Obstacles that can derail them or prevent them from delivering expected value include unnecessary customizations and unplanned delays that could lead to cost overruns; IT or business cultures that are resistant to change; and lack of support or buy-in from key stakeholders. The new CIO of a major retailer discovered his team was responsible for more than business transformation projects; he soon realized that most of them did not have a defined business owner.
He froze these projects and instructed his team to find a business sponsor to spearhead each project. Finally, projects lacking a business sponsor were terminated. In some cases, CIOs may underestimate the complexity of the project and overpromise and under-deliver on the results. One CIO was hired after a global implementation went awry. The best course of action was to abandon the existing investment—tens of millions of dollars—and begin anew. Delivering the news to the board was difficult and the expectation that he deliver a successful business transformation increased exponentially.
Innovation investments can allow CIOs to contribute directly to top-line growth. To get the most mileage from their innovation budgets, many CIOs are looking outside their IT organizations for additional innovation resources, engaging with innovation labs, technology hubs, business incubators and accelerators, venture capitalist and private equity firms, and other organizations that encourage rapid innovation.
CIOs report that the majority of their technology budgets are allocated to support business operations 57 percent , compared to only 26 percent to fund incremental business change and 16 percent to bolster innovation figure 3. The allocation of IT budget among these three categories is impacted both by industry and market environment and business strategy and priorities. Depending on risk appetite and priorities, for example, it may make sense for a government agency to delay procurement of a costly unproven emerging technology, while a retail bank may benefit from an ongoing technology-enabled innovation program to gain or sustain competitive advantage.
Technology and telecommunications companies commit far more of their IT budgets 22 percent than the overall average of 16 percent to innovation; on the other hand, construction sector organizations spend less 13 percent. Likewise, technology and telecom companies spend a smaller percentage of their budgets 51 percent on business operations than those in any other sector, while their counterparts in business and professional services dedicate a whopping 62 percent of their budgets on day-to-day upkeep.
Most industries spend close to the average percentage on incremental business change, falling primarily between 25 and 28 percent figure 4. We then compared their responses to those of all global respondents to identify differences. The data showed:. Regardless of the size of IT budget, industry, or business priorities, these key takeaways can help CIOs fine-tune their strategies for allocating and spending IT budgets as they help their organizations drive business growth while maintaining operational efficiencies.
Strategic IT alignment: twenty-five years on
Larger budgets may not always be optimized budgets, as demonstrated by CIOs in HPCs, where IT budgets account for a lower percentage of overall revenue. CIOs with smaller budgets may find that necessity is the mother of not only invention, but also innovation. By aiming for more efficient use of budget dollars, CIOs may be able to burnish their reputations as effective technology investors who can be trusted with larger budgets and more responsibility for funding.
Let business lead IT. Industry and budget benchmarks are useful for understanding the impact of market conditions on spending trends, but they are often not a reliable tool for making strategy choices. Ultimately, the business mandate is likely a better driver of technology investment and budget allocation strategies. Align IT capabilities and priorities with strategic and operational business priorities, and let business strategy determine how best to leverage technology investments and assets to deliver value. In addition to creating buy-in and support for IT strategy, this also spreads accountability for investments across the business.
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When technology investments are structured to provide current value and maximize future options, IT investments will likely be measured by business outcomes and the value they create, not just by IT performance. Develop a finance capability with IT. Allocate resources to oversee the financial strategy of IT operations and initiatives and support the delivery of IT services from a financial management perspective. In addition to financial planning, this can include the measurement, management, and communication of return on IT investment. Not only does this optimize the budget, but it also helps increase transparency and build trust that IT investments are generating value.
Adding this capability also helps CIOs demonstrate value and impact over time, and reinforces business accountability for technology investments. Centralize tech spending. CIOs can work to centralize the allocation and prioritization of technology spending and collaborate with other organization leaders to create joint accountability for investment and outcomes.
Adopt a portfolio approach. As the roles of IT and the CIO change, traditional approaches for managing technology investments may no longer be effective. A portfolio approach to managing technology investments may help CIOs optimize their value. Like a mutual fund or a stock portfolio, some investments will deliver outstanding results, while others will be mediocre or lag behind.
CIOs can communicate performance of technology investments that other leaders can easily understand, for example, in terms of value, risk, and reward. Having a venture capital mind-set is likely essential for driving value and delivering impact for the organization. Cover image by: Molly Woodworth.
View in article. George Collins et al. See something interesting? Simply select text and choose how to share it:. Technology budgets: From value preservation to value creation has been added to your bookmarks. Technology budgets: From value preservation to value creation has been removed from your bookmarks. An article titled Technology budgets: From value preservation to value creation already exists in the bookmark library.
Log in to add and see bookmarks. Still not a member? Join My Deloitte. Article November 28, November 28, Khalid Kark. Anjali Shaikh. Caroline Brown. The evolution of technology spending Shifting budget allocations. Allied-Signal, for example, says one element of its strategy is to be the high-value, low-cost producer in its markets.
Both objectives help sustain market share and margins, and thus cash flow, in a particular competitive context. A sector B strategy could be implemented by either a new product whose function is already filled by an existing product, or a new product that complements existing products. The first could substantially improve functionality, lower cost, or both. Examples include the substitution of the electronic typewriter for the electric typewriter, radial tires for bias-ply tires, and slow release antihistamine tablets for conventional pills.
A sector C strategy is one that adapts existing products or the technologies that support them to the needs of new markets. Together with technological development, this focus of strategy requires understanding the idiosyncrasies and needs of new target customers and the distribution channels needed to reach them.
Sector D must be approached with great caution; it can be a strategic trap baited by technological hubris. A new technology, perhaps in composite materials or genetically engineered drugs, shows exciting promise of yielding new products. For some firms, pursuing such technologies makes sense; these may become their pacing technologies, as explained in the next section.
Other firms, however, will respond to the enthusiasm of the moment. Moreover, these programs, once started, are hard to stop; they become "sacred cows. The first step in the strategic management of technology is to answer this question: For our firm, what mix of products and markets will best sustain and enhance our cash flow? The next step is to test how well the firm's technologies support the ideal product and market mix. The next two sections look at that question. The third step is to focus technology investments so that they better support the firm's strategy.
These are technologies that a firm must master to be an effective competitor in its chosen product-market mix. They are necessary, but not sufficient, to achieve competitive advantage. These technologies are widely known and readily available. Electronic ignition technology for automobiles is an example. The danger is that inertia will sustain programs in these technologies longer and at greater scale than they deserve, perhaps because these are the traditional areas where the research and development organization feels at home.
The U. These technologies provide competitive advantage. They may permit the producer to embed differentiating features or functions in the product or to attain greater efficiencies in the production process. An example is food-packaging technology that enables the purchaser to use microwave cooking. The primary focus of industrial research and development is on extending and applying the key technologies at the firm's disposal; they should be given the highest priority among the firm's investments in technology. Unwilling to invest in key process technologies in the s and s, the U.
These technologies could become tomorrow's key technologies.
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Not every participant in an industry can afford to invest in pacing technologies; this is typically what differentiates the leaders who do from the followers who do not. The critical issue in technology management is balancing support of key technologies to sustain current competitive position and support of pacing technologies to create future vitality. Commitments to pacing technologies or potential breakthroughs are hard to justify in conventional, return-on-investment terms. Indeed, these commitments can be thought of more accurately as buying options on opportunity.
Relatively modest commitments—and thus, modest downside risk—can give the potential for large upside advantage. Realizing that potential depends on still-unresolved technical and market contingencies. If the option is not pursued, the potential does not exist. Receptor modeling technology is now a recognized key technology in pharmaceuticals. An effective research and development program must include some investment to build a core of competence in pacing technologies and some effort to gain intelligence from sources such as customers, universities, and scientific literature to help identify and evaluate these technologies.
At the same time, disciplined judgments about commitments to pacing technologies are necessary; enthusiastic overspending on advanced technology can undercut essential support of key technologies. Technologies mature, just as industries and product lines do.
Technology strategy - Wikipedia
The younger the technology, the greater the potential for further development, but the less certain the benefits. However, a mature technology can often be a key technology. Many Japanese firms use mature technologies as a major competitive weapon. The Sony Walkman, for example, was a wildly successful new product based on comparatively mature technologies.
The Walkman fortuitously combined Sony's work on the miniaturization of its tape recorder line and its work on lightweight headphones. Sony engineers were trying to make a miniature stereo tape player-recorder, but they could not fit the recording mechanism into the target package size. A senior officer realized that combining headphones with a non-recording tape "player" would eliminate the need for speakers, reduce battery requirements, and result in a small stereo tape player with outstanding sound.
Sometimes a mature technology becomes a key technology when it is applied in a new context. Empire Pencil gained a major cost and quality advantage by using mature plastic extrusion technology as the basis of a new way to manufacture lead pencils. Conventional lead pencil manufacturing requires the use of fine-grained, high-quality wood, such as cedar, and a good deal of hand labor for assembly. Materials are becoming more expensive, and damage to the graphite core during the assembly process causes quality problems.
A development team was confronted with this question: How can we improve quality and cut costs? The team realized that wood powder in a plastic binder could simulate the fine-grained wood. From there it was a straightforward step to produce pencil stock in a continuous extrusion process, with wood powder and a core of graphite powder in a plastic binder.
Other mature technologies may be protected for example, by patents or proprietary treatment and thus give their owners a key competitive advantage. A Japanese grinding machine manufacturer successfully diversified into the manufacture of integrated circuit wafer equipment. A critical factor in its success was its proprietary mature machine technology. Examples like the latter one may tempt a firm in a mature line of business to diversify into new products and markets where its proprietary but mature technology could have a key competitive impact, but this sector D strategy is risky.
The better alternative is to look, as Empire Pencil did, for new technology to invigorate a mature or aging product line. A business or product line whose key technologies are mature faces a serious threat of being blind-sided by a competitor employing new key technologies. This is what Xerox did to the established copier manufacturers and what word processing did to the typewriter industry.
As an industry or product sector matures, the key technologies often become manufacturing process technologies rather than product feature technologies. This is the case in many mature industries, including chemicals, machine tools, consumer appliances, and food products. The technological strength of a business reflects the degree to which it has competence in, or proprietary control of, key product and process technologies. It also reflects the level of investment to sustain key technologies and to invest in pacing technologies. An objective analysis of the competitive technical strength of each of the firm's strategic business units helps to answer three questions: Do we have the technological capacity to support our product and market strategy in each business?
Are our strategies realistic? What do we need to accomplish to build the technological strength our strategies require? The answers to the questions posed at the beginning of this article need to be reviewed regularly if they are to remain relevant to the business strategy. Managing technology effectively means setting and communicating strategic priorities, managing projects to get timely results, and effectively using linkage inside and outside the firm. With the globalization of technology, links with the outside have become imperative.
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These include links with customers and vendors, as well as with other sources of technology, such as universities. While outside connections can help a firm identify new opportunities and avoid unpleasant competitive surprises, links within the firm must also be carefully managed. Nayak and J. Ketteringham, Breakthroughs! New York: Rawson, , pp. First time here? Five sets of questions are useful in systematically examining the relationship of a company's program of managing technology to its business strategy: Does the company have a clear product and market strategy? What markets does it want to attack?
What markets does it intend to defend?
What product and service attributes will accomplish these goals? What technologies support the product and market strategy?
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- Technology Created;
Which ones produce competitive advantage in existing markets by adding value or lowering costs? Which ones promise to support new market initiatives or to define a new plateau of product performance? What technological successes can the company support or exploit? Are options for technology acquisition in-house development, licensing, academic support, etc. Does the company have the means to answer, and keep reviewing the answers to, these questions?
Approaches to Managing Technology The meaning of technology is straightforward: knowing how to do something well. Linking Technology Management to Strategy We believe that a firm's development and use of technology can be managed so that it effectively supports the firm's business strategy. We find it useful to examine a firm's technologies in light of two questions: What is the significance of the technologies in the firm's portfolio, as measured by their competitive impact and maturity?
In each product area or business, how strong is the firm's technological competitive position? Classification of Technologies by Competitive Impact We identify three broad classes of technologies in a typical firm's technological portfolio. Base Technologies.
Key Technologies. Pacing Technologies. Exploiting Mature Technologies Technologies mature, just as industries and product lines do. Measuring Technological Strength The technological strength of a business reflects the degree to which it has competence in, or proprietary control of, key product and process technologies.