Funding Innovation: How to free resources from IT and Business

In my conversations with clients, I have observed that their innovation pipeline is full of great ideas and that the pressure to innovate continues to increase. At the same time, their budget for change and innovation is often underfunded. One of the main reasons is that the RUN costs for the enhancements and operation of existing IT solutions are constantly and persistently increasing and consuming most of the available budget. This situation has become worse following the introduction of new regulations in the past years.

I have been asked on many occasions what opportunities we see to optimise these RUN costs and therefore provide additional funding for new innovation and change projects. The topic and the remedy are not new, but I would like to bring in a more differentiated view than the classic measures in the area of outsourcing, optimisation of licensing costs, use of the Cloud and others. 

Below are five practical recommendations that can help free resources for new projects and fuel future innovation:

1.      Radical simplification of products, services and processes

Companies continuously build new products, services and processes over the years. This often results in an enormous portfolio of products, some of which have similarities and often lack differentiation. In parallel, similar products are distributed through diverse channels with, again, different processes. This drives up the complexity in IT and business and thus also the costs.

The goal must be to drastically reduce the variety of products and to focus on the products and services that deliver real added value for customers and support differentiation. Adding new features should be challenged more frequently. According to Standish's research and more recent estimates, 20 percent of software features are often used, while 50 percent of features are hardly ever or never used. The remaining 30 percent of features are used infrequently.

The key idea here is to do less in terms of products and services while increasing the budgets for the things you are doing well and create value for customers.

2.      Reducing IT complexity

There is one constant in IT: the number of software applications grows year after year in most companies. Similar functionalities are often replicated across different systems which increases IT complexity even more. Often this is also due to specific interests of single projects or business departments. Since new solutions have to be maintained and operated later, the costs automatically increase year after year. The growing overall cost becomes even more apparent when one realises that a larger part of the costs are incurred after development.

With every new development, ask yourself to what extent the required functionality cannot be developed within an existing application, or what common functionalities can be encapsulated and shared company-wide. At the same time, each new development should be accompanied by the question of which applications can be decommissioned or migrated.

3.      Scaling with digital platform company-wide

Real cost benefits can be achieved through enterprise-wide scaling effects of digital platforms and company-wide solutions. Unfortunately, the reality is that global companies in particular are building similar solutions for each region, sometimes on different technology stacks. Today, it would be technically possible to configure solutions for the different regional needs. One promising approach can be to select a standardised SaaS platform, scale it across the company while configuring it to the regional needs. This increases the purchasing power and reduces the overall maintenance costs across the lifecycle. 

The main impediments to introduce such concepts are often regional and political interests, regional P&L structures, as well as the so-called "sunk cost" effect, where there is a lack of courage and determination to part with major investments that have already been made.

The majority of new disruptors and challenger companies chose this approach and have a nearly unbeatable cost benefit.

4.      DevOps: Connecting Development and Operations

The real costs for operation and maintenance of software are often underestimated when starting a new project. We have clear evidence that when good maintainability is already incorporated into the coding, the architecture, and the development process, substantial costs can be saved afterwards throughout the entire product lifecycle. DevOps offers a very good approach and improves cooperation and alignment between software development and IT operations (hence the term development and operation).

5.      Clear business ownership for applications

Finally, we observed that the business ownership for IT-solutions is often not well defined or practiced as it should be. This is often also due to the fact that over the course of time business ownership changes due to restructuring or key people leaving the company. This becomes even clearer when one realises that tech solutions outlast many organisational changes or mergers.

A strong business ownership with a clear vision and leadership over the entire lifecycle helps support a steering on priorities, adoption within the organisation, and creates a cost-benefit awareness where new features are only developed if they provide real value.

Are you ready for the future?

Many of these recommendations and ideas are not new and yet, in my experience, they are unfortunately not sufficiently applied. Our observations show that properly applied, they can cut substantial RUN costs in the mid-term and freeing up resources for important innovations and change projects.

The economic recovery is underway, and the pressure for new innovations and changes will continue to increase. Accordingly, the five suggestions mentioned here are more relevant than ever where new entrants are challenging established players with zero legacy tech stack, scalable digital solutions, agile and fast development and full customer orientation.