1D) Spending

Well, it is obvious. I have to state that understanding your spending is one of the first things you must do as a new CIO. Not a cursory overview in categories with totals in the millions of dollars, but detailed cost center by cost center and account by account. You simply must spend hours to crawl through all your spending across your whole organization and you must understand what you spend.

chart_249x167

When I first came into this job I worked directly for the CFO and one of my staff and I became partners in reviewing our spending. My associate and I had a cool, multi-dimensional drill down tool from Dimensional Insight called Cross Target. I’m not even sure if it still exists as a stand-alone tool. In any case, it was ahead of its time and it allowed us to slice and dice our spending vs budget every way possible. We quickly came to know our spending better than finance did and the CFO soon realized we knew our stuff. That deep understanding of our spending established a deep level of trust in me and IT with the CFO.

Using this tool and spending lots of time asking questions, we found a multi-million dollar problem that we quickly reported to the CFO. It was great to bring the problem to finance instead of them bringing it to us!

The next post will be the last tier-1 level item and it will be to get to know your staff. Your people are key and you need to think like Edwin Land at Polaroid who said he wanted to surround himself with people smarter than himself. That is next at 1F.

How much for IT?

I’ve been pondering the question of how does one determine the proper investment level for IT in a company if you don’t start with the current spending levels.   In other words, how does the leadership of a company determine the right dollar amount to invest without referring to the run rate?

There are various benchmarks that can be used to see how an industry sector invests.  For example, we can find out the average for the insurance industry or the retail industry.   But I’ve not seen anybody provide 2nd order statistics for the industry groups that would help us understand the spread around the mean.   I’ve also found cases where the companies in the study for my industry group were not at all like my company.   The grouping itself can be flawed.

Even if one knows the average for an industry group, what does that tell us about whether we should spend more or less?  I don’t typically want to be average.  It might make sense to spend a lot more than the average based on the specifics of your company and its situation.  One company might get huge leverage on their IT spending and thus more spending is appropriate and warranted.

There are two key components of IT spending.  One is called the Run component and it consists of the spending required to keep the lights on.   Typically, one would want to minimize this spending while maintaining a proper service level.  It does no good to keep cutting the Run spending if the quality of service is going down along the way.   The second component is a Grow or Innovate component and this is used to characterize projects that can help the business grow or innovate.  This second component is where the real discussions should take place and where conversations with the business leadership can make all the difference.  IT should be there to enable the business to move forward.   IT has to spend minimally to keep it running but it also has to spend to help the business innovate.

I think the answer to my question is that there are two answers and they are answered differently.   If there is lots of waste and redundancy in the Run part, then more spending might be warranted to streamline and consolidate to enable the Run component to get smaller later.   If the Run component is already lean with single instances of everything, etc. then perhaps Run can be determined based on what is required to keep the same steady-state.

The Grow/Innovate component is a conversation and partnership with all involved.  This part is where you can spend more or less depending on the story and ideas involved.