Digital technologies are revolutionising the way that businesses operate. Research conducted by Gartner illustrated the rapid adoption rate of digital transformation, with just under half of CEOs stating that the board of directors is challenging them to make progress in digital business, with 56 per cent stating that the digital investments are already improving profits.
The shift has resulted in massive growth in IT spending, with IDC predicting over 5 per cent growth in the financial services sector alone in 2017. But while budgets are increasing, it’s important the CFOs scrutinise budgets to ensure that existing software assets are optimised, so that innovative digital projects can be planned for and funded.
Challenges to managing software budgets
As software spending continues to rise and more processes are digitised, it is essential that CFOs have a handle on how the IT budget is being used and have clear projections for future demand.
However, this is no mean feat. The consumerisation of IT has led to an on-demand expectation of new digital services, while the ease with which cloud-based applications can be downloaded has enabled business units to go direct and source applications.
In many cases, this has squeezed the CIO and IT office out of the process - the persons whose responsibility it has previously been to manage software procurement and spend across the business. As a result, there is often no centralised information for IT assets and spending. This creates a Disruption Gap, a gulf between the central IT function and the rest of the business.
This situation is only going to get worse. While today 83 per cent of IT spend is currently being controlled by the CIO or their reports, Gartner predicts that in just three years the CIO will control only 50 per cent of IT spending across an organisation.
Upsurge in spending
With more people adding to the IT spend, there is a massive opportunity for overspend. Whether through duplicating resources, missing opportunities for volume purchasing, or growing shelfware, IT budgets can be quickly burnt through when unoptimised.
It also increases the risk that financial teams will be hit by unexpected and unbudgeted costs: from unplanned technology acquisitions, to financial penalties issued by software and infrastructure providers for the overuse of applications and cloud resources.
Ultimately, the CIO and business units can’t be at odds when procuring software. If CFOs don’t have accurate information on the current spending and planned expenditure, they are at constant risk of overspending before the CEO and wider business units’ new transformation projects get a look in.
Understanding the deeper challenges
While returning to centralised IT control may sound like a simple solution to CIOs governance challenges, the horse has well and truly left the barn and locking the gate isn’t going to do a lot of good at this point.
Instead, CIOs need to redefine the internal processes that enable them to deliver the information and governance into IT spending. Visibility is crucial to this – only with insight into existing application deployments can the CIO ensure that they are optimally distributed and secure, while curbing over-resourcing and reducing the risk of fines for non-compliance.
The CIO can’t do this alone. The CFO must work with them to help them make the shift towards becoming the “Chief Digital Officer”, redefining their role to become a trusted advisor to the business units when they want to procure software and services. Not only will this help the CFO and business units make better IT purchases, but will ensure that the CIO retains that centralised visibility without being seen as a blocker to business transformation.
Spend IT budgets wisely
For too many CFOs, IT budgets can quickly conjure up a disappearing act. So, it’s important that as IT purchasing is diversified across the business, the IT and finance offices find new ways to ensure that the money is spent wisely.
CIOs need to retain their centralised visibility, even if they can’t hold on to their centralised control. The CFO and finance teams must actively encourage business units to work with the IT office on purchasing – offering up the advantages of better deals or even reharvesting unused resources from other teams.
This in turn will enable the IT office to scrutinise and effectively manage IT spending, to ensure that neither the CIO - nor the CFO once budgets are spent - are seen as hindering the CEO and business units’ digital vision for the company.
The first step to solving any problem is to understand it. It’s time for the CFO to wake up to the new challenges that CIOs are currently facing and support them in implementing the processes that, in turn, will enable the company to effectively manage business transformation spending.