IT leaders seeking to drive enterprise growth through technology investments are often saddled with budgets that make their tasks of increasing the top and bottom lines challenging. The year 2023 seems to be no different.
Despite an estimated increase to IT budgets of 5.1% on average for 2023, research firm Gartner points to a projected 6.5% global inflation rate, an ongoing talent squeeze, and persistent supply issues as a triple threat to CIOs’ ability to realize time to value for their tech investments this year, according to its 2023 Gartner CIO and Technology Executive Survey, which gathered data from 2,203 CIOs in 81 countries and all major industries.
While some would argue that whatever budget is allotted it never appears big enough, that’s not reality. Irrespective of getting a small or a large IT budget, by managing it well, technology decision makers can put their organization’s resources effectively toward delivering great business benefits. To help them do so, here are tips for making the most of your IT budget, from IT leaders from different geographies and industries.
Base your decisions on revenue value
Those CIOs who aren’t getting a substantial increase in their budgets will likely start thinking where they need to cut costs — a particular project, human resources, certain procurements — so that they are able to spend on their areas of focus. This is where Saurabh Mittal, CTO at Mumbai-based Piramal Capital & Housing Finance, wants IT leaders to make a careful distinction.
“Enterprise technology leaders must differentiate between cost and investment if they want to make the most of their limited budgets. Areas where IT leaders spend money but don’t have any leverage on are clearly costs, whereas investments are where they spend money now to get multi-fold returns later,” he says. “Technology leaders should have this clear segregation and then actively, consciously reduce long-term costs and increase investments.”
Of course, making this distinction can be challenging, and is a skill that can take time to develop, says Mittal, whose company is taking a tech-first, cloud-native approach to transforming loan servicing.
“It took some time for me to realize how to make the right tech choices. What systems to have and how to have them can impact your long-term cost. For example, CIOs can buy an off-the-shelf system that costs X in license fees today and 20% of X every year as long as they are using it or they could choose to build the system in a manner where instead of X they incur 1.5X as the cost and the long-term operating cost is only 2% instead of 20%,” he says. “Keeping long-term costs as low as possible will always create more and more room for you to make impactful investments.”
Bob Cournoyer, senior director of data strategy, BI, and analytics at Richmond, Va.-based Estes Express Lines, throws light on how he differentiates between cost and investment. “I make a lot of my budgeting decisions based on revenue value — what value will get added to the business by investing in a particular technology,” he says.
For the freight transportation company, business intelligence (BI) is one area where IT can have a top-line impact.
“We have telematics devices running on our tractors in the warehouse, tablets running on our forklifts, and dimensional scanners that scan freight, all of which provide crucial business intelligence to us,” says Cournoyer, who recently reorganized Estes’ data operations around a logical data fabric to better serve its customers. “We obviously won’t cut investments here. I invest in those areas in the business that bring revenue to the table. To me, it’s how can we replace old technology with newer technology that’s going to be more agile, more cost effective.”
Develop a clear technology vision
Having a clear vison of where you are and where you are going helps to put everything into perspective. As Madhumita Mazumder, GM-ICT at Australian tourism company Journey Beyond says, “If we have a proper strategic plan for the IT department that is aligned with the organization’s vision, we can achieve things within the budget and deal with half the problems that could arise six months or a year down the line.”
Giving an example of this approach, Mazumdar says, “We have got absolute clarity on pursuing a cloud-first strategy. The vision of having 100% cloud infrastructure enabled us to significantly reduce our third-party data center costs as we migrated it into our cloud environment.”
Similarly, Mazumdar is clear on the outsourcing versus insourcing debate. “I am a big fan of insourcing and support developing a team to take things in-house. For instance, having an in-house team ensures 100% patching of all my network devices on time. Patching happens at odd hours when the business isn’t operating. If it’s outsourced, the coordination with the vendor becomes very tough, and there is every chance of things going awry,” she says. “With the internal team working alongside the vendor at 11 p.m., it seems a wasteful expenditure when instead of paying for both, I could just pay for the internal resource.”
Being able to foresee extraneous costs such as these is key to ensuring there is enough budget to cover better bets, Mazumdar says.
“This clarity with respect to the technology roadmap can enable a CIO to prevent wasteful expenditure and deploy the saved capital more effectively,” she says.
Make the most of your negotiation skills
Negotiation skills have always been important for succeeding in a business-technology role. To conserve capital, IT leaders will have to increasingly bank on them in the new year.
“When maintenance agreements come up for renewal, going back to the table and negotiating hard to rationalize rates will help,” says Cournoyer, who prefers to leverage expertise from Gartner before entering any negotiations, be it for renewing maintenance agreements or procuring any new technology solution.
“As a Gartner partner, we get tips from their analysts, which could be around industry-wide prevailing price range of a specific solution, certain guidelines around it, or even advice on buying complementary products. This gives us some guardrails while dealing with service and solution providers and helps save capex,” he says.
Another approach to cut spiralling costs, according to Vijay Sethi, chairman at technology-based mentorship platform MentorKart and former CIO of Hero MotoCorp, would be “by inking long-term (three-year period) contracts with vendors. As costs are negotiated for a longer period, CIOs stand to get better discounts.”
Procure only what you use
Enterprise technology leaders are increasingly making the shift from monolithic to modular applications. “The former is not only expensive, but also fails to deliver the value it promises. While CIOs make the transition to modular to save costs, the switch, if not thought out well, can defeat the very purpose,” says Cournoyer.
Big-ticket items like ERP systems provide a good example, he says.
“I have seen a lot of ERP vendors trying to package their solutions attractively for CIOs to buy. Their argument is that CIOs should invest in the entire solution, at a discounted price, even if they don’t have to implement all the modules in one go,” he says.
In such cases, the sales pitch is that the CIO can maximize the value of a subset of modules now, and then the vendor can come back later to implement the other modules any time the CIO wants. “This approach is flawed as the CIOs are still paying for stuff that they are not using just to get a price discount and, in the process, blocking their capital,” Cournoyer says.
Continuously evaluate your infrastructure, projects
Software makes up a major chunk of an organization’s IT infrastructure cost. CIOs must therefore evaluate whether there is optimum usage of the software deployed or not. “Cloud service providers are constantly coming up with better plans that are better, faster, and cheaper. Moving to those helps in cost savings,” says Mazumdar, who recently transitioned Journey Beyond to a cloud-based communications platform for its contact center.
“CIOs should also ask themselves questions such as, ‘Are we using everything that we have deployed? Are we on the right cloud platform? What is our backup strategy? What storage do we have?’ Today, there are lots of cost-effective storage solutions available in the market that allow CIOs to store huge amounts of information for next to nothing,” she says.
There are several hidden costs at the project level too that can be significantly reduced, says MentorKart’s Sethi.
“A project could be getting delayed leading to a CIO paying extra consulting charges. There could also be additional incurring costs on account of slow decision-making, non-availability of users, frequent changes in requirements, or even lack of competency of team members, leading to lot of reworks. The quantum of hidden costs is huge, and if controlled well, could lead to significant savings thus leaving money for CIO to do innovative projects,” he says.
There are several hidden costs at the project level too that can be significantly reduced, says MentorKart’s Sethi. “A project could be getting delayed leading to a CIO paying extra consulting charges. There could also be additional incurring costs on account of slow decision-making, non-availability of users, frequent changes in requirements, or even lack of competency of team members, leading to lot of reworks. The quantum of hidden costs is huge, and if controlled well, could lead to significant savings thus leaving money for CIO to do innovative projects,” he says.
Adopt a phased approach
Even though budgets may get allotted for important initiatives, CIOs still need to be frugal with their finances. This can be done by assessing whether a phased approach to projects can be adopted. “CIOs need to judge if a vital enterprise-wide project can be initially rolled out to only a few departments or locations and then gradually scaled up to other departments or locations later,” Sethi says. “For instance, can the refreshing of old laptops be deferred or instead of replacing all old laptops could RAM be added in some cases and asset life increased by a year or two?”
Deferral strategies such as these can help set aside budget for more innovative initiatives aimed at achieving top-line business goals, enabling IT leaders to innovate frugally even when budgets are tight.