As CFO's and CIO's how confident are you when it comes to optimising your IT spend?
According to Gartner the Total IT spend for 2017 is projected to be $3.4 trillion* and is broken down as follows:
Whilst, on the one hand, the data shown does make for interesting discussions, on the other, it also raises questions a few of which I've touched on below:
1. How does your IT spend compare?
Whilst it's not meant to be a blueprint, it does challenge thinking around whether resources are being invested in the area that matters most to your business. Furthermore, is your spend profile flexible enough to embrace emerging technologies to improve your competitive advantage?
Put differently, are you tied up in contracts that see you locked in for example with 'on-premise' legacy technologies, thereby missing out on potential benefits cloud solutions can offer? In one of my previous articles (See article), I have referenced the importance of cost transparency to facilitate these kinds of discussions. Shifting the conversation from operational to tactical and strategic is the platform for driving competitive advantage.
2. What does your run vs growth vs transform IT investment spend profile reflect?
Ideally this split should be driven by what the strategic priorities are to ensure alignment, however, this may not always be the case. Another factor that also muddies the waters is how IT is perceived in terms of being front and centre of business strategy vs. that of a back-office function.
A constant review of this split will ensure you are challenging the thinking across your IT investment portfolio and having the right conversations. Variables like organisational IT maturity, Industry dynamics etc. means there is no one size fits all solution. It really boils down to a case by case discussion to be had, with the right stakeholders in the room.
3. How does your IT spend compare with bench-marking data?
Critical to the previous two points is the need for benchmarking data to test your assumptions around IT spend. Cost transparency is one part of the puzzle but whether you are spending in the right areas at the right levels is the other piece.
This mindset shifts the discussion from internal to that of external. It forces you to create a PESTEL like perspective across your IT spend and once more challenge those underlying assumptions. At the rate of technological advances, these days staying ahead means this should become the norm!
Some steps you can take in addressing the above:
- Determine and understand your end to end functional cost of IT, i.e cost transparency. Think of this as the minimum requirement before wanting to venture into reports like Balanced Scorecards, PESTEL type assessments etc.
- Consider if not already, a standard model for IT costs which supports the previous point and serves as building blocks for managing IT as a business. Please see (TBM taxonomy) as an example. Put differently think of this as the GAAP for IT.
- Once you have locked down your IT costs, along with adopting a standard model, you are then ready to start conversations around Bench-marking, IT Strategic Performance Management and Trend Analysis for IT etc.