Three Options for CIOs to Fund Digital Transformation

As a CIO, your team is no doubt constantly barraged with the “what abouts.” 

What about Web 3.0? What about cryptocurrency? What about security? Why aren’t we doing more in artificial intelligence and machine learning? What about IOT? What is our cloud migration strategy? 

And what about digital transformation — something that every CIO has firmly on their must-do list? 

But it takes money and headcount to digitally transform your business. It takes money to investigate and act on all the “what abouts” potentially relevant to helping your IT organization deliver more value to the business.

So, where’s the budget going to come from?

The CFO certainly isn’t handing out money like Halloween candy. And you’ve already done several cost-cutting rounds. You no doubt have tried to squeeze as much cost from your vendors as possible. And you’ve likely outsourced at least some of your organization’s workload to IT managed service providers that can do your “mess for less.”

In other words, a primary concern of the next CIO is cost management. How can a next-generation CIO take more cost out of the IT organization’s budget to fund “what abouts” like digital transformation?

That said, the next CIO also needs to improve IT efficiencies and data security that are, in a way, byproducts of running a smarter IT organization that can reduce operating costs. CIOs who run a smarter IT organization also gain improved observability into the processes used by the team and supported business entities to run the parts of the business that leverage technology. This enables the next CIO to better articulate the IT organization’s value creation back to the business.

Returning to cost management, CIOs have three fundamental options to fund transformational initiatives such as digital transformation, as shown in Figure 1:

Raid operating income

For incumbent companies, one option is to dip into operating income. After all, the money is sitting right there in the bank if the company is profitable. However, this approach results in lower recorded profits that can drive investors right into the arms of disrupting competitors.

So, funding through operating income is an option, but not a great one.

Squeeze operating costs

Another option is to look at the cost side of the balance sheet. For instance, a company can use an IT-managed service provider to outsource its existing operating workload like running the email system, managing the network, or re-architecting the cloud-destined legacy applications. A company can also outsource emerging activities like security so additional headcount doesn’t have to be hired.

This can be a good option, as managed service providers gain cost advantages through specialization and the use of manual labor sourced from lower wage geographies. By taking this route, the CIO can repurpose operating headcount to projects that are seen as more strategic for the company. And then every three years or so, the CIO can issue new RFPs, continually trying to lower the fees charged by vendors for their outsourced workloads.

However, most IT organizations have already completed multiple rounds of these types of cost-cutting measures, so don’t expect to find much low-hanging fruit here. Certainly, there may not be enough potential savings available to free up significant budget to accelerate success exploring and adopting “what about” disrupters, that is unless something truly transformative can be applied to radically improve IT productivity.

This takes us to the third option.

Improve enterprise technology (ET) process efficiencies

A third option is to leverage digital transformation itself and transform the CIO and IT organization’s processes and associated workflows. This option enables the CIO to improve IT productivity by digitally transforming enterprise technology (ET) management processes — those process that touch the entire technology portfolio deployed by the overall company.

Further, digitally transforming enterprise technology processes and workflows will also improve the quality of service that the CIO’s IT organization delivers back to the business. For instance, customer experiences for companies with retail outlets could be improved if the ET processes more efficiently ensure that point-of-sale (POS) devices are always working and up to date, so the maximum number of checkout lines are always available.

In my Amazon best selling book, The Next CIO, I discuss how CIOs can improve ET process efficiencies on a journey to running an autonomous, self-driving IT operation by leveraging an Enterprise Technology Management (ETM) application that I argue the industry needs to create.

Oh, and as a reminder, in the world of ETM, ET = Enterprise Technology (not extraterrestrial)

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