How can companies pivot their approach to becoming more innovative within the constraints of their current budget?

“A billion here, a billion there, and pretty soon you're talking real money." –

As the digital revolution evolves at a breakneck speed, CIOs are finding themselves at a crossroads. The challenge? Balancing the lion’s share of IT budgets dedicated to maintaining operations – colloquially known as “keeping the lights on” – with the burgeoning need for innovation. The question stands: How can companies pivot their approach to becoming more innovative within the constraints of their current budget?

I mentioned in my previous article “From Basic Needs to Innovation: Why GenAI Adoption Should Follow Maslow’s Hierarchy of Needs”, that 57% of IT budgets go to supporting operations and only 16% to driving innovation. Some studies point out that as high as 60-80% is spent on maintaining legacy systems but let’s stick with 57%. So, what numbers are we talking about?

According to a report by Flexera, organizations as a whole budget 8% of revenue on average for information technology. If you’re a CIO or CFO, you can use this as a quick gauge to see if you’re overspending or underspending. Here’s the breakdown by industry.

https://resources.flexera.com/web/pdf/Flexera-State-of-the-Tech-Spend-Pulse-2022.pdf

Let’s use an average US enterprise of roughly $4B/year in revenue. That means, their numbers come out to something like this:

$51M doesn’t sound too bad but you can see that IT budgets are heavily skewed towards operational maintenance. This allocation leaves a scant slice for forward-thinking projects and innovation. However, in a world driven by technological advancements, this approach is no longer tenable for businesses aiming to stay competitive.

If we apply average numbers for revenue/employee and # IT employees/Overall employees (1:25), that produces 8,000 to 10,000 employees in our example $4B company with about 400 of them in IT.

We all heard that GenAI is allegedly making employees 40% more productive but even if it’s true, the organizations need to find the money to implement it. Back of the napkin calculation of implementing MS Copilot alone at $30/user/month comes out to $3.6M/year in extra costs (10,000 users x $30/user x 12 months = 3.6M). That investment is clearly not feasible without adjusting the spending elsewhere.

?So, how would the CIO and CFO go about changing this Lights On vs Innovation seesaw?

Shifting the Paradigm: A Structured Approach

The key to unlocking innovation within a CIO’s budget lies in optimizing current spendings. By scrutinizing existing expenses and identifying areas of inefficiency, resources can be reallocated to fuel innovative ventures. This is not just about cutting costs; it’s about smart spending.

Some key questions worth asking are:

• Do we have a strategy aligning IT with business objectives?
• Have we set metrics for IT operations and measure investment effectiveness?
• Are we tracking and optimizing enterprise assets like devices, servers, and IoT in virtual, cloud, and physical environments?
• Are we learning from measurements and efficiently adapting to changing technology trends?

Clearly, the biggest potential you have to allocate more to innovation is to make existing operations more efficient. Here are 5 steps to help you get there.

1. Audit and Analyze

Begin with a comprehensive audit of your current IT spend. Identify which areas are essential for operations and which are not delivering value proportionate to their cost. This process often reveals surprising areas of overspend or underutilization.

2. Embrace Agile Methodologies

It’s amazing how many inefficiencies exist in an organization’s current processes. Incorporate agile methodologies into your IT operations. Agile approaches, known for their flexibility and efficiency, can significantly reduce costs and time spent on project development, freeing up resources for innovation.

3. Foster a Culture of Innovation

Innovation should be a part of your company’s DNA. Encourage your team to propose new ideas and solutions. Often, the best innovations come from those who work closely with existing systems and understand their limitations.

ChatGPT is not going to help you if you don’t have the culture of innovation in place.

4. Leverage Cloud Technologies

There have been lots of debates on whether cloud saves your money or costs more. In certain use cases, cloud technologies offer scalable solutions that can reduce the cost of IT infrastructure. Migrating to the cloud could help you free up a significant portion of your budget, allowing for investment in new, innovative projects. What’s even more relevant here is that cloud actually allows you to see where the spend goes. Whether that spend is higher or lower than on-premise, you can have a much better view into your investments by applications, department or division.

5. Prioritize and Plan

Not all innovative ideas are created equal. Prioritize projects based on their potential impact and alignment with business objectives. This ensures that your limited resources are channeled effectively.

“Innovation is not about saying yes to everything. It’s about saying NO to all but the most crucial features.” – Steve Jobs

Conclusion: Striking the Right Balance

The pathway to innovation in IT is not through indiscriminate spending and blindly jumping on the latest craze but through strategic restructuring of existing budgets. By adopting a balanced approach, CIOs can ensure that their organizations are not just keeping the lights on but are also illuminating the path to future growth and success.

Take the first step today. Assess your current IT budget, identify opportunities for optimization, and realign your spending towards innovation.