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April 5, 2013

The Journey to Technology Intensity: From Seeking IT Investment to Inspiring It

Posted by Anand Prasad Arkalgud (View Profile | View All Posts) at 5:02 AM

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I got into a friendly debate recently with a friend about the level of IT investment necessary for competiveness.  My friend's organization was spending upwards of 3% of revenue on IT.  To put this into context, the benchmark for IT spending as a percentage of revenue for their peers in the industry is in the region of 1.8% to 2.3%. So, does that mean that a company, which spends 3% has got it all wrong?

I am fortunate to meet with global corporations across industries in my current role, and this gives me the opportunity to compare notes on how companies perceive technology and what they believe is their justifiable IT spend. We started by comparing the role of technology in different industries and found that the centrality of technology in different industries varies by a wide margin (a known fact).  However, as we started developing a more nuanced version of how to assess centrality, we realized that there is a difference even amongst industry peers that cannot always be explained away by cost productivity and efficiencies alone. This is when we started calling this "technology intensity" - to describe how dependent each corporation or its individual businesses are on technology. 

It turns out that technology is not just a tool to sustain competitiveness, but a lever used to unlock differentiation or enable growth for a business. But the way a company decides to exploit technology in unlocking value is less a factor of its own industry than its desired trajectory and reliance on technology. Some of these trajectories come from extending core businesses, but more companies are charting new trajectories by exploiting adjacencies and combining their existing capabilities with today's technology to re-define their business boundaries.

In today's environment, where technology is has become a lever for growth, I believe we need to approach IT spend in two parts; the part for which we seek investment from the organization, and the part for which we inspire investment by the business.  

But let's face it. What we're asking for is a huge shift in the mindset of many companies, where IT has always had to justify its budgets and business is often disillusioned by the value delivered by IT. Getting IT to assume - and business to accept - its role as a leader won't be easy.  To make this happen, IT needs to develop a point of view that tracks business trends that are influenced by technology and engage the business regularly to provide insights that shape how business thinks about exploiting IT.

Companies that do this well have developed capabilities to track and review cross-industry trends, the role of technology, and its impact on shaping consumer expectations. Most of these companies have institutionalized mechanisms to engage stakeholders across the organization and contextualize this information to their business.  Companies may use forums that allow them to revisit and question the technology premise of the business leading to ecosystem partnerships to co-create new opportunities that unlock value.

It seems to me a better way would be to track two metrics in evaluating the performance of IT: 1) how efficient we are in seeking technology investments to stay on the current business trajectory; and 2) how effective we are in inspiring technology investments by the business to place the company on a new, higher trajectory focused on outsized revenue, profitability, scale or maybe customer service.  Transitioning to these metrics will elevate IT's role as a business enabler and help organizations realize the true potential of technology to drive differentiation and growth.

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