An Executive Overview for Getting More Out of Your Tech Investment While Managing Risk
According to Goldman Sachs, 4% of a companies’ budget is spent on technology. The technology industry surpassed $5 trillion in in value in 2021. Without a doubt, the stakes are high for business and tech executives who must sort through and make bets on technology, providers, and solutions. And then these busy execs must ensure tech investments turn into business value.
When do we deploy Artificial Intelligence (AI) within the customer database to unlock new revenue and product innovation? How do we consolidate data centers and move key customer, finance, and ecommerce applications to the Cloud? What’s our company cybersecurity strategy as a hybrid workforce becomes our employee and talent model?
Key Technology Investment Questions to Tackle First
CXOs struggle to unlock innovation without wasting precious time, resources, and budget. We’ve all heard stories of tech projects gone wrong, mounting tech debt that takes years to get off the books, and reckless tech spending to solve every problem that pops up. And we know tech is an enabler of strategy, NOT the strategy! With this reality, now is the time to tighten up our approach to technology strategy and investment.
Below are foundational questions to guide how to wisely invest and manage your ongoing technology like a portfolio that pays dividends and hedges risk.
- How much should we invest in technology? While the percentage of tech spending varies heavily from one industry to another, the target is 3 to 6% depending on such factors as market competitiveness, company reliance on technology, and your current technology maturity.
- What is the process for tech investment within the organization? A defined, known procurement process increases rigor to align tech spend with business priorities. This discipline also helps manage risk and weeds out marginal low impact projects. You can’t do it all, nor should you.
- How do projects and tech investment get prioritized? Establishing who, how, and when this is done is critical for both faster business impact and resource efficiency. Many organizations have developing tech priority scoring systems to help prioritize the myriad of tech project requests.
- Who owns technology investment? It is important to establish who and how decisions are made at the company, business unit, and department level. A tech council or steering committee is ideal for oversight with accountability to a senior company officer.
Talking with CXOs and trusted IT executives, they consistently identify three strategies and practices to increase the impact of techn investments. Let’s dive into each of the strategies.
Strategy 1: Empower A Company Tech Council to Prioritize and Manage Tech Investment
Many enterprises have put in a technology council made up of business, finance, operations, and tech leaders from across the company. Also known as “steering committees,” the value is having a clear method to evaluate, review and prioritize tech investments. The council’s role is to balance innovation and ROI with risk and governance. The positive of the tech council is an accountable tech strategy, investment oversight, and a documented procurement process. The potential downside is critical initiatives can be slowed down by bureaucracy and politics.
To make councils work, CIOs advise outlining a company-wide technology mission, strategy, procurement process, and tech framework to evaluate tech investments.
- The tech mission captures the purpose, motivations, intentions and how technology is viewed and used within an organization. For example, FedEx, Nike and Amazon all include technology as part of their business manifesto.
- To prioritize business projects with tech investment, a published technology strategy must be in place. This way each investment can be evaluated both for its business value and priority alignment.
- A clear technology procurement process outlines the guidelines and steps to identify, scope, compare, select, and implement technology. With this in place, individuals and groups understand the process they need to prepare for and go through. Just as importantly, the tech providers working with the company also know what is expected and how to navigate saving time and budget.
- A company technology framework + roadmap establishes standards and plans for future tech requirements. The framework, also called a tech blueprint, captures the systems, applications development, and IT management tools and tech processes that new tech should interoperate, run on, and integrate with. A documented blueprint guards against silos that pop up with new tech investment.
Strategy 2: Invest in Increasing Your Leadership Technology IQ
Technology competency is essential for today’s business leaders. To be clear, not every executive needs to be able to write code or build a tech infrastructure. However, if you have “C” or “V” in your title, you must understand the potential and risks of managing technology. We know business-savvy CIOs and tech leaders are in high demand. Well, so are tech-savvy business leaders.
To meet the tech competency need, companies put their executives through some form of technology boot camp. This could be a formal process such as funding advanced education via MBA (Master in Business Administration) programs. Nearly every MBA program has technology management as part of its curriculum. An alternative option to accelerate tech-savviness is tech leadership programs offered by leading colleges. These are typically 12- 24 weeks of immersive education offered by many universities’ executive programs. And, if technology is core to your business, companies can fund and operate their own executive technology management training. These internal boot camp-like formats are run by outside experts and/or even by a member of the company’s technology team.
Strategy 3: Operate a Technology Innovation Lab to Unleash Breakthrough Capabilities
Another smart strategy leaders are deploying is the use of a tech innovation lab. This group sits outside of the core IT or business team and focuses on developing, evaluating, and testing new technologies. The lab focus is on innovation and breakthrough capabilities. By not being part of the tech council and procurement process, they are empowered and rewarded to seek out, experiment with, and recommend company-advancing technologies. This team’s work accelerates companies’ ability to enter new markets, conduct business in new ways, and solve complex problems using technology.
A few learnings about technology labs, according to executives who have used this innovation approach to developing technology:
- Make sure you align the lab closely with a member of CXO executive team. This tight connection to top leaders ensures the team is focused on identifying, even creating, technology to help breakthrough, not just operate business as usual.
- Set a minimum budget of 10 to 15% of your overall tech spend for new or leading technology that can advance your company in the markets you serve. This may decrease or increase depending on the impact of tech on your business.
- Don’t evaluate the lab or the tech team on every project. Rather, score and reward the lab team on the aggregate of the ideas that turn into business impact. Not every tech initiative in the innovation lab is going to breakthrough. Failure is part of the process to creating innovation.
Managing Technology as an Investment Portfolio
A final thought. Based on the digital-first nature of business and how customers and markets operate, every company is a tech company. The more we approach technology as an essential and integral part of business, the more successful we will be in generating value. That said, technology is an asset. And like all business assets, we must manage tech investment as a financial portfolio.
