Why CEOs Should Stop Limiting IT Budgets

CEOs should stop limiting IT budgetsAs CEOs put IT budgets under pressure year after year, CIOs and their teams focus on balancing money spent on running the business (RTB) versus money spent on growing the business (GTB). By decreasing the percentage of their budget spent on maintenance and ongoing operations (RTB), they aim to have a greater share of their budget to spend on projects that grow the business. In the best IT organizations, the ratio can sometimes approach 50:50 — however, a more typical ratio is 70% RTB and 30% GTB.

Unfortunately, such practices suggest an incremental budget cycle — one that looks at the prior year’s spend to determine the next year’s budget. While this may be appropriate for the RTB portion of the IT budget, it is far from ideal for the GTB portion. Incremental budgeting for GTB results in enormous tradeoffs being made as part of the IT governance process, with steering committees making decisions on which projects can be funded based upon the IT and business strategy. Anyone from outside of IT who has worked through IT governance committees understands just how challenging that process can be. And the ultimate result of such tradeoffs is that sometimes valuable projects go unfunded or shadow-IT projects spring up to avoid the process altogether.

How CEOs Can Get More Value From IT

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It’s Time For I&O To Return To A Growth Agenda

If you’re anything like me, you’re probably sweating your way through a pretty hot summer. We are, after all, on pace for the hottest year on record. And unfortunately things are going to get worse. Why? Because it’s that time of year again: Budget season. That’s right – it’s time to start thinking about 2011 and sweating through all the infrastructure and operations projects that need investment.

Fortunately, this year will be different.

I just wrapped up a report looking at I&O budgets heading into 2011 and the outlook is quite positive (you can find a copy of the report here). In fact, the biggest takeaway for me is that IT leaders tell us they’ll finally break the age-old MOOSE stalemate— setting aside 70% of the budget for maintenance of organization, systems, and equipment (i.e. MOOSE or “keeping the lights on”) and 30% for new initiatives (i.e. “innovation”). This year we expect to see only half the budget dedicated to the MOOSE, the usual 30% going to new initiatives, and a surprising 20% or so set aside for business expansion efforts.

So what does this mean for you? Today’s I&O executives must:

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