'What do we get for our IT spending?': A CIO's response
- 06 April, 2016 06:30
Many CIOs are stuck in a cost-cutting cycle driven by simple expense-line trimming that is not tied to business outcomes. As a result, they are struggling to exploit technology fully throughout their enterprise in the move to digital business. A new approach to IT cost optimisation is needed.
While opportunities remain to reduce costs in every area of IT, whether through consolidation, streamlining, selective outsourcing or improving procurement to get the best pricing and terms, these tend to provide only modest savings. While it takes more effort, there is significantly more potential for IT savings by showing business value.
One of the most common questions asked of CIOs is, "What do we get for our IT spending?" They can answer this question by developing financial transparency and running IT like a business.
Financial transparency
One of the first steps is to understand baseline IT costs and benchmark IT spending. Leading organisations perform this assessment annually and incorporate it as a discipline within their IT cost management practices. Not only does this show stakeholders that the IT organisation is looking to improve against an external standard, it demonstrates credibility on part of the CIO that they will not become complacent in their role, even if the business sees them as adding value.
Most IT organisations will break down their budget by functional areas, such as support, data centre, applications and voice and data networking. The second part is to define the business services that IT enables, for example, automated billing, workplace support, customer service, automated operations/manufacturing or business transformation.
IT organisations that operate as in-house technology service providers rather than as proactive business partners, commonly lack the skills needed to engage in the broader business discussions demanded by digital business.
Cost management is important by helping to demonstrate credibility, but it does very little to demonstrate business value by itself. CIOs that can master running IT as a business stand a greater chance of being able to access greater budgets across the enterprise. Once IT becomes known as having the ability to help contribute toward factors such as improving customer retention or operational efficiency, CIOs will be invited to be involved at a greater level towards helping shape business strategy.
Next: CIOs need to support a 360-degree approach
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Support a 360-degree approach
IT cost optimisation approached from a 360-degree perspective enables far greater exploitation of new business-IT opportunities than does focusing on IT price/performance alone. Embracing a 360-degree perspective implies that CIOs will increasingly focus on business outcomes, not technology.
CIOs must, however, continue to oversee a reliable and mature IT service organisation and deliver new programs efficiently with a highly skilled business-IT team. They should continue to execute disciplined cost management to ensure they provide business capability efficiently and are leveraging the best possible unit costs.
At the same time, it’s critical to adopt new approaches to generate business value by contributing to improved business processes, optimising information delivery and helping to implement new digital business models that enhance their enterprise's efficiency and effectiveness. With these foundational capabilities in place, a CIO can get the right decision makers at the table to prioritise and support opportunities.
Embracing a 360-degree perspective implies that CIOs will increasingly focus on business outcomes, not technology.
Become a collaborative digital leader
Digital business challenges IT because many of the underpinning technologies are outside the domain of the traditional IT organisation. In addition, IT organisations that operate as in-house technology service providers rather than as proactive business partners, commonly lack the skills needed to engage in the broader business discussions demanded by digital business.
Moving toward collaborative digital technology leadership means breaking down the barriers between the IT organisation and other technology enablers of the enterprise. Digital technology leadership requires people with different perspectives, mindsets and responsibilities to work collaboratively on creating business value.
To create business value in a digital world, CIOs must help establish a new leadership team that includes business peers and other relevant stakeholders — all collaborating to integrate, coordinate and lead digital initiatives throughout the enterprise and its ecosystem.
CIOs must make strong, business-oriented contributions to the evolving digital business strategy. They must champion the business value of information and technology by engaging, leading and collaborating with all relevant stakeholders.
The new leadership team that CIOs help establish, and in which they participate, will integrate and coordinate initiatives throughout the enterprise and its ecosystem, creating business value in a digital world.
John Roberts is a research vice president and distinguished analyst with Gartner's CIO and Executive Leadership research team, specialising in helping CIOs and IT leaders develop effective IT strategies that contribute to business transformation. He provides advice on IT strategies and governance, business value of IT, IT cost and value optimisation, improving business processes, IT organisation management strategies and skills, and IT performance metrics and satisfaction surveys.
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