Just “keeping the lights on” – running and maintaining legacy systems, upgrading them to the latest version of legacy systems and keeping their appearance acceptable to the business by bolting on new user interfaces – are said to consume 70% of corporate IT budgets, leaving just 30% for investing in innovations that will drive growth and boost the bottom line. In the current climate, most business leaders are anxious to grow operating margins and want to shift that balance towards a 50/50 split.
These findings come from the “IT Spending and Return: A Deeper Exploration” study conducted by CFO Research and AlixPartners, in which 150 senior finance executives across North America were surveyed. Half of these executives do not believe their companies are getting value from what, for many of them, have been considerable IT investments over recent years; in addition, they said they were frustrated at not getting the key insights from IT to enable them to improve their financial performance. So what needs to be done?
What Finance Says Needs to Be Done to Improve
Respondents report a number of key blockages holding back progress:
- Poor visibility into how the IT budget is split between maintenance and innovation for growth. This is something that can only be fixed by implementing IT services costing to map line items in the IT budget to applications and end users, but let’s park that issue for now.
- A lack of analytical skills in both Finance and IT teams to drive the business forward. Personally I have difficulty reconciling this reported lack of talent that keeps being listed as a concern of CFOs and finance leaders with the fact that most companies seem to be awash with highly qualified people who are amassing professional development credits at every opportunity. In an attempt to reconcile this seeming contradiction, I have come to interpret such comments as meaning that they lack people with ‘commercial nous’ – streetwise folk who are aware of internal and external factors influencing their company and who can quickly get to the bottom of issues and come up with practical solutions to improve business performance. If that’s the case, then CFOs need to expose their people to ever more challenging business issues and continually mentor them to help close the gap.
- And finally, the personal politics that influence decision-making. Now while almost every line of business leader typically claims that their cherished applications are business critical and must receive the optimal level of support, IT leaders themselves have a vested interest in maintaining the status quo against threats such as outsourcing or cloud computing, which ultimately reduce the size of corporate IT departments.
IT Itself On the Cusp of Change
Now simply moving legacy systems into the cloud has the potential to reduce the proportion of IT budgets spent on ‘keeping the lights on’ at a stroke. However, many boardrooms are said to “nervous” at the idea. To me this is somewhat duplicitous as many companies already hold some of their most valuable data, about their customers and their staff, in the cloud and have happily processed payments and banking on-line for decades. So what’s behind their hang-up exactly? Well my guess is few board members do their own research and most are selectively spoon-fed the information that shapes their views by their very own corporate IT folk. (call me cynical, but as I pointed out to an ex-colleague last week, being naturally cynical means you have less disappointments to deal with).
But no one can hold out against the march of progress indefinitely and there are signs that CIOs themselves are increasingly embracing the cloud—leaping aboard the train as it accelerates out of the station. A recently published survey commissioned by UK-based Capital IT Services found that almost two-thirds (61%) believe increasing innovation and the business’ commercial agility is now one of their organization’s highest priorities and the majority were in the process of moving, into the cloud, citing simplification and flexibility as the main drivers. Naturally, you couldn’t expect them to change their colours overnight and most identify perceived pitfalls that they need to address before making big investments in the cloud. These include:
- Convincing their nervous and resistant board that cloud adoption is the best move for the company. That’s easy; show them some of the case studies of successful customer migrations, give them facts that cloud providers have security standards that are way beyond those most companies have themselves and that hacking on-premise systems is probably much more common that anyone suspects as it is rarely reported to the outside world. Click here to read more on the security, data encryption, authentication protocols and robust access control that underpin Anaplan.
- Having to deal with the hidden costs of integrating other data sources that are not initially accounted for. Well that just sounds like an admission of historically poor scoping! As long as these data sources are identified in the requirement, the pre-built connectors that Anaplan has for common cloud integration platforms, such as those provided by SnapLogic, means you can easily connect with external databases, on-premise applications and the major legacy ERP systems with all the costs identified upfront.
Correcting some of the above misinformation is vitally important because robust technologies are emerging that were built for the cloud and offer companies the opportunity solve the all-too-common problem of providing business users with better insight into their financial and non-financial performance. Currently the analyst group IDC estimate that currently only 5% of enterprise performance management (EPM) is done in the cloud compared with 40% of Sales Force Automation and approaching 10% of ERP. That leaves Finance as something of a laggard with their colleagues in Sales, HR and Marketing leading the way. A contributing factor may be the fact that many “cloud” EPM solutions are older technologies that have merely made the move to cloud delivery without much progress in terms of core innovation. Regardless, it seems to me that we are at a tipping point where CIOs, CFOs, and their boards—all traditionally more risk averse – have begun to embrace the cloud. It’s these shifts in attitude, that are emerging in the research mentioned above, that no doubt led IDC to forecast that 17% of EPM will be in the cloud by 2017. And once that train gains momentum, there will be no stopping it.