Technology budgets: From value preservation to value creation
With technology investment taking a lead in corporate spending, optimizing IT budgets has become a top priority for CIOs and their stakeholders.
Technology permeates every business function and has the potential to impact all aspects of business. Yet, technology investments vary significantly across, and sometimes within, industries. How can CIOs effectively utilize technology budgets to drive value creation?
Our latest article in the CIO Insider collection explores how CIOs can fine-tune their strategies for allocating and spending technology budgets to help drive business growth while simultaneously maintaining operational efficiencies.
Fine-tune investment strategies: Key takeaways
Regardless of the size of IT budget, industry, or business priorities, these key takeaways can help CIOs fine-tune their strategies for allocating and spending IT budgets as they help their organizations drive business growth while maintaining operational efficiencies.
- Take a page from the high performers’ playbook.
Larger budgets may not always be optimized budgets, as demonstrated by CIOs in HPCs, where IT budgets account for a lower percentage of overall revenue. CIOs with smaller budgets may find that necessity is the mother of not only invention, but also innovation. By aiming for more efficient use of budget dollars, CIOs may be able to burnish their reputations as effective technology investors who can be trusted with larger budgets and more responsibility for funding.
- Let business lead IT.
Industry and budget benchmarks are useful for understanding the impact of market conditions on spending trends, but they are often not a reliable tool for making strategy choices. Ultimately, the business mandate is likely a better driver of technology investment and budget allocation strategies. It’s fine to be an outlier if it’s the result of an intentional business decision. Align IT capabilities and priorities with strategic and operational business priorities, and let business strategy determine how best to leverage technology investments and assets to deliver value. In addition to creating buy-in and support for IT strategy, this also spreads accountability for investments across the business. When technology investments are structured to provide current value and maximize future options, IT investments will likely be measured by business outcomes and the value they create, not just by IT performance.
- Develop a finance capability with IT.
Allocate resources to oversee the financial strategy of IT operations and initiatives and support the delivery of IT services from a financial management perspective. In addition to financial planning, this can include the measurement, management, and communication of return on IT investment. Not only does this optimize the budget, but it also helps increase transparency and build trust that IT investments are generating value. Adding this capability also helps CIOs demonstrate value and impact over time, and reinforces business accountability for technology investments.
- Centralize tech spending.
Call it shadow IT, stealth IT, or rogue IT – either way, many CIOs are painfully aware that IT spending and technology spending are not the same. CIOs can work to centralize the allocation and prioritization of technology spending and collaborate with other organization leaders to create joint accountability for investment and outcomes. This encourages innovation outside of the IT function within provided “guardrails” that help prevent costly rebuilds and integrations down the road.
- Adopt a portfolio approach.
As the roles of IT and the CIO change, traditional approaches for managing technology investments may no longer be effective. A portfolio approach to managing technology investments may help CIOs optimize their value. Like a mutual fund or a stock portfolio, some investments will deliver outstanding results, while others will be mediocre or lag behind. CIOs can communicate performance of technology investments that other leaders can easily understand, for example, in terms of value, risk, and reward. Having a venture capital mind-set is likely essential for driving value and delivering impact for the organization.