Bigger budgets, less return: 4 real reasons why IT programs are falling short of expectations

With a global recession looming, companies have become hyper-focused on returns – and perhaps no function is facing greater scrutiny than IT. Technology spending, which ballooned in recent years to support massive digital transformation programs, is now being scaled back at many organizations after large-scale initiatives fell short of expectations.?

But the real reason for this disconnect isn’t a matter of underperformance. Nor can it be explained by the principle of diminishing returns. The real story is far more nuanced and complex – but also fairly clear. ?

In this post, I outline four common challenges within the business and IT that are the real reasons why companies are struggling to maximize their IT investments – and how to solve them.

Reason #1: IT teams have shifted away from their core function… at a time when the core is getting bigger.

Over the past several decades and in the last 5-10 years, in particular, new technologies have emerged that allow traditional IT tasks to be done more easily. This has made core IT competencies, such as provisioning infrastructure or installing and upgrading software, far simpler and faster.

In theory, technologies like cloud and automation should make IT professionals more productive – and in a way they do. The problem is that the growing use of technology expanded the scope of work and workload for the IT team, though the team itself often hasn’t grown in size.?

Further, as digital tools become better and more people within the business are using more technologies, IT now needs to maintain a larger estate, which adds complexity to the environment and strains teams, systems and processes that simply weren’t built to manage this increased volume of work.?

To compound this issue, many companies are also actively shifting time and resources away from the core in favor of large transformation initiatives. This means that IT is no longer able to deliver on its fundamental function of constantly improving core systems to help the business operate more efficiently and reach higher levels of performance.

Reason #2: Mega tech programs are getting bigger and more complex – making it harder to deliver strong results.?

Companies may be reining in IT spending, but they are not cutting back on transformation plans. In fact, if anything, programs are only getting bigger as businesses expand the scope of major digital initiatives rather than create smaller standalone projects.

But bigger projects don’t always mean better results. We need only look to the ERP programs to remember that when project size and scope increase, so too does complexity. Large-scale initiatives like an ERP implementation or migration are extremely difficult to plan, manage and execute, which means that they often run behind schedule and over budget.?

What’s happening today is that companies are attempting to run three or four programs similar in size and scope to an ERP modernization project and expecting strong ROI from each. Without significant investments, it’s hard to believe that companies that did not execute the ERP program on-time or within budget ten years ago will now be able to simultaneously deliver four times as many such programs.

Reason #3: The IT skillset has not kept pace with functional and business needs.?

So why is it that large-scale transformation programs are so difficult to execute?

First, delivering large scale transformation programs requires a different skillset than most IT professionals typically have. To execute these programs successfully, leaders need to be able to navigate complex organizational dynamics and understand business processes. They need to understand “the lingo” of the business and the ways that other functions and teams across the organization work so that they can take on the role of a trusted advisor and partner. They also need to be able to communicate and engage audiences in a way that drives collaboration, enables change, and creates cultural alignment.

In addition, over the past decade, many of these large-scale programs have become so vast and complex from a technology standpoint that there aren’t many people who can fully support the breadth and depth of the technology involved. These projects often require experience in on-prem, multi-cloud, SaaS, PaaS, and much more – plus the ability to integrate them.?

The reality is that most large organizations are lucky to have even a handful of people who possess both the broad business skills and the breadth of technical skills to lead these large-scale programs. Finding someone who can do both is a little bit like looking for a white whale. They may exist – but they’re awfully hard to find.

Because there are so few people with a complete skill set, companies try to accommodate in a variety of ways – they split the lead role into two or more positions; they pull people with the right skills off an existing project to lead the new one; they select someone who is strong on either side of the equation – but the result is always the same: without a leader who has deep technical expertise, robust business acumen, and strong leadership skills, the team operates at a suboptimal level and results suffer.?

The good news is that in this case, it’s possible to develop and train people to become so-called white whales. The bad news is that it takes time and also requires substantial resources and budget, which brings us to our final point…

Reason #4: Companies are not spending enough on IT and digital.

Whether we’re talking about improving the core, supporting bigger transformation programs, or building needed skills within the IT team, the common issue is that companies are not spending enough on IT.

Though budgets grew in recent years, spending still wasn’t sufficient to support the expanded scope within the core or properly staff and resource large-scale digital initiatives. While many companies created technical training programs, they often underestimated or ignored the need to build business skills. The unfortunate truth is that many companies today don’t just have to keep up with the pace of technology, they also need to play catch up.

This problem is only expected to grow in the coming year, since lackluster return from past transformation initiatives has C-Suite executives and boards questioning the investment and scaling back on budgets, which will likely widen the gap and exacerbate some of the challenges facing IT teams.

How to boost efficiency, increase performance and build ROI?

Now that we’ve reviewed the challenges facing IT teams, we can consider the steps companies can take to address the core of those issues. Here I share six actions that apply to most modern organizations and their IT teams.

Action 1: Increase spending on IT and digital.

IT budget growth should be proportional to the expansion of IT’s scope and estate. Even if companies did not achieve the desired return on past investments, this is an area that should continue to grow, on both an absolute and relative basis, decoupling from the traditional IT as a percent of revenue metrics, not shrink.

Action 2: Find a balance between transformation initiatives and core IT activity.

Right now, it may seem like some companies are taking an all or nothing approach to digital transformation. They are deploying almost all their resources toward major initiatives and making those programs bigger – often neglecting the core in the process. But both sides are vital to the overall success of the business and companies need to rethink and rebalance their budgets so that they can draw meaningful value from both areas.

Action 3: Build and expand the IT skillset.

Even with more money invested in digital, many IT teams will struggle to deliver large transformation programs because they lack the combination of business and technical expertise needed to support these initiatives.

Companies need to create leadership development and training programs that help IT professionals broaden technical skills, as well as develop a deeper understanding of the business and build fundamental business skills, such as problem-solving, critical thinking and communication.?

Action 4: Position IT as a true partner and value driver within the business.

While increased budgets and enhanced training programs can help IT teams operate more effectively, real change requires a repositioning of the function as a trusted advisor and partner, as opposed to an enablement function. IT leaders need to clearly articulate their point of view of how programs should be designed, staffed, executed and operated to maximize value to the business. This also means being able to lead the business in important decisions about program size and scope, process changes, technology selection and other critical factors that influence program success.

Action 5: Set the strategy for the IT team.

In some organizations, IT leaders consider their role within the company’s long-term strategic plan to be the same as having a functional strategy and roadmap. In fact, the two are different. In the former, IT is an enabler; in the latter, IT is the leader.

Even though IT plays a critical role in every business’s long-term strategic plan and most functional roadmaps, leaders should still craft their own independent strategy to ground and guide the team in all activity – be it core IT functions or large-scale initiatives. Defining the function’s goals and objectives in this way will also help leaders think through the team’s priorities, activities and resource allocations, as well as how the team will manage core issues like selecting technology platforms and managing obsolescence.

Action 6: Define standards to drive performance.

To be a high-performing team, requires operating as a high-performing organization. That means defining a set of operating principles and disciplines and developing the methodology, processes and the metrics for how the team operates and tracks progress.

It’s important to remember that being a high performing team requires a strong core. This means having the skills, capabilities and resources to deliver on the primary goal of helping the business operate more efficiently and effectively. ?

Action 7: Communication is key.

Finally, IT leaders need to add an element of storytelling to conversations about ROI. As IT teams become more and more integral in the business, they don’t just need to deliver value – they need to improve the way that value story is captured, communicated and documented. This applies to both the mega programs and core IT activity since both bring value to the business, albeit in different ways. This is a skill that’s often ignored in most IT organizations, but it is arguably the most important.

The final word on tech and IT spending ?

With every day that goes by, the demands on IT get bigger and more complex. Companies that dial back on spending may save money, but they certainly won’t generate better returns… and very few will be able to remain competitive because success hinges on being able to simultaneously lead transformation programs and improve core functions.

Even though 2023 is well underway, budget discussions remain active in many organizations. My hope is that this article is helpful in guiding conversations about why cutting IT spending is unlikely to have a positive impact on long-term performance or profitability, as well as outlining the actions IT leaders can take to generate the return the business is looking for.

And now it’s your turn: What would you add to the list of reasons why IT programs are falling short of expectations? What steps do you think IT teams can take to improve performance? What strategies and tactics have worked for telling a complete and compelling ROI story for your team? Sound off in the comments.

I, and we at 高知特 Cognizant , would also love to discuss how we can help fine tune your IT organization and technology strategy for success. Feel free to reach out to me directly if you’d like to discuss this in more detail.