The need for businesses to rapidly innovate and pivot in response to ever-changing market conditions, trends and business needs has never been greater. Agile, market-speed organizations pursuing modern digital capabilities, services and customer experiences are recognizing that amid the “need for speed” in the digital economy, the IT function itself needs to develop the ability to rapidly re-prioritize and re-allocate resources to deliver value as business opportunities emerge.
In a market speed operating model, businesses can rapidly pivot, seize new opportunities, exit poorly performing investments and de-risk large initiatives. For the IT organization to run at speed, re-engineering the technology finance and funding process is becoming a significant area of focus.
Funding technology innovation using antiquated investment models can cause misalignment between business and IT priorities, underutilization of new capacity and ongoing challenges to technology budgets. As digital leaders are discovering, the dynamic investment funding model can help forge a new connection between IT spend and business value — ultimately enabling agile technology funding and digital innovation that is indispensable today in the race for growth and competitive advantage.
For cost-transparency and cost-optimization to be fully exploited amid today’s typical resource, staffing and budget challenges, dynamic investment should deliver new capabilities to prioritize technology spending based on improved transparency and on the business value that innovation can deliver. This helps to meet evolving customer, marketplace and technology needs.
Rather than prioritizing innovation investment at the beginning of an annual review process and shuffling resources as required, prioritization should be continuous and based on both past and expected future value produced. Prioritization of technology initiatives under the dynamic investment model can be done using “scenario modeling” — calculating the best method to maximize business value amid funding and resource constraints. Dynamic investment can also provide businesses with a balanced scorecard approach that combines quantitative return on investment (ROI) considerations with qualitative data for timely marketplace insights and enhanced decision making on innovation spending.
Bringing IT and finance teams together
Unfortunately, as emphasized in our previous articles in this series, while digital leaders are responding to today’s challenging market dynamics, there is a growing “digital divide” taking place as most businesses trail leading competitors on the need for a modern tech-funding model that enhances agility, efficiency and competitiveness. Organizations on the wrong side of the digital divide are finding it increasingly difficult to compete and we believe this widening gap is creating conditions for a “winner-take-all” market.
We believe that in the race to innovate and transform, dynamic investment is essentially about funding innovation at scale. Success in today’s fast-moving and hypercompetitive environment requires a modern culture of innovation, speed and agility — with each “experimental” technology initiative repeatedly and routinely tested against a clear articulation of its value and viability. Successful experiments should be granted more funding to continue to grow and produce value, while failed ones should be quickly scratched to free up scarce resources.
While assessing ROI remains a key factor in prioritizing and pursuing technology innovation, relying exclusively on traditional business cases or three-year technology innovation roadmaps is no longer viable. The “need for speed” in today’s reality demands a new approach. Prioritizing technology investment and innovation in ways that enhance and sustain agility, growth and business value has become indispensable.
Unfortunately, many organizations continue to pursue a quantitative approach that tends to prioritize ROI over all other measures of value during IT funding reviews. Aligning technology and finance teams on both the benefits and ROI of technology initiatives remains a struggle, with technology leaders typically challenged by finance on the need to clearly articulate the value that innovation can deliver, thus impeding their ability to innovate quickly.
A traditional, pure ROI approach to innovation spending favors proven or “safe” technology initiatives backed by data that promises appropriate returns. Connection to other forms of value is limited, with controls put in place to manage IT investment via backward-looking analysis of scope, schedule and budget performance. In many cases, current technology in use by the business will likely be allowed to run its course until innovation becomes critical and unavoidable — while the digital divide grows wider.
This dated approach can limit necessary innovation that is agile, continuous and truly responsive to market trends and evolving business needs not always reflected in the bottom line. IT investment needs to be engineered with a direct connection and line of sight into products and the value generated for the organization.
Turning to a balanced scorecard
We believe there is a need for businesses to uplift their digital maturity and capabilities in order to gain a broader perspective that supports smart decision making on technology investment and its overall value to the business. Prioritizing investment is important and it is expected dynamic investment’s ability to provide a balanced scorecard approach to investment is the inevitable way forward.
Combining quantitative considerations with qualitative data and metrics can help deliver crucial insights in key areas such as market trends, customer satisfaction and experience, brand awareness and reputation, operational improvements, risk mitigation and compliance and skills needs.
Success with this approach implies new levels of collaboration and agreement among business leaders within the tech and finance functions on emerging data insights and the investment needed for a timely, agile response to business and marketplace conditions.
KPMG Australia worked with a major Australian banking client to help the organization take a new approach during a major initiative to shift core banking services to cost-saving cloud platforms. The typical ROI-based approach would have been to simply assess the initiative’s short-term impact to the bottom line. Beyond savings and financial returns, the bank’s cloud innovation initiative helps add value to the business by enhancing key areas such as customer service and operational agility — significant non-financial benefits that simple ROI measurement does not always capture.
But by bringing IT and tech finance leaders together to evaluate both the financial returns and non-financial benefits of its costly cloud initiative, KPMG professionals helped the bank take a long-term view of how cloud capabilities can ultimately add value to the business.
Replace project budgeting with product funding
Today’s business leaders need to understand and should be accountable in new ways for the efficient allocation of resources, the cost implications of every technology funding decision and the value being delivered to the business.
Unfortunately, IT governance often remains misaligned to balancing risk and technology performance. A single governance model focused on predictability and accountability has traditionally been viewed as suitable for all IT spending. However, a single monolithic governance model — and the lack of transparency regarding both IT spend and business value — can often produce IT investment decisions that are poorly informed and inefficient.
The focus should shift from tracking and predictability to enabling the flow of value. The dynamic investment governance model replaces traditional project budgeting with product funding, addressing key considerations such as decision-making policies, roles and rights among leadership regarding technology investment.
To help maximize the agility of the business and its growth opportunities, technology stakeholders who are closest to the products and value streams need to acquire a new voice in the process and its prioritization decisions. Done right, a new approach can allow for faster technology advancement that will likely enhance growth and prosperity for the business.
In conclusion, today’s business leaders need to ask themselves if their business is truly generating appropriate value from its technology spending and innovation. In today’s fast-evolving reality, where the pace of change continues to accelerate, businesses also need to consider the ultimate “cost” to the business of not innovating and transforming in ways that can support future growth and competitiveness. Digital leaders are showing the way and there is little time to lose in the race to innovate and adapt at the speed of the market.