Predictions 2020: Centralized IT Stewardship Collapse Accelerates
A Frugalnomics Redux
Over the next five years, global economic stagnation will force IT organizations to completely show, communicate, and defend their IT spend. Sixty percent of enterprises will fail to accomplish this, leading to a continuing collapse of centralized IT stewardship.
Given the economic downgrade through 2019 (see Figure 1) and forecasted stagnation over the next few years, it seems prudent for IT departments to prepare for increased budget pummeling. The world economy continues to contract with key countries such as Germany, the UK, Brazil, China, and others either in or on the brink of recession. In September, the chief OECD economist, Lawrence Boone, predicted the global economy “may stagnate into a long period of low growth”. Additionally, market uncertainties continue to affect overall corporate investment, including IT grow/transform initiatives.
Figure 1. Source: http://oecd.org/economic-outlook/
When this last happened in the Great Recession of 2007-2009, a condition identified as frugalnomics took hold of the buy-side of the market. Frugalnomics, a neologism, is an extremely frugal approach to technology and B2B purchase decisions in business as a result of difficult economic times. Frugalnomics is characterized by increased friction in the buying cycle created by:
- Increased management approval funding thresholds. As a result of the last frugalnomics cycle, research has shown that over 85% of projects over $50,000 now require a formal business case. (IDC)
- Broader interdepartmental and executive responsibility for IT spend. Many funding requests require approval by steering committees composed of executives outside of the IT department.
- Increased buyer skepticism. 80% of buyers indicate they need 3rd party proof to trust vendor-provided financial justification / ROI results. (IDC)
IT organizations have made some progress in re-inventing themselves as service providers. They are also engaged in their company’s digital transformation (DX). However, they have typically given lip service to fully implementing a financial underpinning to technology business management. The few that implemented ITFM/ITBM – less than 30% of enterprises – are focussed on cost recovery/allocation/show-back and not on critical management areas like portfolio rationalization, technical debt, risk management, infrastructure conversion, and DX initiatives.
In most cases, these disciplines are viewed as separate management disciplines and not as a unified story of IT spend and value. As a result, most IT shops continue to be perennially faced with the perception that IT costs too much and inevitable budget challenges. A global recession will exacerbate this ongoing lack of value communication.
Additionally, IT faces an existential problem of decentralization, driven by the market forces of:
- Democratization and demystification of technology
- Direct marketing and sales to business buyers of technology solutions
- Availability of “cheap” buy-it-by-the-slice cloud infrastructure, platforms, and applications
There is a good chance that as the IT budget is constricted, IT funding will continue to move to the business units.
Bottom Line / Recommendations
IT must prepare for another round of budget challenges that might make 2008 look flush by comparison. Additionally, this round of economic belt-tightening might be the death blow for some IT departments as a strategic business function. To mitigate this, I recommend:
- Accelerate programs that provide a comprehensive financial view of every IT function. Enterprises that do not get to the goal line with ITFM, ITBM, ITSM initiatives will be much less likely to survive this challenge.
- Develop and nurture business communication channels to show the true costs, benefits, and risks of their IT-enabled business functions.
- Each stakeholder in IT services and initiatives must have their own value proposition portrayed. For example, the CFO will likely have a different set of objectives than business unit management or the procurement team.
- Every project, every initiative, every upgrade, will require a multi-year funding plan that is defended by the stakeholders, not by the IT department.