Mark McDonald

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Mark P. McDonald
GVP EXP
8 years at Gartner
24 years IT industry

Mark McDonald, Ph.D., is a former group vice president and head of research in Gartner Executive Programs. He is the co-author of The Social Organization with Anthony Bradley. Read Full Bio

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A Decade of Devaluation in IT

by Mark P. McDonald  |  September 7, 2012  |  21 Comments

In a prior post — When Frugality Fails — the topic was what do you do when just cutting costs is not enough to define success.  This topic looks at what a decade of flat IT budget investments really means.  IT budgets have been essentially flat according to the results of the Gartner Executive Programs CIO Survey over the last 10 years.

 

These figures are illustrative of the changes in IT budgets over the past 10 years.

Something does not compute!

It’s difficult to reconcile these budget numbers against the level of IT activity.  CIOs and IT have been busy over the past ten years.  Activity requires funding, so in an environment of flat budgets you have to ask where is the money coming from?

Sweating assets to the tune of more with less

The answer is most of the money has come from IT sweating its assets and resources — doing more with less.  Or more accurately doing more while keeping the budget flat.  Outsourcing, offshoring, consolidation, renegotiating contracts all play a role in cutting IT costs and keeping them down, even in the face of increased transaction and data storage demands.  This has made IT infrastructure one of the most productive resources in the organization.

CIOs, in muddling though the past 10 years, have supported the notion that IT was top heavy, slow, expensive, out of shape and frankly fat.  Now if your in IT you know that is not true to the extend that 10 years of budget cutting

CIOs were forced to devalue IT over the past 10 years

CIOs have made IT more efficient, with the result of devaluing IT, as the returns on efficiency did not flow back to the source of those efficiencies in most organizations.

A decade of frugality required CIOs to devalue IT driving wages, costs and performance down all to fit growing business demand into a dwindling budgetary supply.

The devaluation has been a silent killer for IT, eating away at the health of IT in ways that do not become apparent until IT is ready to collapse.  Governance, service level agreements, service catalogues, shared services, etc. are some of the tools used to devalue IT by shifting resources within the IT budget.  Its like the old commercial, IT has starving the investment fever to feed the operational cold.

The signs of IT’s devaluation include:

  • IT budgets have hardened, like hard arteries, as current operations consumes a greater percentage of the IT budget to the point that there is no room to build skills, experiment or transform
  • IT’s persistently low project performance as measured by completing on time, on budget, on scope and realizing business results.
  • A broken IT labor market with persistent skill shortages and supply challenges that persist across more than a decade as people choose other options
  • A persistent view of IT as a money pile to be managed down rather than a source of business performance and leverage to be exploited.

Controlling and cutting cost is a valid strategy but once cost cutting crosses over to devaluation it becomes difficult to recover particularly when that recovery requires upgrading and enhancing skills.   That is the challenge facing CIOs as ten years of devaluation have left them locked into contracting relationships with limited discretionary spend, governance and financial management processes that are more concerned with input prices then outcome results and a staff that has the right skills for operating yesterday’s systems but little capacity or capability to take on new digital technologies.

Blaming CIOs for this state is not only counterproductive its wrong.  CIOs have responded to the work cut out for them.  It is the result of that work – devaluation – and the need to re-inflate technology that should be the focus of the future.

The operative questions for the future is not ‘how do to more with less?” but rather ‘how to use technology to drive growth?’  Notice I said technology, not IT.  Technology has changed in the last two years away from what we think of as IT.  Mobile Computing, Tablets, Smartphones, Analytics, Big Data, Cloud, Operational Technology, Sensing, etc. all represent technologies that are qualitatively different from their predecessors.  Supporting growth is not longer a matter of installing a new ‘management’ system like CRM, but creating new capabilities.

New demands for technology to support growth have hit IT at just about the worst possible time.  These lightweight technologies create an incumbent’s dillema as they break the traditional IT management and process model – rendering it less relevant and powerful to create results.  CIOs cannot double down on today to build for the future, they do not have the resources and it’s not the right answer.

In economic theory, devaluing a nation’s currency is supposed to lead to a correction in its trade balance as imports are more expensive and exports become more attractive – due to the lower currency.  In IT management reality that cost to balance of payments correction was called outsourcing and offshoring.  Organizations need different answers.

Executives have to recognize that they have devalued IT and recovery from that devaluation comes by transforming the role of technology in the organization.  Part of the transformation will require changing IT funding levels and models.

Transforming IT, turning it around from years of devaluation, is not simply a matter of re-inflating the IT budget.  I believe that would be a huge miscalculation as throwing money at a problem rarely solves the problem.

It is time to re-imagine IT to redefine the role of technology in amplifying the enterprise and reconnect the role of technology into strategy.  Why?  Because recovering from a decade of devaluation is essential to compete and participate in the emerging digital economy.

What do you think?  What are the signs of devaluation in your organization?  How are you planning to recover?

 

21 Comments »

Category: 2013 Amplifying the Enterprise budgets Re-imagine IT Strategic planning     Tags: , , , , ,

21 responses so far ↓

  • 1 sberna   September 7, 2012 at 7:07 am

    I believe, that it is a typical scenario in many organizations. Devaluation it trend associated with current position of IT and I cannot see way for recovery.

  • 2 Ercan Yilmaz   September 7, 2012 at 7:34 am

    Mark, thanks for another thought provoking article. It is hard to deny the tax and burden constant reduction of IT budgets put on IT leadership and personnel in the last decade. Having said that, to the extent that IT creates measurable value for the firm in terms of adding new capabilities to a product or service, bringing unit costs down with efficiency improvements, adding new customers, enhancing distribution and controlling risk, I would characterize flat IT budgets as revaluation, not devaluation. With lightweight technologies, outsourcing could take a different meaning as in outsourcing innovation. In today’s world where ideas are tested for failure relatively quickly and cheaply, IT leaders who adopt a lean start-up approach will have a better chance to focus on solving business problems with the right partnerships/networking with external talent. Orchestrating a network of skills and capabilities available in the market place today is the skill required to create business value, not necessarily trying to duplicate those skills sets in-house.

  • 3 Jackie Kahle   September 7, 2012 at 6:05 pm

    Great post, Mark. I think some of the consumerized technologies you mention are also having an additional affect, and that is the fact that “IT” spending no longer occurs just in the IT department. While spending by the IT department may be flat, total spending on IT may be on the rise. I am thinking about marketing’s investment in social media tools, sales’ investment in tablets, etc. Some of this may be “stealth IT”, but a lot of it is because technology is getting much easier to procure these days, and the fact that the power end user organizations have in making their own IT decisions is growing. This completely changes to traditional role of IT from a supplier to the business to an advisory to the business.

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  • 16 Rene Hermes   September 25, 2012 at 8:31 am

    Mark,

    Thank you for sharing your insights here. In most organizations it is pressure from the CEO and CFO to contain IT costs (which often are already high and are perceived to be too high). The pressure on cost and cost-cutting is understood. Specifically knowing that, according to an independent survey of Nucleus Research, almost 60% of respondents have no overall understanding how an IT budget cut impacts their business performance or risk exposure; this is a point that becomes clear in your post.

    Probably the reverse is true as well. Will an increase in budget positively impact the business? This would have been an nice additional question to ask; and a direction organizations should take.

    However, in that case, organizations need to change their budgetting/ The study further reveals that barely 4 % determine their IT budget in accordance with the company’s actual business strategy . As a consequence, more than 90 % of the participants admit that they base their IT budget on industry benchmarks – as an arbitrary percentage of revenue – or simply tweak the previous year’s budget.

    Aligning IT, Business AND Finance and managing it from one integrated portfolio will become more important and in support of defending IT budgeting more credibly and driving more value.

    You can read more about the study at http://bit.ly/rCUDbR

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