IT leaders are under a lot of pressure to reduce costs during an unprecedented economic downturn brought on by the COVID-19 pandemic. However, as much as organizations might be interested in reducing the size of IT budgets that typically range from 5% or less of total revenue, the real opportunity is finding a way to leverage IT investments to either drive costs out across the entire business or create new streams of revenue based on capabilities enabled by IT.
Generally known as digital business transformation, IT leaders are looking for ways to help business leaders modernize business processes with an eye toward making IT a more strategic partner. IDC predicts these types of digital transformation (DX) investment will globally grow at a compound annual growth rate (CAGR) of 15.5% from 2020 to 2023 to reach $6.8 trillion.
Digital Transformation Challenges
As IT investments become both larger and more strategic, the relationship between IT leaders and chief financial officers (CFOs) is also evolving as IT leaders deepen ties to business executives. IT leaders are spending less time worrying about reducing costs because the goal is to make the whole business more efficient. IT leaders still need to engage CFOs, but the tenor of the conversation is much different now than it was prior to the onslaught of the COVID-19 pandemic, says David Linthicum, chief cloud strategy officer for Deloitte.
The challenge IT leaders face is that organizations often need to keep legacy systems running until the organization gains confidence in digital processes that revolve around complex microservices-based applications deployed mainly on public clouds. It’s never as simple as turning one set of applications off to pay for the new applications, notes Linthicum.
IT leaders need to carefully monitor costs as they deploy new complex applications in the cloud before they sunset existing on-premises applications, advises Linthicum. That transition requires organizations to allow time for digital processes to mature, he adds.
“Turning applications off to pay for new projects is a zero-sum game,” says Linthicum. “That approach is only going to be death by a thousand cuts.”
IT leaders report to the CEO and often have relationships with members of the corporate board to make sure digital business process transformation initiatives have the proper level of support, adds Linthicum.
Digital Business Transformation Initiatives
Digital business transformations initiatives that by definition need to deliver more value faster are also transforming the way IT vendors collaborate amongst themselves. Hitachi Ltd., for example, has launched a global Lumada Alliance Program through allies such as Amazon Web Services (AWS), Cisco, Google Cloud, Microsoft and Salesforce. They will collectively work together to craft digital business platforms, notes John Magee, head of marketing for digital Solutions, Hitachi Vantara.
The goal, says Magee, is to help organizations break down the boundaries between IT and operations technology (OT) systems that today make it challenging to transform.
“This is a pan Hitachi framework,” says Magee. “Ecosystems are the future.”
Naturally, all of that digital business transformation activity is attracting the attention of enterprise software vendors such as SAP. The company is making a concerted effort to add more turnkey business processes to its enterprise resource planning (ERP) software that require less time and effort for organizations to achieve a return on investment, says Oliver Betz, senior vice president and head of product management for SAP S/4HANA at SAP.
“We want to prove more capabilities out of the box,” says Betz.
Most of those capabilities, notes Betz, are squarely focused on improving the operational efficiency of the business rather than simply lowering the cost of IT.
The latest edition of SAP S/4 HANA, for example, provides insights based on customer data that suggests ways to collect receivables more effectively. It also makes it simpler to include installment plans for payments. Finance teams can also now more easily create consolidated statements with multiple group currencies in a single closing along with more efficient ways to process invoices.
Committing to Digital Business Transformation
Regardless of the level of scale of digital transformation planned, IT leaders need to ask themselves some tough questions. Not every organization is equally committed to digital business transformation. IT leaders will need to decide to what degree they will want to spend their careers at organizations that are merely trying to survive the downturn versus embracing a level of transformation that enables the business to truly thrive. Unfortunately, the time remaining to make that decision is already rapidly running short.