With the onslaught of the digital era, and the identification of business functions that need to move from their analog world into a more digital driving force, the way IT organisations’ place their financial ‘chips’ is going to change.
For many years there was a well-trodden business practice in IT circles that dictated that the cost of providing technology and support services running an organisations’ systems of record. This dictated that a percentage of overall annual revenue would be allocated to capital and operational spending on technology.
The percentage allocated would vary by company and industry, but commonly expenditure was split between Capital or Operating budgets ( CAPEX or OPEX ), and depending on the sector again, how goods and services were paid for was dependent largely on how cash was attributed and recognised.
This relatively easy to understand characteristic allowed suppliers and customers to build sustainable business engagements as they collaborated to meet IT project plans and sales targets respectively. The annual cycle of IT spending profiles would align itself with the corporate budget planning rounds, and depending on whether the organisation was either a proactive or passive consumer of technology, the allocation on capital asset acquisition versus operational services would be verified.
Business Analysts would engage with the business units to capture and articulate specific IT projects and the requisite funding needed. All of this work rolled up into the budget submission, and CIOs and their supply chain waited with baited breadth to understand their ‘spend’ opportunity for the next 12 months or so. Buckets called ‘core ‘, ‘shared ‘ and ‘department’ as the financial chart of accounts mobilised to track expenditure and ownership of assets and project governance.
It was in this period that well worn phrases like “keeping the lights on” and “running the bank” were born, as CIOs’ were directed by their boss (usually a CFO ) to reduce the operational costs of delivering IT services, and ‘free up’ cash to do something ‘innovative’.
Indeed, I recall a CFO I reported into who used to say “Paul, you can ask me about anything, so long as it doesn’t cost anything”. Harsh but consistent with the commitment to apply more command and control to the perceived out of control spending on technology. Tactics were therefore developed by CIOs’ to sharpen the proverbial pencil on IT spending, and a kit bag of standard initiatives became the motto of the CIO to their teams.
The forces of influence are many for this situation to occur. The shareholders want more share, the board in return want to see products hitting existing markets faster and they want new markets to emerge. Programmes already in flight suddenly take on more urgency with the advent of cloud, DevOps and race to the bottom cost models for the raw compute. The supply chain begins to reinvent itself with more aligned managed services that aimed to be ready for these cost cutting programmes by delivering fixed price models, scale up scale down models and more innovative service options to support the growing need for resources and just in time infrastructure.
Starting with the phrase “Do more with less” , CIOs’ would go on campaigns to reduce the operational costs of running the shop, and introduce processes that evaluated their portfolio of IT projects and determine the extent to which each one supports long-term business goal in the organisation.
A “standardise wherever possible” mantra would cut through supply chain lists and reduce the number of vendors and partners in trading relationships, and use standard building blocks like virtualisation to create simpler IT environments that are easier and less expensive to manage.
And as the world of work changed as people became more mobile, the CIOs’ would start segmenting their users and move away from the ‘One-size-fits-all solutions” that rarely work today. CIOs’ would now use technology to provide users with the functionality that they need to do their job, but resist having too many user profiles will increase cost and support costs. Finally, CIOs’ were driven to settle for a “good enough” where possible strategy working on the principle that solutions are usuallyappropriate for 70 percent of your IT requirements.
Why is all this relevant in the digital era of technology investment?
Well it’s because the thinking behind how IT budgets are constructed in the future is changing to meet the intuitive capability that organisations’ demand from their IT colleagues. I read somewhere that Gartner believe that considerably more CIOs’ distinguish themselves alongside general managers in their ability to think intuitively, and create opportunity to build more benefit from technology and supporting services with strong dexterity and insight.
I believe therefore that conversations around IT expenditure with CIOs’ are transforming ( as we may be experiencing already ) from the classic Capex versus Opex approach to a more fluid or more accurately, evolving modus operandi that I sense has a 5 – 3 – 1 rhythm.
And in this rhythm, I see CIOs’ having more and more conversations that go like this.
- “I can see ahead for the next 5 years what the core technology building blocks I am going to need to replace, optimise and develop necessary to deliver the business vision”.
- ” I can see a cost model to support and build IT services over the next 3 years”
- “I will only influence expenditure on initiatives that deliver visible bottom line return within a 12 month period – if not sooner”.
Of course this is nothing spectacularly new, and the CIO will no doubt reflect that their role has these three cyclical dynamics; as a visionary planner, a financial manager and business coach.
This 360 reversal of the business analyst function is giving the CIO a clearer perspective on the day job, as a business coach. Keeping the lights on and ensuring those building block systems of records and core infrastructure are fit for purpose will easily fall into the Run aspect of their command, and the smart CIO will have this boxed off with a combination of strong out-tasked partner support and streamlined and heavily automated service delivery functions.
The financial management will derive from a much closer advisory relationship with fellow business leaders to combine ongoing cost reduction tactics with changes in IT service delivery through cloud models and flexible expenditure terms for Buy Not Build systems of engagement. Calculating the real cost of a technology remains a CIO specialty. The CIO will deliver a keener focus on identifying the technologies that enhance marketing efforts, including customer-facing, customer-enabling, marketingoperations, and measurement and analytics.
Yet the sharper agile advisory role that shaped the next 12 months of project portfolio management calls upon less ownership of the raw number and the end to end infrastructure, but calls behavioral traits of a business coach. The CIO will transform their role as a facilitator or orchestrator of the new digital transformation.
The CIO needs to move from technology-centric planning to one that thinks about technology-enabled business strategies, and how they will manage the organisational dynamics of spending money in the Speed One world ( traditional core IT ) and influencing money in the Speed Two world ( business driven digital initiatives). This will still see those major architecture projects continue whether it is device rollout, back end migration or infrastructure expansion, but will also see a keener sense of shorter, fatter projects that deliver value alongside the heavy lifting work.
I envisage therefore that more and more CIOs’ will change their game for these coaching engagements, leveraging suppliers to build more agile proof of concept platforms to tease out the business requirement, prior to building smaller, faster, agile portfolios. For example, the Internet of Things explosion gives a great opportunity for CIOs’ to start examining the potential to extract smarter information from existing assets – plant, buildings and even people ), and also create opportunities to test new models to use technology to build new products and therefore new markets.
Funding these PoCs may come entirely from the business unit, leveraging the CIOs’ advisory role to ensure architectural the decisions line up to existing application and management plans and that appropriate due diligence in the supply chain selection is available to avoid silo decision making and misaligned supplier interaction.
While the longstanding function was IT systems and cost management, the new direction for the CIO will be how to create platforms that enable new value chains and integrated ecosystems. The CIO will develop the technical infrastructure to enable and accelerate revenue growth. He must also educate and enable the whole business to become more ‘digital’.
Why did I write this post? Well I reflect that in the IT supply chain we all assume the role of ‘commentators’ and ‘pundits’ on how the world of technology is changing the thought processes for our customers, yet we still think that we can still use many of the ‘this is how we always do it’ approaches in the hope that the CIO we are talking to is one of the ‘old school’ types. An interesting and not necessarily wrong strategy in the short term, but one that I feel will come under the spotlight increasingly as the ‘new school’ types become the de facto norm.
If we think that the cheese has moved for our clients , why don’t we think the cheese is moving for us too.