Strategies for Prioritizing IT Investments and Emerging Stronger In the New Normal

Pat Phelan

VP Market Research at Rimini Street

Learning Objectives

As enterprises accelerate digital transformation initiatives, most have some hard-learned lessons. Pat Phelan, VP of Market Research at Rimini Street shares some of these learnings and best practices, along with gotchas and strategies for prioritizing IT investments to emerge stronger in the new normal.


"To survive and even thrive, companies must have a digital core today. "

Pat Phelan

VP Market Research at Rimini Street

Transcript

Hello, thank you for joining this presentation today. My name is Pat Phelan. I’ll be talking to you about strategies for prioritizing IT investments, particularly how to do that and emerge stronger in what we call the new normal.


IT is seeing an increase in demand for the business to deal with transformational business model changes. But how do you reconcile the financial pinch that CIOs are feeling with the business demand that IT become more of a partner to the businesses, and in order to drive innovation and digital transformation? Well, if you look at what’s happening today, you can build a strategic plan over in IT to get a handle on costs so that you can create funds for new initiatives.


Today, nearly every company out there has some kind of financial problem, either revenue streams have been significantly altered by the last year or so’s global disruptions, or it’s on the front end or cash supplies on the back end are even tighter than they were before. Many companies were finding our slow paying or trying to renegotiate with each of their vendors to gain more favorable deals. Scrutiny is being put on what we call need to have instead of like to have or nice to have projects and services. Companies are competing for an ever smaller pool of cash. Prioritization has become top of mind for almost every CIO out there who has to innovate at the same time that they keep their current systems running and operational.


Along with that, many projects over on IT are being canceled or deferred. In terms of prioritizing them, it’s really important to to put the ones on the top that are going to bring some kind of real value in terms of competitive advantage or growth. That does not mean just keeping the lights on, that means spending money where it’s going to make a difference. A lot of projects are being pushed off a year or more until companies rebuild their cash supplies.


On the same line as this, CIOs are also looking at what they’re paying for support contracts in terms of use versus value and what they’re paying for those contracts. They’re also looking to offload day to day operational and sustainment support services that they’re getting, so that they can shift their focus to investments that are going to make a big difference in the company. They’re looking to offload those daily operational tasks, so those funds as well as personal resources personnel can focus on that innovation. In essence, they’re looking for ways to create or open up budget in IT. So it can be done.


This high level framework you see on your screen right now for prioritizing IT projects by the kind of category they fall in includes recommendations to spend or save with the savings funds being used to fuel innovation investments. If you follow this sort of framework, it can help you with the crisis that we’re facing at this point in terms of low amount of money and more projects than you can budget for. The IT prioritization framework can also help you reinforce a shift in your budget allocation percentages for ongoing success. So the question becomes, do we want to focus on infrastructure? We want to reduce complexity and costs, for example. On the other side, looking at productivity and cost management, get that under control, so you can invest in grow, improve your ROI.


Along that same line, CIOs have to prioritize everything these days. How should you be prioritizing ERP investments? Because you think about ERP, that’s not really all that innovative or ground breaking, earth shattering, but it is a must have. So you’ve got to balance your legacy spend with investing in innovation and strategic initiatives. So how do you do that? Well, for most CIOs, operating a data center today is the least of their priorities. Investment roadmaps have been side railed for things like back office comput, and non essential projects have, in many cases, been put on hold.


To survive and even thrive, companies must have a digital core today. We’re finding that that’s a critical component. Almost overnight, CIOs have had this shift focus to investing in transformational investments, solutions that serve customers primarily on digital platforms to get the remote a virtual aspect in place. For many companies, the digital infrastructure has had to be able to support 100% remote work. Now, we’re seeing that bounce back some now, but I doubt that we’ll ever see it go back to the way we were.


So those that were already digitally enabled or capable had the platform in place, the adjustment for them was a lot more easy, they were much more nimble than those that hadn’t spent much on the infrastructure for digital. What we expect is that through 2024, so the next three years or so, businesses are going to continue to be forced to accelerate their digital business transformation plans, and pushing them inward, so bringing them into a shorter calendar by at least five years over what they expected. To survive this post COVID-19 world, we’re going to have to accelerate digital transformation. That involves permanently higher adoption of remote work in digital touch points.


So we think about some prioritization strategies then, they’re different depending on where you may be in what we call the survival modes. Are you surviving? Are you stabilizing? Are you thriving? In a sort of you’re in the survive mode, and you’re still trying to just keep the lights on and recover from the the last year, your priority then should be putting out fires to protect your business and preserve cash, so bottom line. You may have had or be in the middle of taking some drastic measures to slash costs across the board just to be able to continue to survive.


This raises questions about, which solution do I use? How do you ensure process integrity across a solution that’s now comprised of multiple products and services? Before you make a digital investment, you’ve got to make sure that the process from start to finish is still going to satisfy your business needs, and also that process fits into your existing IT portfolio. So functional fit is a big challenge.


Second thing you’ve got to worry about are the hidden costs. Now, those can range from extra cost to synchronize across vendor products to when you’re resolving incidents, for example, to extra overage costs when your contract maximum usage limits get exceeded. That’s just a couple examples there. But be very careful to think through what the hidden hidden costs could be.


Stabilized mode, then a little different approach here is where your priorities need to be on optimizing your core systems and applications, and restarting your derailed plans. So looking at shifting cash back into projects that may have got put on hold. In this kind of mode, as a CIO, you’re going to be shifting from crisis response to optimizing the things that you have to have—the must have—remote communication, security, and then de prioritizing your nice to haves, things like transformation and modernization. They may have to be still on the back burner.


The third mode, we call that thrive mode, is when a company can be focused on accelerating growth. So you have decent cash position, you have weathered the survive piece of this, you’re optimized to a point where you can actually look at investing in new and change. Along that continuum of survive stabilizer thrive, you may move between stages, or you could have components in multiple stages at one time. The key is knowing where your organization is and preparing for what’s coming next.


Today, most organizations we find are spending about 90% of their IT budget on what we call ongoing maintenance and operations—those kinds of costs. But ideally, in order to be able to invest in in thrive or growth, your IT budget is going to have to make a shift, so that you are only investing about 60% in the ongoing operations, which leaves you a healthy 40% to transform and innovate. Getting this rebalancing is not something that just happens by itself. IT leaders need to free up people time and funds, so that they can refocus them on whatever your business driven roadmap happens to be prioritizing.


To support your CEOs goals and vision, looking at that budget that you are spending on operations and rebalancing it is a real key activity to take. So you’ve got to ask some tough questions—I got a few of them on the screen here—both of your internal team and your decision makers up in the leadership suite. You’ve got to be able to come back to your C level, and the board was some kind of proactive plan of attack to shift those funds into innovation and growth.


Here’s just a few questions that can help you as you try to prioritize those decisions. Now, as you’re making the kinds of moves that are involved in transformation and going digital, there are some things that you want to be aware of. As part of business transformation, moving applications to the cloud is a key component of that. So if you’re wanting to bring in some new technologies, and you pick AI, machine learning, whatever it can be. To adopt your new business models and enable growth, you’ve got to think about, well, what could trip us up?


One of the first things that you’ve got to look at is making sure that you haven’t misaligned your functional fit. When you think about moving something from an existing non cloud platform into a digital likely cloud environment, you’re ending up splitting functionality between solutions that are staying perhaps non cloud, those that are in the cloud, or in multiple cloud scenarios. Whenever you do this, there’s a risk that bits of functionality are either being duplicated across solution sets, or they may not align up or you may lose some so you have a functional gap.


Then, there’s integration cost. Risk is introduced every time you have to integrate one product with another—integrate the process, integrate the security, integrate the data, integrate the integrations—integramake sure that those work. By that, you may have multiple sets of integration tools you got to deal with.


When we talk about—this pretty straightforward—when we talk about providing sufficient business value, very clearly, if you don’t have to see the benefit, don’t make the investment. Don’t get caught up in the cloud for cloud sake mantra here. Don’t make the mistake of investing in the cloud without having a proper business case. The costs can be very surprising, and the return can be very disappointing without having that business case thought through properly.


Now, as more of the business becomes digital and more cloud vendors are involved, enterprises with less of an appetite for the kinds of potential for errors in data synchronization and so forth, are going to want to consider putting fewer things into the cloud with fewer vendors. Now, maybe not fewer capabilities into the cloud, but having a smaller portfolio vendors that you have to worry about integrating with. On the other side of that, if you find that you have integration risk that is nearing your threshold of willingness to take it, then you may find that you want to keep critical data and processes in house rather than send them to a cloud vendor.


Security is also one of the things you got to be very careful with as you’re prioritizing what gets moved into a digital model and what doesn’t. Cloud security processes controls governance, all of that are still evolving. I know it’s been a few years now, but it’s not as mature as we would hope, and the bad side of security—all the hacking and cyber issues out there—are just expanding at such a fast pace that you really have to ask yourself, if what’s been put in the cloud is putting your customer at a putting yourself at a disadvantage.


Here’s an example in a SAS environment. Because the software vendor is delivering in a complete service, you may not have visibility into how they’re securing your data and processes. But visibility is often needed in order to guide or determine what sort of process you want to put in place around the types of data that you are willing to put in the hands of a vendor. Without that kind of visibility into how the data and processor being secured, it’s hard to determine whether your data is going to be secure enough. That just tips the iceberg of the security question, but you’ve really got to put some thought into me making sure that security doesn’t turn into a “gotcha” for you as you move components into the cloud.


Then, I use this term “out of balance hybrid model”. Hybrid means you’ve got something’s in the cloud and something’s not in the cloud, that’s all I’m saying when we say hybrid. But the out of balance piece of this is, with a hybrid environment, when that comes in place, for many companies, it may not be the best business move to, to shift everything into the cloud. In some examples, it will never be feasible to put certain things in the cloud. For example, moving a core tightly integrated system, like ERP, to the cloud of SAS. It really doesn’t give you much back in the way of business improvement.


My point here is that your digital investment decisions need to consider the impact of the new technology on your existing application portfolio, as well as what sort of payback you’re really going to get for the the disruption and investment that you’re spinning. Make sure that your hybrid model has a good balance between in the cloud and not non cloud, and functional capability wise that it really is going to give you payback to put something in the cloud. Otherwise, a cloud first strategy or a cloud only strategy is going to set you backwards instead of improve your overall business outcomes, which brings me to the point about a low value business case.


What I tell people is, if you’re operating under a cloud first strategy, that’s a warning flag to me that you might be at risk for this gotcha. Then, there’s always the data issues you got to be aware of. Most digital initiatives involve adding vendors to your IT portfolio, or data management practices are going to be exacerbated by adding additional vendors into the mix. So you can very easily create new data issues, things like, data model incompatibilities, duplicate data, data synchronization, and timing differences. That doesn’t even get into things like difficulty with testing that can be caused by data issues as well. So a few gotchas to be aware of.


That brings me to a little bit more on the hybrid IT topic. We all live in a hybrid model now. Very few companies are out there that don’t have at least something in the cloud. So being successful with this hybrid model hinges on a few things. Some functional things you can be aware of, some best practices in the technical side as well. I’ll just touch on a few of these. As we accelerate our digital Innovation, you have an opportunity to use this hybrid model to your advantage, leverage it to help you accelerate digital investments, and be careful that hybrid doesn’t get in the way and trip you up.


One challenge that I want to point out here of the hybrid model is that the architecture that you have in place can very quickly become very complicated. As each component gets added into that hybrid portfolio, integration increases in complexity, security becomes—I mentioned security before—more complex, keeping your hybrid environment safe and secure is something you have to put some thought into. So making sure that as you add every vendor into the mix, you look at not only how does the business value play into this, but technically how does it impact our application portfolio.


Finally, I wanted to talk just a moment about—we call these building blocks of modern support. Modern support is the key here. As digital transformation creates a need for technology changes in IT, at the same time, IT has to provide a software support model that is agile and responsive but yet simple and scalable because you’re going to see more changes more frequently and more rapidly than you’ve ever seen before. So as a CIO, ou’ve got to think about modernizing how it supports and serves the modern business.


So how do you do that? How do you envision a modern support model for the modern enterprise? Well, I put a few attributes together—what specific characteristics or foundational to its concept of modern support. There’s a handful of things that can enhance IT services. Modern support has to be integrated. It needs to be integrated in a couple of ways up and down the value stream, so levels of support. You think about multiple service services in your portfolio, each having their own service capabilities, trying to fix or change something requires touch points with many more support teams and providers than you had in the past. So finding a way to integrate that all together so it’s seamless is going to be critical.


The other way things need to be integrated is, so that’s up and down the support stack, is across the product lines from start to finish for a business capability, for example, rather than by vendor software product. So my old SAP Competency Center and my old Oracle Competency Center are not necessarily going to be agile enough to support procure to pay, configure to build, or whatever it might be that needs to be at the capability level rather than based on which vendors providing a single piece of the technology solution.


The other thing we see is that support needs to be intelligent. We’re seeing a lot more AI powered and data driven services happening—a lot of automation—but yet, at the same time—you see down here, personalized. So automating intelligence, smart, but personalized in the sense that we ship the right people to support the end user or the customer at the right time.


I skipped collaborative, but of course, that’s important as well. Being able to share knowledge across the pool. Finally, touch just a bit on the fact that a global experienced talent pool is now available to us more so than ever before, and we have a global service audience that needs to be matched up as well. So the concept of support being anytime, anywhere is going to be critical for the modern support organization structure.


That wraps up my comments for today. Thank you so much for listening in. We appreciate your time.


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