Making the case for technology spending is the No. 1 challenge for CIOs of midsized businesses, says Gartner Inc. But the research firm gauges that 65% of midmarket CIOs fail to make the case for IT spending.
So why is it so hard to make the case? Most midsized firms -- 90% by Gartner's estimate -- are by nature "conservative adopters" of technology, and lack the processes and metrics needed to argue effectively for technology; 54% of midsized firms have a documented IT strategy; 44% have policies in place to realize technology benefits. More alarming, only 50% have a documented business strategy.
"How do you tie IT spending to a strategy that doesn't exist?" said Mika Krammer, research vice president for Gartner Research. "The bar needs to be raised to see the next Wal-Marts, Targets, Dells, General Mills and Bank of Americas emerge from the midmarket ranks."
Midmarket CIOs tend to approach IT spending on a case-by-case basis, working up a flurry of numbers to justify a particular technology investment, Krammer said. Successful CIOs have moved from event-driven IT spending to regularly monitoring and marketing the contribution of IT to their businesses, said Krammer, who presented her findings at a recent Gartner Symposium in San Francisco. "If you're not doing this, you're a line item."
CIOs need to build their case for IT spending much like a political campaign, said Krammer, starting with detailed profiles of key constituents. CIOs should know how each business executive voted on technology decisions in the past, and more important, why. "You need to know how they are compensated, how do they make their bonus and tie it to the [IT] investment," said Krammer. In addition to knowing who supports technology, CIOs need to identify "their worst enemies" and get them on board, she said.
Making the case for IT spending
That's not always so easy. Jerry Skaare is managing director of architecture at Best Western International Inc. The Phoenix-based chain describes itself as the world's largest, with 4,000 independently owned hotels. "I'm going through a budget cycle right now, and we are continually fighting for what we need," said Skaare.
Skaare makes his case to the board of directors, a rotating group of seven hotel operators. "So basically I"m making my plea to people running hotels. I want $3 million, and that's more than this guy spent to build his hotel 15 years ago."
CIOs should be sitting in the catbird's seat when it comes to justifying IT spending. After three years of belt tightening, budgets are loosening. Products and services are more affordable than ever, as more vendors have set their sights on the growing mid-market. Customers are clamoring for better IT services. Even the ground beneath the midsized landscape is shifting. There are signs that Microsoft's hold on the midmarket is giving way to a more heterogeneous operating environment.
Still, plenty of midmarket CIOs aren't making their cases.
"IT spending justification must become a discipline -- not a discrete business event," Krammer said. An important step toward showing the need for additional IT funds is to root out hidden costs. Hidden costs include the shopping sprees at Best Buy for PDAs or an impatient sales department downloading Salesforce.com. These can raise IT expenditures by 10% to 20%. It is important to discover them, not only for accurate budgeting purposes, but because the ad hoc technology represents a security risk to the CEO.
Knowing how peers allocate their IT budgets is also important but also not sufficient to building a good case, said Krammer, because the minimal requirements to achieve parity have increased.