IT Strives to Reinvent Itself Despite Budget Restrictions

IT leaders are striving to reinvent themselves in 2014, as they struggle to support innovation-based corporate growth efforts with improved information and analytics, according to 2014 IT Key Issues research from The Hackett Group, Inc. At the same time, IT organisations are facing another year of staff cuts and only small budget increases, in the face of moderate revenue growth expectations.


According to The Hackett Group's research, companies are focusing on three IT strategy areas for 2014: redefining IT's value proposition, including developing business relationships necessary to support innovation and adopting metrics to better measure IT value contribution; development of enterprise information architecture and analytics capabilities to help their company support top-line revenue growth; and talent realignment.


The Hackett Group's research showed that IT organisations are being expected to improve efficiency in 2014, as they consistently have since 2008. Budgets are expected to increase by 1.7 percent and staffing is expected to be cut by 2.0 percent. But once the expected enterprise growth rate of 6.7 percent is factored in, the result is a productivity gap of 8.7 percent and an efficiency gap of about 5 percent for 2014.


These gaps will require them to focus on reducing IT costs in traditional IT delivery service areas, and redeploy resources so they can largely self-fund any reinvention and transformation efforts.


"IT organisations have a long history of challenges keeping up with the changing needs of the business," said The Hackett Group Global IT Advisory Practice Leader Scott Holland. "That's truer today than ever before."


Holland notes that as companies focus on improving innovation to drive growth, IT must shift towards a true service mentality which enables enterprise strategy and deepens the IT/business partnership.


"It's no longer enough to be simply a utility to the enterprise, with a strict focus on low cost," explains Holland.


Changes in technology have also undermined the total control that IT used to have over critical assets and services.


"Technology has become pervasive, and there are so many new options available to the business, from the cloud to SaaS to tablets and smart phones. IT needs to up its game and change its mindset. A deeper understanding of the business is required, as is the ability to translate that knowledge into technology solutions that are virtually transparent to the user. Then IT needs to make sure it all hangs together."


Shifting and Better Quantifying the IT Value Proposition
IT has historically had significant difficulty modeling, projecting, and measuring its value contribution to the enterprise. With companies looking to technology as a source of innovation and competitive differentiation, this weakness must be addressed, The Hackett Group's research found.


The study identified a range of initiatives currently underway to change IT's value proposition.


First and foremost, it's critical for IT to collaborate more effectively with other business functions and departments, identify new opportunities, and keep projects on track. Similarly, IT planning processes must be aligned with enterprise strategy and operational plans in order to establish a direct connection between IT goals/ priorities and business success.

According to The Hackett Group's research, the most significant change being made in this area is in key performance indicators (KPIs) and performance reporting. IT organisations are finding that tracking basic operational IT metrics is no longer sufficient.


IT leaders have to be able to discuss the transformative impact of their efforts: the amount of value expected, the effect of IT projects on business outcomes, and the importance of technology to business strategy, including innovation. This need is driving significant changes in performance measurement.


Develop Enterprise Information Architecture and Analytical Capability
To drive innovation, companies are more and more relying on business insights garnered from the wealth of information they collect. This trend has profound implications for IT organisations, and explains the high priority given to business intelligence/analytics and information quality by business services organisations.


According to The Hackett Group's research, IT leaders rank BI/analytics as their top investment priority. Master data and data quality is second.


As the custodian of the enterprise information architecture, IT's business value contribution is a direct function of its ability to develop and maintain a robust information architecture that meets business needs.


While master data is owned by the business, IT plays a pivotal role in establishing effective master data management. The same is true for analytics, where IT is instrumental in implementing and supporting tools and ensuring the integrity of source data.


Moreover, the demands on IT are not limited to supporting the structured data components of the enterprise information architecture. The volume of unstructured data from a wide range of sources will continue to grow dramatically, severely testing IT's ability to keep up with demand.


The Hackett Group's research showed that data management standardisation levels currently trail the process and technology components of their architecture. Recognising the importance of data quality, companies expect to focus on data standardization during the next two to three years, after which The Hackett Group estimates they should be largely caught up.


Realign Talent
Without talent of the right caliber, transformation and recalibration of the IT value proposition cannot succeed. The best that IT can hope to achieve is incremental efficiency improvement.


The Hackett Group's key issues research identified several talent management techniques that IT organisations plan to deploy or enhance in 2014. To address long-term talent issues, many are emphasizing initiatives such as: rethinking job profiles and competencies, strategic workforce planning, and functional succession planning. More tactically-oriented techniques such as reward programs and employee performance evaluation are also being prioritized, but at a lower level.


The central importance of talent reflects a broader issue in the IT field today: a structural mismatch between in-demand roles and the skills and experience of the talent available in the marketplace. The Hackett Group believes that a comprehensive strategic workforce plan is required if IT organisations are to avoid the anticipated talent shortage associated with the IT service delivery model of the future.


"CIOs are struggling to meet demands for revenue-driving innovations with IT organisations that, during the Great Recession, were stripped down to do not much more than support back-office transactional systems," says The Hackett Group IT Transformation Practice Leader and Principal Mark Peacock. "Every company's IT transformation will be different. But the three themes we've identified will be front and center on most companies' transformation roadmaps."

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