Can today's CIO drive innovation with a flat or decreasing Budget?
Imagine the scenario.
You’re the CIO of a large organisation with an IT budget greater than the GDP of a small country. You’ve just met with the board and all areas of the business are asking for digital innovation, transformation, mobility, multi-channel, security, business continuity and availability….the list goes on. But we live in austere times and just as the meeting closes the CFO tells you the IT budget is being cut by 25% and hitting the budget target is nearly as important as delivering a service. What do you do?
It’s like being the pilot of a hot air balloon, there is a hole in the envelop and you’re losing altitude. You’ve got to shed some of the ballast in order for some to survive? So, Mr. CIO, what dead weight gets thrown out of the balloon and what criteria do you make that decision on? If it were a hypothetical situation you could justify easily what you would throw out of the balloon because hopefully this situation will never happen for real. However, as a CIO with increasing and diverse demands from users, making tough business decisions on how to run a cost-effective IT enterprise needs to move from being an art to a science. More than that, it needs to be based on actionable insights and this is what Technology Business Management (TBM) offers.
IT is more about managing the business than managing technology
TBM is a decision-making discipline for maximising the business value of IT spending. TBM blends financial transparency with service and product constructs to give technology leaders and their business partners the facts needed to collaborate on business objectives. Ok, so this is not a new concept and many CIO’s will say that they understand and potentially implement a degree of TBM to make or validate IT investment decisions. But let’s look at how TBM is generally currently administered.
The consequence of no IT financial transparency
Most IT organisations take a very disaggregated view of IT spend. Data collection and more importantly data integrity is a major challenge. A typical IT finance and spend discovery exercise will take between 8-12 weeks and involve a small army of (usually consultants) going out and collecting data to then put it into a spreadsheet to drive a very mandraulic process to give a view of where spend is happening. This is then shipped out in PDF documents to business stakeholders who all interpret the outputs based on their own knowledge. Generally, there is no consistent taxonomy that aligns business and IT let alone can identify cost and value drivers and give a granular view of the IT business landscape. The problems with this approach are:
No common taxonomy so business and IT are talking different languages
No-one recognises and agrees on the data as there is no single version of the truth
The output is static so changes cannot be made easily
As the data is static there is little scope to model future scenarios dynamically
There is no accountability down to Service Owner level because it’s virtually impossible to generate these service line costing views.
The data can only be viewed in the way that it is presented. It cannot be sliced and diced to a level of granularity that aligns to business goals and objectives.
Maximising the benefits of TBM
This on the surface is a data mining issue. If you can collect data effectively, trust the integrity of the data and present it dynamically against your business contaxt then you can use it to gain actionable insights. The problem is you don’t know what you don’t know. This is where TBM really starts coming into its own. Having a real time TBM platform means you can start asking questions on the cost and performance of IT rather than the validity of the data. When you can see data from so many different perspectives, but always set against a business context it is possible to truly manage the business of IT whilst providing financial line of sight into the enterprise. Now we have an enlightened and empowered CIO who can:
Understand and optimise run the business (RTB) costs
Demonstrate alignment and value of IT to the business
Manage hybrid and multi-vendor IT landscape - on premise & cloud
Timely access to information & long planning cycles
And this is where the CIO starts to gain the ability to fund innovation and growth. In a single pane of glass the CIO can be proactive and not defensive over the cost of IT. The CIO can challenge the business on the real value rather than perceived value that is delivers back and track that value back right to the core business objectives. From an operational perspective, the CIO can now:
Review and align project investment
Manage IT budget and plan variance
Manage App Portfolio
Rationalise App Portfolio
Benchmark IT spend to industry
Benchmark infrastructure costs to industry
Benchmark IT Tower spend ratio
Benchmark FTE spend ratios to industry
Benchmark Cost Pool spend ratio
Having this degree of control transforms IT decision making and firmly brings IT into a key contributor to the achievement of the organisational goals and objectives. It also means the CIO can challenge back to the business when they are being asked to deliver services that do not contribute to the success of the organisation. Now the CIO can shift spending from RTB to innovation but without necessarily needing more budget. Demands can now be shaped effectively with showback to business partners. Sourcing decisions can be better and made faster whilst driving more value based conversations with the business.
TBM benefits in the real world
TBM is a fast becoming recognised as a growth area due to the importance of IT cost transparency across an enterprise. The competitive landscape is growing and includes niche, pure-play and even large mega-vendors who are now starting to invest new solutions. To date there are no Gartner MQ’s or such but looking at the types of organisations investing in TBM it is only a matter of time. There is a TBM Council (tbmcouncil.org) with a very accomplished board of directors from companies like Nike, Cisco and Nationwide Building Society to name but a few. The TBM Council has the mantra that TBM provides technology leaders with standards and validated best practices to communicate the cost, quality, and value of IT investments to their business partners. In turn, IT is able to drive innovation for their organisation.
One global manufacturing company identified $37m in cost savings and cost avoidance whilst saving $500k of OpEx per annum. A global e-commerce company made $20m per annum tax savings just because they could correctly assign costs whilst reducing their reporting and cost model maintenance by 96%.
So, who wants to be the CIO who is unable to stand up and with 100% confidence state that everything they do is completely aligned to the needs of business? Who wants to be the figure head of the IT department where their own data is questioned day in day out with no ability to measure business value? If you want to be the CIO who fosters a business culture in IT (and let’s face it the business runs on IT so IT is the business) and champions innovation and growth then now is the time to reach out to DMSG, your Technology Business Management partner. Let us empower you to drive innovation, growth and transformation under any conditions.