Shaking enterprise IT's budget mindset

A company's future success will depend on how it views its IT department. It's up to CIOs to convince execs that enterprise IT should be used to create value rather than to just drive down costs.

Executives need a new reason to invest in IT.  Global CIO IT budgets are expected to decline an average of 0.5 per cent for 2013, marking a continuation of IT’s decade of devaluation and another round of IT strategies based on doing more with less are really just doing the same with less.

The current logic for IT investment revolves current operations, concerns with a focus on cost, quality and services.  It is a story defined by IT’s role as ‘tender’ of the IT garden of legacy applications, outsourced operations and limited value creation.

This reasoning is not working as CIOs responding to this year’s Gartner survey indicated that on average their organisations realise only 43 per cent of technology’s potential. 

Clearly this number needs to increase if organisations are to create value via technology.  Surprisingly, when I have talked with CIO’s directly a number feel that this number is ‘about right!” I guess it is about right if you want people to continue to draw resources away from IT, after all you get what you pay for and if you want to get less, then you pay for less.

The only problem with IT’s old story is that it works only in situations where IT is seen as part of the machinery, working in the back room, part of sales, general and administrative (SG&A) costs, etc.  That would be ok if IT were administrative in nature – like HR or Finance – but is that an appropriate role for technology?

Maintaining IT’s existing story basically makes IT administrative rather than strategic, operational, and a contributing capability for the simple reason that today’s story does not provide the business rational for investing in IT as the return on that investment can be achieved by just keeping IT costs down in the first place.  This leaves IT and the enterprise anaemic in terms of its ability to use technology to create value because:

  • IT is losing its capacity to deliver strategic change as a greater per cent of resources are assigned to operations rather than transformation.
     
  • IT is losing its ability to attract enterprise resources and funding necessary, as there is no need to increasing when you are not increasing scope or results.
     
  • IT is losing the capability to build the new skills and attract the creative, engaging, business oriented people needed to build new digital customer experiences, products, services and operation.

It is concerning that around half of CIOs surveyed do not see IT’s enterprise role changing over the next three years.  This means that these issues will persist and without change, CIOs and IT consign themselves to tending a garden of legacy assets and responsibilities. These three areas represent the fundamental challenges highlighted in the figure below.

New Roles for Technology in a Digital World

Digital technology causes executives to want more from technology and to recognise that getting 43 per cent of technology potential is not enough.  Realising more from technology and moving beyond IT requires expanding how IT views itself and others view IT.  There are three ‘roles’ that IT must adopt they are:

  • Tending is managing IT’s current operational and investment responsibilities within existing constraints where IT needs stability, cost management and quality of service.

  • Hunting occurs in situations where IT needs to be out in front — scouting and finding innovations and opportunities beyond enterprise boundaries. Some hunting projects will fail, but each helps the enterprise learn about digital technologies and value. The result is an accelerating rate of performance as new technology and business innovations take the enterprise beyond current operations.

  • Harvesting occurs in situations where IT needs to raise business performance by actively changing business processes, extending products and services, and replicating best practices. Unlike tending, harvesting transforms IT infrastructure, operations and applications to produce additional results.

Now these roles are nothing new, but what is new is the context in which they exist.  These are the business priorities shown in the figure below.  Business executives expect technology to do more than work ‘in the business’ as they need technology that changes the business in order to support the combination of growth, operational improvement, costs, customers and new technologies.

Hunting for digital innovation and harvesting that value across the enterprise describes a deeper role for technology in the enterprise.  The combination of tending, hunting and harvesting reflect the full spectrum of technology value delivery that leaders are already using to create a digital edge and digital difference.

CIOs recognise that past stability is no guarantee of future success, particularly when the world has changed right from under IT. Adapting to and leading in the digital world requires doing things differently, yet in ways consistent with the demands of digital technologies.

IT is not going away; it just needs to change — not because it is wrong, but because the world has changed and enterprises are realising only a fraction of technology’s potential.

Its time to unleash technology to hunt for growth and value, harvest enterprise benefits at scale and continue to tend to day to day operations.  Those three activities describe the range required to consider when delivering your 2013 agenda. 

 Mark McDonald, Ph.D., is a group vice president and head of research in Gartner Executive Programs.