Valuation, be it of a business, an idea or a product, is a funny thing. The monetary “value” assigned something often has more to do with perception than quantifiable ROI.
For example, few would argue that diamonds offer more concrete value to humans than food. Yet for a wide variety of reasons that have no bearing on how vital each good is to everyday life, most food is relatively cheap while diamonds are expensive.
Similarly, although few would argue that IT has become as vital to sustaining business as food is to sustaining human life, the valuation of IT, at least as reflected by IT budgetary trends, has fallen flat and shows no signs of rising anytime soon.
IT Budgets Flatline
In a recent blog posting, Mark P. MacDonald, group vice president of Gartner Executive Programs, examines what he terms a “decade of devaluation” in IT. Data from Gartner CIO surveys illustrates that the growth of IT budgets since 2003 (in 2003 dollars without adjusting for inflation) slowly but steadily rose from 1.2 percent in 2004 to 3.3 percent in 2008, and then plunged -8.2 percent during the economic crisis of 2009.
Growth since then has basically been flat, hovering between about a 1 percent decline and 1 percent increase. As MacDonald points out, IT activity has hardly remained flat since 2008, so where has the funding come from? The answer turns out to be “sweating assets and resources,” or the all-too-popular modern business strategy of “doing more with less.”
CIOs may actually have succeeded at this effort a little too well, according to MacDonald:
A decade of frugality required CIOs to devalue IT driving wages, costs and performance down all to fit growing business demand into a dwindling budgetary supply. The devaluation has been a silent killer for IT, eating away at the health of IT in ways that do not become apparent until IT is ready to collapse. Governance, service level agreements, service catalogues, shared services, etc. are some of the tools used to devalue IT by shifting resources within the IT budget.”
Source: Gartner, "A Decade of Devaluation in IT"
MacDonald cites some specific signs of IT’s devaluation including “hardened” IT budgets (which he compares to hardened arteries), “persistently low” IT project performance, skill and supply shortages in IT labor, measuring IT as a percentage of business revenue and a “persistent view of IT as a money pile to be managed down.”
Recovery through Transformation
MacDonald acknowledges the validity of cost-cutting in all areas of the business, but says once IT cost-cutting becomes devaluation, organizations become locked into old technologies and IT strategies, meaning they cannot effectively take advantage of new digital technologies. To rectify this situation, MacDonald says organizations must embrace “transformation,” or a complete reimagining of IT’s role as a means of amplifying the enterprise, rather than a necessary evil that automates manual tasks.
I believe MacDonald’s analysis and recommendations are largely on target. IT was once a “diamond,” a rare and beautiful object prized for its intrinsic value. But it has gradually become commoditized like food, so crucial and yet so commonplace its presence is taken for granted. Transforming IT back into a diamond will not be easy, but is also not impossible.
Here are a few suggestions for organizations looking to transform the role IT plays in their enterprises:
Soften Your ROI Approach -- Many of the benefits offered by today’s leading edge technologies, such as social media and mobile, are “soft,” such as improved communication and branding. Yet they provide an ability to immediately obtain, analyze, disperse and refine information that can provide a huge competitive advantage. A focus on justifying investments in modern IT solutions through “hard” ROI calculations is shortsighted and will ultimately lead to failure.
Acquire In-house Expertise -- Many companies have turned their IT operations over to third party consultants or service providers in an effort to save costs. Certainly third party expertise can be a useful component of an IT strategy, but without dedicated in-house expertise, organizations will not have the dedication and focus needed to select the technology that best meets unique internal business needs and then implement, deploy and maintain it in a way that maximizes its effectiveness. Leave the lower-level tactical stuff to the outside providers.
Don’t Be Afraid to Follow -- Everyone wants to be a leader, but being a leader in implementing new technologies is not always such a good thing. Transforming IT does not mean jumping on every shiny new technology toy. It does mean carefully tracking developing trends and paying attention to what the leaders do. Emulate their successes and learn from their mistakes. Don’t get left in the dust, but learn how to read footprints.