From tech investment to impact: Strategies for allocating capital and articulating value

How tech investments are evolving across industries

Tech spending as a percentage of revenue averaged out at 3.28% in 2016¹ and 3.64% in 2018.² By 2020, right before COVID-19 hit, that number increased to 4.25%³ and grew even further to 5.49% in 2022, according to Deloitte’s Global Technology Leadership Study (figure 1). Based on interviews with tech leaders, macroeconomic projections, and a breakdown of industry-specific trends in tech spending, we anticipate that by 2024, that percentage will increase again to 5.85%.

The 2022 increase is nearly universal across industries (figure 2). Financial services, insurance, and health care were the industries with slight declines since 2020. This trend may be attributable to the significant investments these sectors made in tech over the past couple of years that are now leveling out as well as the current global economic conditions that may be forcing some companies to reconsider their investment strategy.

“Technology is essential to the future of our organization,” says Pieter Halenbeek, CIO at the Dutch Chamber of Commerce. “As such, our tech function spend has increased from 30% to over 40% of the total [organizational] budget.”

What’s contributing to these tech budget increases? A number of factors.

During the pandemic, especially during 2020, companies didn’t know what the fallout might be and started pulling back their tech budgets. Starting in 2021 and leading up to today, there have been significantly higher investments, in part because of pent-up demand for technologies, such as collaboration tools as companies shifted to hybrid and remote working models, as well as a desire to not be left behind. As it became clear that technology would transform every industry, many tech leaders realized they should shift their budgets accordingly.

Another reason for this continued increase in tech budgets is the expansion and dispersion of technology leadership roles. For example, along with the CIO, many organizations now have CTOs (51%), chief digital officers (25%), and chief data officers (27%), all of whom drive distinct initiatives fueled by technology.⁴

In addition, we see the percentage of tech budget controlled by business and functional leaders increasing substantially from about 20% in our 2020 Global Technology Leadership Study to around 40% in 2022, ultimately increasing the infrastructure and the capabilities that may be required to support these investments. We expect this trend to continue and anticipate that almost half of tech investments could be managed outside of the tech function by 2024.

Looking toward the future, tech budgets are expected to continue growing, but likely not at the rate seen in 2022 when there was a significant demand for technology, like generative AI, along with heightened optimism around what new tools and platforms could bring.⁵

Given the possible economic headwinds ahead,⁶ select sectors may reduce their tech investment, but overall, as we mentioned earlier, we expect to see a modest increase in tech budgets across industries—and anticipate the average spend on technology as a percentage of revenue will increase to 5.85% by 2024.

How tech leaders allocate their tech budgets

When it comes to budget allocations, our study shows that surveyed tech leaders are primarily focused on optimizing existing business capabilities (48%). About one third of tech budgets goes toward augmenting existing capabilities with new capabilities, and one fifth goes toward creating new value-generating business models or entering new markets (figure 3). There is remarkable consistency across industries and company sizes in terms of these allocations.

We do see differences when we compare companies that are currently generating revenue through tech versus those that are not. Here, there’s a delineation. Organizations that are monetizing their data or technology—36% of companies today with an additional 16% predicted to monetize in the next two years—are more future-focused. Almost one quarter of their budget goes toward creating new value-generating business models or entering new markets (figure 4).

When we asked which areas of technology investment have had the most significant impact on their organization, the top four responses among respondents were cybersecurity and risk mitigation (54%), core modernization and legacy application renewal (52%), shift to cloud (49%), and analytics and data science (45%) (figure 5).

Organizations appear to be primarily focused on building a strong tech foundation, but the next few years could demand investments in more strategic areas, such as AI and core engineering capabilities, which create net new opportunities for the business.

Despite a recent surge in AI-related news,⁷ only 18% of respondents say this technology has had a significant impact on their organization so far. This may be because companies have not yet realized the full impact of their new AI capabilities or they haven’t yet had the resources to deploy the technology. Additionally, since our survey was fielded in the fall of 2022, AI, particularly generative AI, wasn’t yet on companies’ radar. This is quickly changing.

“In the next 10 years, the real valuation gap is not going to be between tech and traditional companies,” says Mike Walsh, CEO of Tomorrow. “It’s going to be between companies leveraging AI and those that are not. There will be winners and losers based on those that have used these technologies to redefine their value delivery models.”

Regardless of focus areas, it’s clear: As budgets increase, it’s expected that the amount of oversight and scrutiny on investment strategy will increase as well. Tech leaders should intentionally measure and articulate the value of their investments. The next section helps illustrate how.

Challenges with measuring and articulating tech value—and five strategies to help overcome them

Increased tech spending doesn’t necessarily translate into more value. If anything, it can emphasize the need for tech leaders to consistently measure and articulate the impact of their investments, especially to the board. In fact, according to our research, almost half say technology project performance metrics and the impact of tech programs are key discussion topics in the boardroom.

Yet it can be challenging to measure and articulate value. The majority of executives we surveyed (61%) say the biggest challenge with measuring technology’s impact is quantifying the softer, less tangible benefits (figure 6). 

The metric our respondents most commonly leverage to report on the value and impact of the tech function is return on investment (ROI). It may be considered a crude measure of value, yet 67% of respondents rely on it, even though it doesn’t always measure or reflect the long-term impact tech investments could have. About a quarter of respondents use net present value (NPV), which does take into account time, although there may be projects and initiatives that may not have a quantifiable value associated with it, such as building capacity or expanding core technology capabilities. These initiatives may be necessary but may not have an ROI.

Not every investment will have a solid, immediate return, so tech leaders should have a spectrum of measures depending on the type of investment. These could include customer impact, agility, or another competitive advantage technology can unleash.

“We think of value in how we can be innovative, not just in how much we spend,” says Diogo Rau, EVP and chief information and digital officer at Eli Lilly and Company. “One example is machine learning for drug discovery. It’s not a big financial spend in the grand scheme of things, but in terms of the innovation we’re getting from our smartest minds and engineers, it's a ton.”

When thinking about impact, tech leaders can first refer to the five competencies of transformational tech leadership—engineer, architect, data scientist, change agent, owner—which highlight the areas executives can drive distinct value.⁸ While measuring and articulating that value will vary from company to company, here are five ways tech leaders can consider approaching it.

1. Burn your current tech strategy. Gone are the days of the tech function working in silos, every so often checking in with the C-suite. Today, tech leaders should ensure that their tech investment strategy aligns with, and furthers, their overall enterprise strategy. Tech can have a roadmap in service of the business strategy but should not have a stand-alone strategy.

In fact, without this collaboration, money could be left on the table. According to recent Deloitte analysis, the right combination of digital transformation actions can unlock as much as US$1.25 trillion in additional market capitalization across all Fortune 500 companies. But the wrong combinations can put more than US$1.5 trillion at risk.⁹

“My advice for new tech leaders would be to make the technology strategy a joint strategy for the company and the business,” says Sathish Muthukrishnan, chief information, data, and digital officer at Ally Financial. “When our strategy was developed, I sat with the business leaders, my peers, and my own team to get their input on the relevance of the strategy to their business. In every presentation, I ensure I am articulating the progress and value the technology strategy is having on our business and our end customers.”

To proactively work with business leaders and drive overall business strategy, tech leaders should consider the following three dimensions:¹⁰

• Enabling transformations: The strategic possibilities created by tech-enabled transformation. Examples include new capabilities, new markets, and new products—essentially, terms that describe efforts to enable a larger strategy, sometimes spanning multiple business units.
• Building roadmaps: The technologies that come with digital transformation. When we say, “aligned to strategy,” we mean these technologies can be harnessed to achieve some discrete goal and bring the strategy to life.
• Managing change: The organization’s ability to adapt to and adopt new processes, resources, and ways of working. It often refers to the more qualitative, human characteristics necessary for a transformation, encapsulating a multitude of talent domains.

To ensure their investments support the overall business, Marc Berson, senior vice president (SVP) and CIO of Gilead Sciences, says his company created an innovation fund, ultimately changing the governance structure around their digital transformation prioritization setting. “Now, we work cross-functionally to collectively determine our investment priorities, and the tech organization moderates that process.”

2. Strike a balance between qualitative and quantitative measures. Measuring value is not always quantitative. Tech investments can make people more efficient and better at their jobs, eliminating simple tasks and creating time to work on higher-value projects. With increased tech investment, employees and leaders can use their specialized skills to add value.¹¹

“If people are reaching out to me to help solve their problems, that's a good thing because I'm being trusted,” says Jennifer Krolikowski, former CIO for the Space Systems Command. “Although it can be hard to prove value because my tech investments often translate to efficiencies in people—and that is not easily quantified. Sometimes there is skepticism around giving me budget because they can’t see the ROI. But it’s because they're looking for a tech ROI and therefore miss the people ROI.”

When it comes to quantitative measures, it can be beneficial to look at this through the following three lenses: how effectively tech supports business strategy, growth, and outcomes; how value is delivered to key stakeholders; and how effectively the tech solutions can deliver the products and services that the business needs.

3. Build an “agile” funding process. According to our study, organizations are, on average, dedicating 25% of their budgets to agile initiatives, yet their budgeting approaches and processes may be anything but that.

Today, tech leaders should approach budgeting differently. Rather than reviewing budgeting once a year, it should happen on a more frequent basis—and it should be value-driven rather than project-driven. Tech leaders shouldn’t commit to a set of assumptions and activities that may or may not come true every six months. Instead, budgeting should be viewed as an adaptive process that could inevitably change.

Taking a more agile approach to budgeting requires an efficient decision structure to reprioritize and reallocate funding as needed. While this may require more time from both business and tech leaders, it will likely be minimal and ultimately allow for a much more efficient use of capital.  

Take generative AI, for example. The speed at which this technology is transforming has left many organizations with traditional budgeting process at a competitive disadvantage. Yet those with a more agile approach may have been more equipped to take advantage of the opportunity at hand.

4. Never present costs without the impact. Tech leaders should also pivot from how they’ve traditionally communicated the tech team’s role and impact. The tech function isn’t a cost center; it’s a value generator. Tech leaders should work with other executives to define how to measure value and business outcomes upfront during the budget planning phase so that when it comes time to present to stakeholders there is already a level of preparation. Converting the business case into tangible and intangible outcomes is important when communicating value.  

“We’ve been on this journey of a support function monitored primarily on cost and how quickly we could come down the curve,” says the former CIO of a large manufacturing company. “Yet every dollar in the tech organization needs to be thought of as an investment, not just as a cost that you’re managing. It’s an investment that drives returns. A big pivot for us has been talking about value in everything we do—and not just talking about it, but measuring it, quantifying it, and demonstrating that we delivered it.”

Jonathan Askins, CTO for the State of Arkansas, has a similar mindset, explaining that while projects often sound expensive, it’s key to not only look at the hard numbers. Instead, executives should find a way to communicate what an investment can bring, even if it can’t be perfectly quantified.

“I would love to put value on some of the things that we do and say this is worth US$2,000,000. I know it only cost us US$200,000 to build it, but it's worth US$2,000,000,” says Askins. “Where I find out very quickly if we are not performing is if the costs exceed what [our agencies] feel like is the value that they're getting. Conversely, if people call and say, ‘hey this cost isn't as bad as I thought,’ then we have an early indicator that we're providing the value we should be providing.”

Accountability sits with the executives impacted by the outcome of the tech strategy. And this also includes the board, who should sign off on desired outcomes upfront and provide inputs during delivery. Often, these expectations may need to be reset due to execution challenges, but they should still be done collaboratively. Joint ownership can be key for success.

5. Recognize that measuring impact is as much an art as a science. Not every company is the same and how your C-suite peers expect to see value may vary. First, tech leaders should develop a point of view on what value can be delivered by each tech investment. Then, stakeholders should be asked what they want to see out of each investment. What might they consider a success? Knowing this upfront can help tech leaders plan and determine a good path forward.

For Gilead Sciences, showing impact is as much an art as a science and people-focused metrics are just as important as those around IT. “We publish a monthly dashboard which shows detailed metrics for IT transformation-initiative performance and operational security and reliability,” says Gilead’s Marc Berson. “In addition, we look at how we are doing with our organizational health and culture, including employee engagement, skills growth, and development. While looking at these metrics is helpful, it may seem transactional if we don’t balance it with a strong, parallel focus on people.”

“At Chevron, our IT and digital investments are tightly integrated with the targets set by each of our businesses and how they measure value,” says CIO Bill Braun. “With that, we’re reaching a level of maturity where we no longer try to carve out discrete value from the ‘digital’ elements of the work. We’ve teamed to blur the lines between business and IT, so we fully understand priorities and the value we’re after as we pursue our enterprise objective of safely delivering higher returns and lower carbon.”

Given the market volatility, uncertainty, and complexity, along with the pace of innovation, tech leaders should do scenario planning to review various options with executives and make a collective decision on which scenario to move forward with. This is a way to gain alignment on key business, operational, and technology priorities; explore leading practices; pressure test and confirm the resiliency of the tech strategy based on different scenarios; and orient leadership toward expected financial and operational outcomes.

Managing the tech portfolio

As we’ve stated, the bigger your tech budget gets, the more scrutiny you’ll likely have—from your fellow tech leaders, the C-suite, and the board. With this increased scrutiny should come the need to no longer look at your tech budget as a cost, but as a strategic investment and benefit for the business.

It may be useful to, instead of seeing yourself as a tech leader, see yourself as a portfolio manager who operates in the same manner as a venture capitalist.¹² In this new light, you can think critically about both the investments you want to make in the short term, and those you may need to make long term to reap a competitive edge. With this strategy comes some risk, but also the potential for a large reward.

As a portfolio manager, your budget could become more than an annual task to check off the list. Instead, it could become a dynamic, living strategy that is updated quarterly or even monthly.

No matter what strategies you decide to deploy for your organization, consider: Great tech leaders often take a value-driven approach to their budgets and tech investment strategy. And they do so from the start. Measuring and communicating impact shouldn’t be an afterthought; it should be a primary focus and goal.