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Thinking Small — Creating value rather than controlling costs

by Mark P. McDonald  |  September 14, 2011  |  2 Comments

Leading CIOs have been re-imaging IT in the face of changing business priorities, technology innovation and resource realities.  This is leading some to adopt a new way of thinking about IT — thinking small.

Thinking small touches just about every aspect of IT from its foundational assumptions, to how it operates, to how you judge its value and contribution.  This post focuses on first on how BIG thinking paints IT into a corner.  It sets the context for thinking small about IT, which is in a subsequent post because people tell me my posts are too long.

It is easier to get caught up in the need to control costs and resources when you think about IT as BIG.  Big IT thinking views the size of IT as a measure of its importance.  IT is critical because of the number of systems, the required CAPEX and OPEX, the number of people, the complexity of contracts, the unique technologies, etc.

Thinking BIG means thinking about one thing in one way

When we emphasize how BIG IT is, how complex, how different, how much the business does not know or understand it, we create an environment with only one question and one response.

How much does it cost? And prove to me that you are not wasting our money.

You do this in your personal life

Think about it, in your personal life when someone shows you a complex sports car, a new dishwasher, a new TV and bombards you with features, functions, specifications that you may understand but have a limited ability to value what do you go back to – what is the cost?  What is the feature function comparison?  You group choices them by similar features and qualities and then ask, what is the best value?  Sure but in reality the group has equal value so you give preference to the lowest cost?

Why?

Because, no one wants to be stuck overpaying for something they could have purchased cheaper.  You take pride in showing off your new TV to your friends and talking about what a great deal you got.  After all getting a great deal is a sign of business acumen. Paying too much is a sign of weakness.

Getting a good deal and controlling the cost you pay is about the only way to feel good about a choice where all options are essentially viewed as equal and there is a fear of getting ripped off.  You might comment about brand, snob appeal, etc., but if your neighbor got the same or better for less, you feel differently.

It is exactly the same with IT, particularly when we think of IT as BIG.  We tout new solutions, new technologies, architectures etc. all of which are complex and some of which we really do not fully understand.  Under that bombardment of BIG messages, the only dimension the organization can value and control is – how much it costs.   The only risk.

Don’t believe me?  Then consider this.

CFO’s think this way, because you give them little choice about how to think differently

Last week I had the opportunity to present to 18 CFO’s on the subject of IT.  I asked them the following question:

Which would you rather have a 10% savings on IT’s infrastructure and operations budget or the business results of a 23% increase in IT’s capacity to create new business value?

A 10% savings on I&O would represent about 0.0014 of sales. See “the math” at the bottom for details.

The majority of CFO’s took the 10% savings.  The other group said that they were not sure and would have to see what the 23% increased capacity would be spent on.  Not one, said ‘yes give me more IT.’  Not even the CFO holding a cowbell!

When I asked why, the answer was simple.  Because the 10% cost savings has a 100% certainty.  The business investments are uncertain, unpredictable and IT has a spotty record at best with benefits realization.  Even when that 10% savings represents less than 0.0014 of sales and the new business solutions could grow revenue by 3 – 5%; they opted for the sure thing.

Why?

Because they see IT as big and the only way to control something big is by controlling its budget and cost.  The CFO’s at the meeting asked for new models and ways to value IT investments, more on that in a latter blog post, but it’s a sign that they recognize that the current way of thinking about IT, BIG thinking, presents them with an easy but not necessarily the right way to make decisions.

So what?

Recognizing the context thinking big about IT creates is the first step in recognizing the need to re-imagine what I can be like and the potential of thinking in new ways.

What is the difference when you THINK SMALL?  That is the subject of Friday’s post.  Why Friday, because people tell me that my posts are too long and to break them up more.

XXX

The Math

The percentages assume: An IT budget set at 2% of sales and a split of that budget of 70/30 between I &O and investments.  A 10% change in I&O budget transferred to investment changes that ratio to 63/37 reducing I&O as a percent of sales from 0.0140 to 0.0126 a change of 0.0014 of sales.

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Category: 2012  it-governance  lean-thinking  small-it  strategy  

Tags: cfo  it-budgets  small-it  strategy-and-planning  value-of-it  

Mark McDonald, Ph.D., is a Vice President and Fellow Emeritus in Gartner for General Managers Program.




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