How CEOs and boards can take control and avoid technology cost blowouts

There is no doubt that technology is becoming increasingly vital, particularly as companies and organisations go on a journey towards complete digital transformation.

Despite the growing importance of IT spend, many CEOs and Directors are still lagging when it comes to taking control of this type of expenditure.

We recently ran a survey of 100 senior business leaders, including CEOs, Chairmen and Non-Executive Directors, to assess their attitudes to technology. We found a significant number — more than 40 per cent — did not have confidence in their IT budget.

 

The biggest reason cited was a lack of personal knowledge of technology (33%), closely followed by a lack of time and priority given to IT budgets (21%). This further underlines the failure to adequately understand and assess the cost of implementation of the new technology into the organisation.

CEOs and boards have long viewed technology as a cost centre — as a problem handed over to an external consultant or delegated to the Chief Information Officer. But in this new tech-focused environment, more boards and CEOs need to take charge and elevate technology to an organisational issue worthy of their full attention.

That means managing technology, not as just another ‘cost centre’, but as a ’business’ vital to strategic and financial performance. The problem is that many CEOs and Directors simply don’t know how to do this.

The leadership of many global organisations, however, have used a number of basic, yet effective steps to achieve that transition. It’s a roadmap which any company can follow and if they can succeed in embedding IT into their organisation, CEOs and boards will gain greater control and reap many benefits, including the ability to clearly understand the business value of technology investments, to optimise technology costs and to divert funds to higher value/innovation initiatives.

  1. Define critical success metrics and thresholds

The first step is to ensure that technology, like other parts of the business, has its own metrics for success at a macro and organisational level. The old adage “if you can’t measure it you can’t manage it” applies to every element of business, including IT.

Metrics might include IT P&L; total technology cost of ownership; IT as a percentage of total revenue/cost; IT spending as compared to industry peers; and return on investment on specific technology initiatives.

Working together with their technology and finance teams and industry experts, CEOs and Directors should identify such metrics that are relevant to their organisation. These metrics will provide the board and the CEO, specific and valuable insights into technology’s contribution to the organisation’s success.

Macro metrics should be driven by lower level metrics which can include for example cost of infrastructure, cost of labour, and cost of applications. And these lower level metrics would, in turn, be driven by individual items of technology spending incurred by the organisation from various sources including external suppliers.

While the board and CEO may not want to look into these lower level metrics regularly, they need to have the ability to view these metrics if required, to better understand how technology budget is being utilised and to take proactive actions towards areas of concern. This will ensure transparency from the top, all the way down to the individual cost elements that drive technology costs.

  1. Assign ownership metrics to ensure accountability

The next step is to assign ownership of metrics, which is critical to successfully managing technology like a business. Typically, the CIO or the equivalent role will be assigned ownership and accountability of all these metrics. The CIO in turn will assign ownership and responsibility of the lower level metrics to their team of project managers to drive a culture of accountability through to the lower levels of the organisation.

Organisations have two options to help with development of the metrics-based system of transparency and accountability: They could either expend the time and effort developing all these in-house; or adopt an industry standard framework that has pre-developed systems.

Technology Business Management (TBM) is one such industry standard framework that has helped global organisations manage technology like a business.

TBM provides a non-IT executive an easy to understand value framework and a taxonomy that could easily be adopted by most organisations to help them implement a metrics-based technology management system. This will in turn ensure value from technology investments is clearly understood.

CEOs and Directors should also aim to gain an overview of the TBM framework and how it could be applied to their organisation.

  1. Automate data capture and reporting of metrics

Large organisations with large technology budgets will find it hard to manage these metrics without automating the capture, analysis and reporting of associated data. The next step is for IT executives and project managers to use data analytics tools to manage those metrics.

Generic data analytics tools are available in the market. But a specific set of data analytics tools called IT Financial Management (ITFM) tools, which have hundreds of pre-built data templates, models and reports make these activities much simpler than having to use generic data analytics tools.

While development of these reports and dashboards may need some technical skills, users of these tools would generally not require special technical skills. The board and the senior management teams should require managers present the progress of their IT projects using such business friendly tools clearly illustrating the results of their projects.

  1. Manage by exception reporting and continuous improvement

Once the base is setup, the board and the CEOs can ‘manage’ technology and related investment through exceptions raised by the systems setup to automatically report on metrics and threshold breaches and timetable delays.

It is important to understand that, setting up of the metrics and the tools is not a one-time activity. Like most other things, investments in continuous improvement of processes and tools are critical for sustainability of any initiative.

Critically, success will also depend on how the Board and CEO continue to invest time and effort in improving their understanding of this constantly evolving domain.

A control dash board

If they follow the 4 steps mentioned above CEOs and Boards will end up with real time dashboards and reports that show them how budgets are being utilised and timetables met across the range of IT operations and projects undertaken.

These reports and dashboards will, typically have a standard taxonomy making understanding easier (once trained in the taxonomy) and be interactive, so that they can drill down to see the details of the underlying data elements that drive the reports.

They will be able to easily see signs of troubles ahead and proactively manage risks and issues and hold people accountable for outcomes from technology investments because of the greater transparency.

A fundamental shift

Technology is becoming more strategic and intrinsic to business, which means CEOs and boards must manage increasing investment in technology, so it generates value.

If business leaders and organisations do not have a structured and standardised way of managing these costs, they risk strategic drift, cost blow-outs, time delays and a loss of stakeholder’s faith in in their ability to use technology to deliver critical business.

But taking control requires a fundamental shift in how technology costs are viewed: not just as a big lump of money sitting in the budget but as a direct and measurable contributor to business outcomes.

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