Unlocking trapped value to fund critical new IT investments

One of the resounding truths of the past few years is that more and more companies are tightening their IT purse strings and mandating that CIOs and their teams better optimize the costs and returns on the company’s technology spend. Some of this belt tightening is understandable as 80% of most corporate IT budgets are still allocated each year to maintaining a company’s systems of record. While they need to be maintained, every dollar invested in SOR supported systems and software produces virtually no ROI as 95% of the lifetime value of these investments has already been received and as such no longer delivers competitive differentiation.

Unfortunately, many CIOs and their teams have just responded to this new mandate with a series of cost reductions which only reduces the available dollars for critical new IT investments, and thereby, IT’s ability to help drive new revenues and profits for their company.

Start by asking some core questions

While a number of CIOs are resigned to their new fate, I have run across several who have taken the bull by the horns and figured out a way that they can self-fund critical new IT investments. They are starting this new process by asking some core questions:

1. Where is the trapped value in our company eg: maintaining systems of record
2. How can we identify and unlock this trapped value?
3. How can we redeploy this trapped value against critical new IT investment priorities eg: the development of new systems of engagement?
4. Where is the ROI going to come from?

One of the benefits of this approach is that IT can have more direct influence and control over the process rather than just responding to a new cost reduction mandate from finance. The other benefit of this approach is that once CIOs and their teams demonstrate the impact and return of releasing and redeploying trapped value within IT they can then put together cross-functional teams with their internal business partners to get similar outcomes from their IT budgets.

Releasing trapped value within your business units can create high returns

The impact of SMAC ( Social, Mobile, Analytics & Cloud ) can present three different levels of disruption to either your company’s infrastructure, operating or business model as the chart below, which was developed by my brother Geoffrey, illustrates. These new forces are also all levers for reducing the cost of service transactions via systems of engagement, and therefore, present three different ways to identify and release trapped value and thereby create higher returns for your company.

In the current IT resource constrained environment, in order to get these new SOEs developed and funded you need to tap into the line of business side of the organization. Part of this process is to work together with your internal business users and partners to demonstrate how the next generation of IT can dramatically improve productivity and ROI.

The good news

The good news is that every dollar invested in Systems of Engagement supported software and systems offers a much higher future revenue and profit stream as they will become the primary source of future competitive differentiation for your company.

So if you want to fund new investments in mobile devices or the cloud or analytics & machine learning or you just need new resources to shore up your privacy and security systems and protocols you have the ability to find and deploy resources that are already in your IT budget or your business unit partners IT budget, and therefore, don’t need to run the corporate gauntlet for approval.

There is no question that this set of exercises is hard work and necessitates some very heavy lifting which may explain why a number of CIOs and their business unit colleagues aren’t rushing to take it on. That said, from my vantage point, you really don’t have an option. As the old Fram Oil Filter television commercial said “pay me now or pay me later” and later always costs much more.

As always, I am interested in your comments, feedback and perspective on the ideas put forth in this blog. Please e-mail them to me at pdmoore@woellc.com.