Enterprises are expecting IT to significantly contribute to Business Growth and Innovation

Delstra conducted a survey of IT leaders and business executives on the topic of Innovation.  This report describes the highlights of the analyzed responses.

Our survey results show that the path for business improvement, revenue growth, digital business transformation and cloud migration is on a trajectory to continue its momentum through 2020.  Although not a top priority, organizations indicated that prudent cost savings should accompany the growth journey.

There are a number of disruptive technologies (Social, Mobile, Big data analytics, Cloud, and internet devices) that have emerged and are quickly evolving. The strategic use of these new technologies can help refine and shape new and enhanced opportunities for the enterprise.  In addition, external services have evolved that can be used to deploy business capability solutions with minimal initial involvement from the IT organization. Overall, our analysis indicates that the expectation for the IT organization is one of innovation and efficiency.

The IT Challenge

IT has both the opportunity and the requirement to “shine”.  However, there are significant challenges for IT organizations to meet the expectations of innovator. In a majority of cases and to varying degrees, the IT organization is currently not viewed as an innovator nor fully aligned with all operational business entities. The IT organization’s agility and flexibility is challenged to step up as the majority are spending 70% to 80% of the annual IT budget to support the “as is” operation. Most of these organizations have a complex application portfolio that proves difficult to integrate with newer technologies. In terms of new project delivery, they have an average or worse delivery rate for their top initiatives.

Even those IT organizations that are performing at a high level are challenged. The leading organizations along with most of the IT industry indicate they presently don’t have the right quantity of staff to allocate to new initiatives and / or the mix of skills required to take the IT organization to the next level.

While focusing on Business Growth … Most organizations are striving for a material re-allocation of IT spend

A small percent of the responding organizations don’t readily track their IT spend ratios across “run the business” vs. “grow / transform the business”. Out of those that do track spend in this manner, many organizations are currently spending around 70 – 80% of their annual investment to “run the business” or maintaining current operation and service levels. A small number of organizations were at the 40 – 50% level spend.

Most of the organizations tracking the spend in this manner are targeting a material shift in the spend ratio. In the next 3 years, these organizations want to get to a ratio that will target a business growth / transformation spend of 50% or more of the annual budget.

It is anticipated that some of this allocation will be influenced by an increased IT budget “top line” spend. However, the majority of the shift is expected to be accomplished by efficiency and effectiveness initiatives coupled with rapidly evolving technology solutions and services that will significantly decrease the RTB spend.

In order to positon for business growth … Proactively optimizing the Application Portfolio is a significant IT priority

In order to address a top challenge and position for innovation, IT organizations indicate that initiatives are underway and / or planned to optimize the Application Portfolio. These initiatives are typically chartered to reduce application portfolio complexity, reduce redundancy across like business capability coverage and improve integration with new technologies. The application portfolio initiatives in turn have direct impact on the underlying technology infrastructure, IT staff, and of course the overall business capability. Along with the existing application portfolio initiatives, various stages of cloud adoption are underway or planned for:

• Application development and test environments
• New solution deployment
• IT Operations automation

As expected, a top initiative to address cyber security is more prevalent in the retail and financial services industries. Although staff and skills were noted as a challenge by most of the respondents, an initiative to grow internal staff was not considered a top IT priority by most.

Advanced Analytics is the most broadly relevant trend across all industries

Over 80% of the respondents, identified advanced analytics / big data as the top trend that was most relevant to their business. Mobility and accommodating for experience responsive to a particular device was also a priority for about 60% of the respondents. The use of cloud was also a top trend specifically for leveraging the cloud as infrastructure or platform. In this manner, the cloud is being leveraged in a cost effective manner while improving time to solution deployment. Thusly, the cloud is used to build, deploy and operate some of the new technologies and capabilities such as analytics, mobile, and other capabilities for digital transformation.

Social media, although very relevant for consumer based industries such as retail and media / entertainment; and IOT also popular with retail was not high on the radar for other industries.

Business Priority and IT Maturity drives the top practices for IT to improve

Although numerous choices were presented in the survey including “other”, the respondents settled on a select set relevant to their organizations. From a macro-level, the practices, methods and frameworks for an IT organization to improve are somewhat equally distributed across the responding base. Upon closer analysis, an improvement trend is evident across the current run the business spend levels of the responding organizations.

The IT organizations that are innovators and driving the highest business growth spend are focused on improving the selection, governance and management of the investment. The organizations making these improvements are most often addressing some combination of:

• Project and Portfolio Management
• Investment Governance and Demand Management
• IT Financial Management

Those IT organizations seeking to position themselves as innovators and / or minimally the enterprise is expecting IT to enable business growth most often were improving their value realization and impact of delivering a solution. The organization making these improvements are most often addressing some combination of:

• Business process redesign
• Solution adoption and organizational change management

Although these patterns emerged based on RTB spend, it was evident that the improvement of specific practices is also influenced by the current prioritized maturity level of an organizations specific practice.

The human component of the IT Transformation is difficult and generally not discreetly addressed as a top priority

Over 85% of the survey base identified the lack of internal skills / staff as a major challenge to be able to elevate the IT organization to the next level. Many IT organizations also indicated that the number of staff required to maintain the existing services and operation was a top challenge. Integrating new technologies into the existing architecture is a top challenge for many. This integration is challenged by the legacy application and technology architecture of the existing portfolio and the staff skills required to maintain plus flexibly and quickly leverage the portfolio. Although still a challenge, many organizations have a top initiative to address the Application Portfolio Optimization and the technology infrastructure.

Human resources is a huge part of the IT equation yet it appears that a discreet high priority initiative has not been established for many organizations. Less than 15% of the respondents identified growth of internal staff as a priority for 2015.

There are key characteristics for IT organizations that have achieved a 40% Plus spend to Grow / Transform the Business

When we assess those organizations that are achieving the highest (40 – 50% range) spend for growing and transforming the business currently, there are several characteristics that these enterprises have in common.

• The IT organization is seen as an innovator by the enterprise and fully aligned with all operational business entities in terms of investment, solution delivery governance and services
• The organizations typically have high priority initiatives for PaaS and IaaS in order to best leverage infrastructure automation and responsiveness
• Have a higher delivery rate for their top initiatives than other measured organizations
• Have initiatives underway to proactively optimize the Application Portfolio
• Have initiatives underway to improve the areas of Project / Demand / Portfolio Management, Investment Governance and Financial Management
• Target additional spend ratio improvements in the next 3 years to be able to spend 50% or in some cases much more on growing / transforming the business.

Enable IT as Innovator

The enterprise along with the IT organization are at various points in the spectrum of change. Just sustaining the status quo, even if it delivers extremely well, is not an option for most IT organizations. Optimizing the business of IT will better leverage the in place IT organization and deliver on the expectation for enterprise innovation with IT as a Value Creator.

The path to innovation is built upon the foundation of sustainable efficiency and effectiveness, value realized business initiatives, delivering day-to-day enterprise services to expectation, and developing the talent and agility to optimize the business. Since most IT organizations are delivering day-to-day enterprise services reasonably well, the opportunity to improve and position the overall organization should be well planned. Our experience indicates that it is important to develop a holistic view point to optimize areas of opportunity.

Critical practices to employ:

• Establish Depth of Operational Cost & Investment Transparency to Facilitate Comprehensive Decision Making – The transparent availability of IT costs presented in a meaningful Service and Investment Portfolio manner will lead to better actionable decision making amongst business operations and IT. As part of the transparency, the value of the investment should be measured.

• Sustain IT efficiency & effectiveness through focused comparisons with best practices – A sustainable process to measure, compare and benchmark key IT KPIs / metrics will provide a forum to continuously manage and improve IT results for the enterprise.

•  Proactively Optimize the Application Portfolio to reduce cost while introducing innovative technologies – Streamlining the application portfolio will lower costs, reduce complexity and position the enterprise to better utilize new technologies for business advantage. SaaS solutions should be woven into the enterprise architecture.

• Take full advantage of the Cloud to Modernize the IT Infrastructure and Service Capabilities – IT as a service should be provided using single pane of glass visibility across all towers while taking advantage of IaaS / PaaS technologies.

• Refine the Service Delivery and Sourcing Model to Grow Delivery Capability and Lead Innovation – A refined service delivery model is a critical component to enable strategic sourcing and position internal staff for a beneficial future state.

•  Invest in the Development and Growth of the IT Organization Staff – A proactive model to grow human capital (staff skills, training, alignment) should be employed to leverage the new technologies available and engage the enterprise in innovative solutions.  Coupled with an aspirational culture for innovation, this development will enable an outward customer focus and flexibility to sustain the IT transformation.

_________________________________________________________________________________________________________________________________

Survey Demographics

The survey gathered data from enterprise class IT organizations across a diverse set of industries. The organizational role of the respondents and the annual company revenue of the respondents in $USD (respectively: