Three years ago, I posted a similar message on this blog. Looking at the different conversations around, I think it is still quite valid. To give it a larger audience, I am reposting it in English

The scope here is not industrial data processing which definitely is part of core business as a plant is. Some companies are therefore organizing IT in two separate groups to manage industrial data processing on the one side and business data processing on the other. The scope of this talk is only business data processing.

Business data processing is coming in two main flavours which look similar but differ quite significantly: cost saving IT and revenue generating IT

Cost saving IT improves existing processes

This IT belongs clearly to support functions and delivers support to bring processes cost down. Examples are accounting, invoicing, inventory management …

Revenue generating IT is core business

This IT is not only providing support but also enables new products and businesses. Therefore it is core. Thanks to its information system, a company can develop innovative products to differentiate itself from competitors. The IT system becomes as important as a plant or any other production means: it is delivering products to customers. In past years, this used to be the case only for few industries: capital markets where products are completely digitalized and managed through IT or mobile telephony where accounting is key to invoice innovative and competitive products.

The more digital we get, the more IT becomes a profit center

The world is changing… since I wrote the original post three years ago, our world has become even more digital. E-commerce is mainstream and obviously there, IT is a key differentiator. Regular products are now sold with embedded digital services: the UPSs of this world are not only delivering packets but also services. Their reputation can be seriously damaged if their IT is off. The same applies for car manufacturers, cars are sold with digital service like telediagnostic, remote assistance which are designed as part of the product.

Managing cost saving IT or revenue generating is totally different.

Of course, in the light of those two examples, one understands that these two different IT cannot be managed the same way. The first one is cost driven, servicing its customer for the minimal cost, potentially impacting quality. Minimizing the cost is often driving to outsourcing and off shoring in order to share cost. This is made possible because cost saving IT is optimizing existing processes, which are supposed to be well-known and documented. Therefore a close relationship between IT and users may not be perceived as a key element.
For revenue generating IT, the approach is completely different: it is not only cost driven. What matters is that the product which is embedding an IT service is delivered in due time, matching clients expectations and bringing added value. This is core business. Of course here as well, external providers could be used but not in a full outsourcing mode as companies need to control their core business. IT part of those products is built in a tight relationship with other parts of the product. Therefore, off shoring is difficult to apply there as it creates an increasing distance within the product team.

Do not get mixed up !

As presented here, those two flavours of business IT look the same but are fundamentally different, approaches and means are dissimilar. Not recognizing those differences creates "hybrid" strategies which may be quite hampering.
When a CIO running a revenue generating IT forgets about his specificities, trying to lower cost through outsourcing and off shoring, he is going on the wrong path. Quite soon, but unfortunately not immediately, outsourcing creates the distance mentioned earlier. Existing teams are not understanding the strategy anymore and get demotivated. IT is then no longer able to bring the value it used to bring to core business.
As a symmetrical case, thinking that one can transform a cost driven IT into a successful revenue generating IT is a mistake. A cost driven IT is very far from core business, has usually not a service oriented behavior and cannot easily cooperate and communicate with other departments to shape a new product. An amazing lot of articles and books dealing with this issue of filling the gap between IT and business are evidences that cost driven IT cannot move to core business overnight!
This is explaining some of the issues we face in IT departments when positioning is unclear, creating huge frustration both on the business and the IT side.
Since I wrote this, I have found a complementary view on the same topic