I’m getting just a little bit bored of a certain slide that seems to appear in every single IT vendor’s enterprise pitch at the moment. It’s the one with the pie chart – where about 70% of the pie is allocated to “Maintenance” and about 30% relates to “Innovation”. The theory is that CIO’s are looking to reduce the amount they spend on the former, so they can free up resource for the latter.
On the surface, this appears all well and good. Scratch a little beneath the glaze however, and things become far less simple:
– few companies have a clear idea of the size of their own pie. In the discussions we have had around the book, IT executives have been telling us how difficult it can be to get a clear picture of spend, for new technology projects or for maintenance of older systems. This is true particularly if IT responsibility is devolved to the lines of business.
– In similar discussions, we are told that projects are more and more being driven by quite stringent business cases. While the budget totals may add up to the 30%, this is because the line has to be drawn, rather than any “here’s a piece of pie” view.
– To extend on this, organisations that see themselves as technology-driven are looking to the business benefit of any technology as well as looking at its intrinsic cost – more of a whole-meal view.
– Perhaps for these reasons, the pie itself is shrinking. As discussed by Nicholas Carr a few weeks ago, IT budgets are reducing, and the maintenance side is coming down faster than the innovation side.
– Finally, what does an innovation become, the day after deployment? Why, maintenance of course. There are plenty of new projects going on that are in fact replacing older systems with updated versions – as illustrated by Dale Vile’s recent SAP post.
The pie analogy as it stands is not completely wrong, but it is over-used and simplistic. Where it may be true is that the CFO says to the CIO, “We’re not going to give you any new money for project X, you’re going to have to fund it yourself.” In which case of course, it is inevitable that money needs to come out of one part of the budget, to shore up the other.
However, the suggestion that one side of the pie is shrinking and the other is growing, is a leap too far. It is also a dangerous starting point, suggests my colleague Neil Macehiter: “The key point is that innovation without a stable foundation where you understand your key assets, their costs and the value they add to the business, will mean that the only thing you innovate is chaos. If you simply shift budget, without stabilising and consolidating the foundation, you’re heading for trouble.”
So, what’s the alternative? Rather than drawing the line pre-and post-deployment, a better place to start is to distinguish between IT investments that relate to non-differentiating parts of the business, and IT investments that help the organisation differentiate itself from the competition. Of course organisations will still have to work out what IT they have, and where it adds value; but if the goal is to rob Peter to pay Paul, it is a far better approach to drive costs out of the non-differentiating parts of IT so that the differentiating parts can be funded, extended and improved upon, whether they be in maintenance or otherwise.