Finding Budget to Fund Our AI Strategy

Every CIO is being asked: “What is our AI strategy?”

What is seemingly a simple question to ask is rife with challenges for the CIO, including:

• Talent and Expertise Shortage: CIOs face a global shortage of AI professionals, making it difficult to find and retain the specialized talent needed to build and maintain AI solutions. This limits their ability to fully develop and execute AI strategies, leading to delays or ineffective implementations.
• Data Management and Integration: AI systems rely heavily on quality data, but many organizations struggle with fragmented, siloed, or poor-quality data. Integrating AI with legacy systems and existing infrastructure adds further complexity, limiting scalability and reducing the overall effectiveness of AI initiatives.
• High Costs and Uncertain ROI: AI projects often involve high infrastructure costs and uncertain returns, making it challenging to secure long-term funding. Without clear, short-term business benefits, CIOs may struggle to justify AI investments, leading to underfunding or abandoned projects.

Where’s the money?

Ah, the age-old question: "How are we going to pay for the design, implementation, and production of our AI strategy?" Running GPUs isn't cheap, and CIOs rarely have extra budget lying around to fund the latest disruptive technology.

However, there may already be untapped dollars within the CIO's budget that can be unleashed. Consider the budget currently wasted on:

• Inefficient, error-prone manual processes
• Operating with inaccurate technology asset data

In the next set of articles, I'll dive into these points, but first, let's explore how much budget could potentially be freed up to fund our AI strategy.

Zones to Win

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Let’s say you’re the CIO of a major enterprise with a one-billion-dollar IT budget. Now, you need to find room in the budget to fund disruptive initiatives like artificial intelligence.

Referring to Figure 1, let’s assume that half of your budget—$500M—is spent on keeping the lights on, what Geoffrey Moore in his book Zones to Win calls the Productivity Zone.

Now, many CIOs of large enterprises might laugh at this 50% estimate, claiming it’s closer to 70–80% of their budget. One VP of IT even told me their figure is closer to 90%. But for the sake of discussion, we’ll stick with the conservative number.

Next, assume that 40% of your budget is spent on initiatives that directly impact the business—what Moore calls the Performance Zone. These are the initiatives that affect how customers are served and generate operating income to fund current and future operations. Again, this 40% might be generous, as many IT organizations likely allocate only 20–30% of their budget to such initiatives.

Lastly, we’ll assume 10% of your IT budget is already allocated to transformational initiatives, such as migrating to the cloud, implementing an IoT strategy, or exploring AI deployment.

Over the next three years, let’s say your IT budget reduces by 10%, bringing it down to $900M due to natural savings and ongoing continuous improvement efforts.

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Given this scenario, what would happen if, over a three-year horizon, the CIO could keep the lights on using only 20% of the overall IT budget, as shown in Figure 2? This would mean reducing the $500M currently spent on maintaining operations to $180M—a 65% reduction.

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With an overall $900M IT budget, this savings would free up $720M to fund Performance and Transformation initiatives (as shown in Figure 3)—an increase of $270M over the current allocation of $400M for Performance Zone work and $100M for Transformation Zone work.

Additionally, if the CIO increases the Performance Zone budget by 10%, bringing it to $450M, this will still result in a substantial $170M increase for funding Transformation Zone initiatives, such as artificial intelligence.?

Gaining Further Value by Improving Operating Efficiencies

But wait, there’s more! Let’s talk about improved operational efficiencies.

Reducing the budget for Productivity Zone work to this extent would likely result from running a smarter, more efficient organization. A streamlined environment like this would be at least 20% more effective per dollar spent because there’s less ambiguity and it’s better instrumented for efficiency.

As a result, the $450M budget allocated for Performance Zone work could potentially deliver 1.2 times the value—or $540M—impacting the business. That’s a 35% increase from the original $400M budget. Similarly, the $180M spent on transformation is likely delivering over $210M in value to the organization.

Agile and Fast Beats Big and Slow

We all know that agile and fast beats big and slow. If your organization is agile, this should be marketed as a competitive advantage and integrated into the company’s offering. Agility has an even greater impact when it’s embedded in the processes that deliver both external products and services and internal systems that optimize business operations.

So, what’s stopping an incumbent IT organization—filled with a team of high-performing champions—from running a smarter organization, increasing agility and improving operational efficiencies to reduce Productivity Zone work by 65%?

Perhaps it has to do with how IT is being managed, a topic I’ll cover in the next article as we continue our discussion on how CIOs can find budget to fund their AI strategies.

Note: This article draws from chapter 4 of The Next CIO available on Amazon.

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