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 continued focus on measuring IT as a percentage of revenue, which is a dubious metric at best and forms a one way ratchet whose answer is always go lower.
- 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?