risks and costs while carrying out trials and updates in the preparatory stages.

Fig. 2: The key to a successful new IT service

How to identify a promising IT service

Then, how can a company identify a promising IT service? Based on the analysis of key successful factors described above, we have defined six points from (a) to (f) categorized by three main perspectives;

1. Already valued within the company

(a) In-house IT services
The IT service should have already been advanced within the company in terms of its potential, utility, and points of improvement based on the test results. At this stage, the service quality has far more competitive advantages compared to a similar service that can get customer feedbacks only after entering a new market.

2. Strengths of the IT services

Strengths of IT services can be explained in three points from (b) to (d) below. The track record in (a) can expect synergistic effects to prove strengths in (b), (c), and (d) to some extent.

(b) Designed for the company’s own industry and operations
The question is whether the IT service is interrelated to the industry and operations of the company’s core business, and whether they can utilize the accumulated knowledge and insight that they already have. Instead of a general solution, it is important to provide a valuable service in the target market. In addition, the product release in their own industry can reduce potential costs and time that would be required to enter a new industry as an outsider.

(c) IT services that can leverage your business strength
A company cannot strongly set itself apart from industry competitors just because their IT services are more closely related to their sector or operations at the time. The question is whether the service stands for the company's unique strengths. If their business’s unique features can be embedded in the value of a new service, that is harder for rivals to imitate.

(d) IT services that are possible to scale out
For traditional software developments or maintenance operations, it is not easy to leverage existing manpower and system resources because service rendering and invoicing are dealt on a man-month basis while each project requires different areas of expertise. In contrast, platforms or software packages developed as IaaS and PaaS or SaaS will make it possible for numerous clients to expansively sign up. This adds the advantage of sliming the cost revenue ratio and enhances service continuity.

Even if prerequisite of (b) and (c) are satisfied, it is important to keep in mind that services customized exclusively for individual employees or corporate rules may be considered as restrictive and become less appealing when released in the market.

3. Favorable market positioning

(e) Fewer competitors
Another key is to target a market with no existing powerful players or only a few similar services. In terms of benefit and scarcity of the service, this point corresponds to the two points of (b) "Designed for the company’s own industry and operations" and (c) "IT services that can leverage your business strength" respectively.

(f) Competitive pricing
An expensive IT-driven service with no reputation is hard to sell. When it comes to services developed for internal-use, however, it is easier to make price adjustments and secure price-competitive positioning because part or most of investments have been already made. As a matter of course, (e) "fewer competitors" will boost competitive pricing.

Fig. 3: Success factors for a new IT service

Evaluation criteria for successful new IT services

In order to quantitatively compare, select, or discuss new promising IT services, we have created the assessment criteria from (a) through (f) with a total score of 100 in Figure 4.  The concept of synergistic effects is also considered. These criteria help quantitatively evaluate existing or new IT-driven services that can sell in a market, and identify such businesses with a high chance of success in terms of deployment, continuity, and expansion.

Fig. 4: Assessment criteria for quantitatively evaluating new IT services

Based on the assessment criteria in Figure 4, we calculated average scores of the 14 businesses in Table 1 in terms of three business situations; "expanding," "continuing," or "canceled."
These results show the correlation between the assessment criteria and business success as well as the high accuracy of the defined success factors and metrics. It is thus advisable to plan and pile up services with the score of 75 points or more as introduced in the Figure 14.

Fig. 5: Verifying the assessment criteria for new IT services using the case studies

The role of IT departments to develop and expand into new IT services

The Figure 6 shows the actions that IT departments should take in different stages from initial consideration through expansion of new IT services. The key elements that require examinations are categorized from "A" to "D" on the Y axis. The phases from "I" to "III" on the X axis indicate the scope of process development.
Overall, the bottom line is to develop IT-driven systems and services in phases while looking for business opportunities. As the case studies of other successful companies show, it is recommended to deploy workforces and resources step by step in accordance with the scale and quality of emerging demand within the company, rather than allocating resources based on wishful thinking of expecting the maximum possible demand from the beginning. Starting a new business comes with the labor cost and software expenses, and it could take months or years to receive an evaluation before achieving the market penetration. Businesses should avoid the situation where expenses continue to exceed the revenue, resulting in an early withdrawal from a market due to running out of funds.

Fig. 6: What IT departments need to do in deploying and scaling up new IT services

As the examples of successful businesses show, it is important that new technology services begin with managerial judgments and the initiatives are implemented by both management and business units including the IT department. Even so, the IT department and CIO are advised to bring up problems and create opportunities for top managers or core business by exploring new service ideas based on existing technologies to increase company profitability. Technological expertise and judgement of the IT department and CIO are essential because other executives and business divisions alone cannot oversee the trend and situation from a technological point of view. Companies should avoid the situation where management and business divisions end up leaving everything to the IT department, or where the IT department ends up simply taking orders. It is vital to go beyond the existing organizational framework and share the corporate vision to increase profitability through close cooperation and collaboration with relevant stakeholders.

Conclusion

Many IT department managers, CIOs and executives may feel they do not have the organizational capacity to start thinking about selling their IT services to other firms while addressing a variety of other in-house challenges.
Many companies in the case studies, however, have succeeded in sustaining or scaling up new businesses by modifying and advancing internal-use software or services to be able to offer in a target market. It is not always necessary to build up a new service from scratch with the aim of selling to external buyers.
The first step is thus to achieve innovations and get small wins even in a limited area, by utilizing business knowledge and new technologies already developed to address the company’s own operational issues. This process will naturally lead to a creation of IT and digital services with a universal value to the industry, generating a true market value.
Furthermore, in order to actually turn these initiatives into business, it is vital to get out of a micro perspective of simply responding to requests by other business units, and look beyond further possibilities. Actions and results can be accelerated when the mission - adding value to business units, enhancing the presence of IT department, and increasing the business profitability - is recognized within the IT department.

In a rapidly changing business world today, IT organization should not stay defensive and rather aim at adding value to management and profitability, eventually fostering a culture of aggressively taking on new challenges.