How To

Step-by-step: Align IT innovation costs to business benefits

Share this post:

The rapidly expanding digital economy is forcing companies to become not only more creative in their business models and product offerings, but also in how they align costs to business benefits. Our innovation-driven economy is driving CFOs across all industries to rethink the ways they can improve payback periods and cash flows, while delivering new and compelling innovations for growth – their top priority, according to Gartner. And this is happening at a time when most IT budgets are flat or declining: according to the latest forecast by Gartner, worldwide IT spending in 2015 is on pace to decline 5.5 percent from 2014. Here are steps you can take toward funding innovation in innovative ways, even if you face budget challenges.

1. Avoid defensive tactics and commit to key IT projects

A common reaction by companies to budgetary challenges is often to cancel or delay systems and software upgrades. Unfortunately, such defensive tactics can lead a company down a path of surrender to broader-thinking competitors who find ways to expand when others retrench.

Consider the lesson learned at a 50-year old manufacturing company in the United States facing an economic downturn in the industry. This firm ran older manufacturing and distribution systems that were ill-equipped to handle growing business needs. Rather than retrench, they resolved their issues by deploying a modern analytics solution. Challenged with paying for the much-needed upgrade, the firm chose a financing option which, according to a senior executive, “reduced operating costs and improved business-process efficiency.”

Commit to a strategy to accelerate cash flow break-even points for critical IT projects, so you can acquire more IT capability within your budget limits, and bridge expenses between budget years. Consider leasing equipment and financing software and services so you can reduce the up-front costs of acquiring new solutions necessary for your company to create breakthrough services and products.

2. Research non-traditional financing options that empower you to fund innovation that builds strategic value and hones a competitive edge

Talk to peers, attend conferences and read media and analyst reports that describe financing options that can minimize up-front payments and preserve cash and lines of credit. CFOs who leverage creative financing options can acquire more IT capability, start projects earlier, and smooth expenditures to match project milestones.

3. Partner with an IT supplier that can fully address the complexities of funding innovation

A partner with a history of funding innovation investment can offer comprehensive strategies to accelerate cash flow break-even points for critical IT projects. As disruption follows in the wake of an expanding digital economy, look beyond financing as just another way to pay for IT. Think about effectively funding your company’s experiments while preserving cash and maintaining lines of credit for your organization’s core strategic initiatives.

4. Work across the C-suite and take on more IT responsibility as CFO

Cordell Sweeney, senior vice president and CFO of Pabst Brewing Company wanted to bring the beverage giant from an era of spreadsheets into the era of predictive analytics. He wanted to get more involved with IT decisions so he could better justify investments in technology. So he proposed to “have responsibility for the finance organization, the operations organization and our information technology organization,” he told THINK Leaders. “And the thought behind aggregating those three functions together was to drive collaboration and synergies across the organization.”

Sweeney was able to get the support he needed.

5. Recycle underutilized, obsolete or retired IT assets that may have residual value

Even if you can’t achieve the same expansion of responsibility that Sweeney has, you can leverage your proximity to decision makers. “The CFO is in a seat where he or she has the ability to really put all the pieces together and be a partner to the CEO, president, executive leadership teams and boards of directors,” Sweeney advises.

This value can be applied to accelerate your company’s digital transformation. At IBM alone, over 99% of all IT equipment and product waste returned to IBM at the end of the product lifecycle is reused, remanufactured or recycled.

Conclusion

CFOs are expected to play a key role in enabling their companies to innovate and grow, while navigating enormous challenges when budgets shrink or are re-allocated. In the face of flat or declining IT budgets, CFOs must find ways to align costs to business benefits and improve payback periods and cash flows while delivering new and compelling innovations for growth.

Key Considerations

1. To stay ahead, businesses need to rethink how they compete, evolve and grow – and how they fund their crucial strategic initiatives. Investigate financing options that can fuel your innovation, and free you to invest in key initiatives and stay ahead of the competition.

2. Integrate your business strategies and IT solutions into one seamless financing plan that can help your company achieve its goals throughout the investment lifecycle.

3. Seek out a partner that can offer customized financing options for strategic initiatives enabling your company to invest in business priorities that drive growth.

More stories

Step-by-Step: Transform your business with cognitive computing

Photo credit: Jon Simon/Feature Photo Service for IBM The greatest early potential for cognitive computing (systems that learn at scale, reason with purpose, and interact with humans naturally) is as a decision support system. Cognitive systems will churn through massive data sets—both structured and unstructured—and offer suggestions on anything from the treatment of a disease […]

Continue reading

Step-by-Step: Lead like a Millennial executive

The new Millennial boardroom, Credit: thinkstockphotos.com As members of the Millennial generation (born between 1980-1994) make their way up the corporate ladder, analysts foretell a shift in business-as-usual. But what is changing, really? “Leadership in general is not going to be completely redefined,” says Michael Parrish DuDell, Millennial business author and keynote speaker. “But when […]

Continue reading

Step-by-step: Hidden competition

Prepare for hidden competition from outside your industry When leaders evaluate their competitive landscape, they naturally look at the same set of players in their industry, year after year. Traditionally, these competitive sets were well understood, and evolved slowly and predictably. These days? Not so much. A company used to be considered a competitor when […]

Continue reading