Key Takeaways
- Distinguishing between operational expenses for daily functions and transformational investments driving strategic change will help your organization better allocate its IT budget.
- Transformational initiatives aren’t like typical expenses with fixed costs and expectations, which means your transformation budget must be flexible and agile.
- Any transformational investment should create exponential business value and align with a larger strategy.
Organizations often struggle to balance their operational IT budget with long-term projects that lack immediate, traditional ROI — even if those projects promise substantial returns in the future.
However, when it comes to digital strategy, there’s incredible urgency for organizations today. For most, it’s no longer a consideration; it’s a survival strategy. Customers expect digital, mobile, and cloud-based experiences; remote work requires cloud-based, use-anywhere tools for collaboration; the power of analytics, artificial intelligence, and automation are quickly lifting competitors’ capabilities and efficiencies; and most organizations must find ways to optimize their people and processes so they can do more with less.
Getting the maximum business value out of your technology investments requires an understanding of operational and transformational IT spend and a plan that balances new technology implementations with smaller, iterative optimizations.
Operational vs. Transformational Technology Investments
Often, organizations lump their transformational investments in as operational expenses. This relegates them to categories that are too fixed for the purpose they serve and the cost structure they entail.
Understanding the difference in IT investments — and the importance of changing your budgeting perspective — will help you create a more successful, meaningful digital strategy.
Operational technology investments keep your business in shape day-in and day-out. They answer a need or fix a problem. They aren’t necessarily part of a larger business strategy — but they can be.
A transformational technology investment, however, is a technology or capability you pursue as part of your larger digital future. It’s not about maintaining operations; it’s about investing in opportunity and change. Each investment is attached to a long-term goal and is part of a strategy that fundamentally changes your business operations.
Types of Transformational Investments
Areas of focus we see clients prioritize in their digital strategy include:
Agile Systems – Systems that are synchronized and enable your organization to deploy, respond, recover, and grow in a timeframe that maximizes opportunity and reduces risk. For example, you’ll spend less time sitting on a project and more time reaping the rewards of having launched it. You’ll also be able to measure project performance and adjust as needed in a timely manner.
Data & AI – A data ecosystem that provides your people the power to make real-time decisions and save resources with intelligent automation. An integrated infrastructure for organization, storage, and reporting lays the foundation for maximizing the value of generative AI.
Cloud Infrastructure – An infrastructure by which operations, functions, and data are hosted in a cloud environment accessible from any location via an access-approved device and internet connection. Top cloud providers offer a high level of security and IT support, reducing the burden of IT on the organization. Real-time collaboration is achievable, and the organization can work off of the same information at all times. Organizations may choose to maintain a certain level of functionality on-premises, resulting in a hybrid cloud infrastructure.
Hybrid Work Capabilities – Secure communication and collaboration capabilities, as well as the tools and data employees need, delivered in a streamlined way. These capabilities enable a workforce to be effective across geographies and devices while still providing work/life balance. This is now table stakes for a company to attract and retain talent, and it requires the right infrastructure as well as an understanding of best practices.
The Cost of Digital Modernization
Transformational initiatives aren’t like typical capital or operational expenses with fixed costs and expectations. Your digital strategy might call for a sizeable upfront investment, strategic investments over time, or monthly costs that fluctuate based on your needs.
The cost of digital modernization, then, depends on the scope of your organization’s needs. It also depends on how you phase your journey and how broad or narrow your focus area is. You might optimize your existing data infrastructure in phase one and implement a new ERP in phase two; you might focus on one division or the entire organization. Your organization’s digital future isn’t a one-and-done project — it’s a continual journey.
Your transformation budget must be flexible and agile. You must plan for a return on investment that evolves as your business does. And you must use new key performance indicators, along with traditional ones, to truly measure success.
- Watch our panel discussion to hear how two of our clients have navigated the different approaches to technology investment.
Making Transformative Decisions for Your Business and Budget
What’s important to focus on as you work through the cost of transformation is the outcome. For what you put into the transformation, the value to your business must be exponential. Business value defines what an outcome of digitally modernizing will look like for you.
This means having a plan for where you want to go and being thoughtful about why and how. It means looking at your individual investments as part of a whole. Will this new, trending widget only solve a near-term solution when you could otherwise invest in three smaller, less glamorous optimizations that will improve your business for the long term?
We’ve developed a digital future formula that combines your business transformation, or expected outcomes, with the technology investment — multiplied by culture, people, and change management. It’s the force of this multiplication that will drive meaningful change and make your investments worthwhile.
Tips for Getting Started on Strategy
- Ensure your investments align with your organizational goals.
- Prioritize investments based on your roadmap, making sure you’re transforming and optimizing where it will matter most.
- Don’t settle for lower-cost options — choose the best solutions for your organization.
- Prepare to make the case for your investments and goals with data and roadmaps.
- Let your actual business needs and goals drive your choices, as opposed to trends and benchmarks in the industry.
- Determine relevant KPIs to measure the success of your initiatives. Measuring success will be different for every business.
- Develop a plan to facilitate change management at your organization — both initially and continually into the future.
- Ensure you have the right sponsorship within the organization to be successful with change management.
Your IT budget likely gets high demand and interest from multiple areas of your organization, so why should it go towards digital transformation? Simply running the daily operations and maintaining the status quo won’t suffice in today’s business environment. Allocating resources toward strategic, long-term transformation is essential for staying competitive and achieving success.
For guidance on identifying the IT investments that unlock the most business value, we can help.
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