Welcome to our four-part series based on Technology Financial Management. CIOs increasingly turn to Technology Financial Management (TFM) techniques to help describe IT budgets and quantify IT costs. But, to truly unlock the growth potential associated with digital transformation, IT organizations need to advance their TFM maturity beyond this reactive approach.
The massive digital transformation of business is now firmly underway in just about every industry. This transformation is not limited to the United States—it’s a global shift. The growing impacts of this transformation range from enhancing both customer and employee experiences, to expanding market share and driving revenue. In fact, McKinsey estimates that by 2025, digitization could add as much as $2.2 trillion to the annual GDP in the U.S alone.1 Those businesses that lead the charge stand to gain incredible advantages, reshaping and redefining their marketplaces for years or decades to come.
As businesses rush to capture this tremendous opportunity, CIOs and their IT teams face growing pressure from two angles: Business units increasingly recognize technological capability is a key factor in realizing their growth strategies—and they want IT to anticipate these technology needs to enable growth. However, IT teams are an increasingly popular target for cost-control initiatives and the typical IT organization is scrambling just to meet the basic operational needs of the business. As a result, 85 percent of IT decision-makers say they’re still years away from reaching the potential of their digital transformation.2
CIOs increasingly turn to Technology Financial Management (TFM) techniques to help describe IT budgets and quantify IT costs. But, to truly unlock the growth potential associated with digital transformation, IT organizations need to advance their TFM maturity beyond this reactive approach. Leveraging TFM insights can drive strategic technology investments that anticipate the needs of the business and proactively enhance business growth.
Technology is the main driver and limiter of business growth
All business leaders today recognize the transformational potential of digital technologies to unlock new opportunities and enable new ways of working and create new paths to growth. Two-thirds of Global 2000 companies now have digital transformation at the core of their corporate growth strategy. It is estimated that global spending on digital transformation will reach $2 trillion by 2020.3 Despite this wholesale prioritization of digitization, technology is a key barrier to growth for most companies. Ask the individual business units in an organization about the most important enablers to their plans and they’ll readily list technology capabilities—or name needed technological advances that would fast-track their growth initiatives, allowing them to speed operations, improve customer experiences, drive sales and revenue, etc. Who must step up to deliver this functionality to the business? The IT organization.
IT struggling to keep up with rapidly expanding business demands
IT leaders may know they’re under-delivering. But most IT organizations lack the resources to achieve a timely, responsive approach to meeting business unit needs. While IT leaders and staff may not spend as much time managing on-premise technology assets such as servers, storage arrays and the large data centers that contain them, much of this workload has been replaced with the challenge of managing the complexities of off-premise. At the same time, IT resources are under constant scrutiny, as business leaders look to IT budgets as quick-win cost-cutting opportunities.
The result: Most IT organizations spend the majority of their resources (anywhere from 60-90 percent) on basic operations— just keeping the business up and running.
IT budgets under fire — even as technology spending increases
Ironically, as technology moves to the forefront of business growth strategy, IT is struggling to maintain its share of the budget. IT leaders continue to indicate that lack of funding is a top barrier to their organizations’ digital transformation.6 The problem? Business leaders see traditional IT costs—managing servers and other on-premise technology assets—sharply declining as cloud-based options move these assets outside the walls of the organization. At the same time, they see technology spending increasing dramatically overall, as every aspect of the business undergoes a digital shift. As businesses look to optimize these growing technology costs, IT becomes an easy target, as leaders typically think, “We’re moving everything to the cloud anyway—IT doesn’t need as much money.”
The reality is that the IT workload has only grown. There is still plenty of on-premise technology to manage, but IT must now support a rapidly growing web of cloud-based assets. The cost of “keeping the lights on” continues to grow, even as traditional IT costs—and IT budgets—decline.
You can’t invest in the “grow” if you’re constantly funding more “run”
As CIOs fight for the resources needed to support and enable digital transformation, they are engaged in a never-ending defense to the CFO for every penny spent. The result, as Gartner describes, is that “IT is often funded such that it must provide lowest- common-denominator service and cannot scale to meet the business need for information-technology-enabled service”.4 However, as businesses shift to an aggressive growth strategy largely dependent on expanding and supporting new technological capabilities, the CFO’s bare-minimum-cost approach to IT budgeting is misaligned with the increasing demand for the CIO to deliver business value.
1 McKinsey: Digital America Full Report December 2015 2 Riverbed Future of Networking Global Survey 2017 3 IDC FutureScape: Worldwide Digital Transformation 2016 Predictions, 2015 4 Gartner Report: Run IT as a Business Using Six Pillars of IT Financial Transparency to Drive Value, May 2017