Many companies struggle with understanding what really counts in managing technology spend. Understanding spend can help address three common technology spend challenges: how to use benchmarks, aligning financial information to yield the most useful answers, and determining the right spend.
I took a deep dive into each of these areas, and shared three actionable ways to overcome them, in my recent virtual keynote, “Metrics harmony: Measuring what counts” at the Technology Business Management conference hosted by Apptio, one of Accenture’s ecosystem partners.
Our ability to measure technology-related spending continues to improve, as technology business management (TBM) practices, cost centers, and accounts are aligned, and tools such as Apptio and ServiceNow are deployed to help. Yet faced with more data than ever, and a dizzying array of benchmarks, it can be difficult to see a clear path forward on your technology spend. That’s important, because investments in technology are more critical than ever for business success, as Accenture’s Technology Vision 2021 points out. Here’s how you can achieve some level of harmony.
Making sense of benchmarks
I get asked a lot about benchmarks, especially by the chief financial officer (CFO), chief operations officer (COO) or chief administrative officer (CAO). The challenge boils down to relevancy of the benchmark, choosing the right quartile, and how the benchmark is used.
- Relevancy of benchmark: Apples-to-apples comparisons are difficult, demand time, diligence and carefully defined spend categories, and typically require specialist support.
- Choosing the right quartile: The first quartile might work for an operational benchmark like storage cost per terabyte for archiving. For technology spend as a percentage of revenue, the third quartile can show outperformance in both growth and profitability.
- How the benchmark is being used: The benchmark result is an interesting piece of information, but it’s not definitive. Setting budgets based on benchmarks happens more often than it should; it’s not best practice. While two companies might have the same benchmark position, they can differ widely in functionality supported, level and quality of service and technical debt. A benchmark alone doesn’t tell us what we get for the money.
<<< Start >>>
<<< End >>>
Aligning financial information to answer the right questions
To get aligned on your technology spend, and ensure that accountable individuals control their spend, financial information needs to answer many questions, not just one. Take total cost of ownership (TCO) for a technology service or element. Many would agree this is a fairly advanced spend capability. But not every company builds it in a way to maximize its utility.
Here’s an example. One company built TCO at the application level to better understand each app’s relative costs and benefits, and to hold the app owner accountable for app spend. But the TCO numbers were limited—they couldn’t show the portion of the TCO cost that was variable, subject to step-down behavior (allocating overhead costs to service departments), or fixed.
As we dug deeper, we found that less than 40% of the TCO cost was controllable by the app owner. Over 60% of the cost in the TCO number was due to non-controllable allocations like management spend or sunk costs like depreciation and amortization. With greater transparency into controllable vs. non-controllable costs, goals and expectations were properly adjusted.
Confronting the “right spend” challenge
Most of our efforts to understand technology spend, benchmarks and TCO are really footnotes to the answer to one question which I hear all the time: Are we spending the right amount on technology? With worldwide IT spending forecast to grow 9% in 2021, according to Gartner, that question is particularly pertinent.
Enterprise leaders with fiscal responsibility like the CFO typically ask if they spend too much on technology. Leaders like the chief marketing officer (CMO) or chief development officer (CDO) often say, “It looks like we spend a lot on technology, but we aren’t spending enough on my function.” And the chief information officer (CIO) might take any number of positions, depending on their circumstances, but want to know if the company is spending the right amount to the benefit of the enterprise.
How do you satisfy all these stakeholders, and address the other two challenges, too? In my experience, there are three central considerations in measuring technology spend.
<<< Start >>>
<<< End >>>
Three actionable ways to measure technology spend
- Optimize your unit cost to serve. Managing unit cost to serve is powerful. With the right mix of financial and operational data, the right questions are answered, on-going spend is better managed, and there is assurance that proper fiduciary care is being taken by technology leadership.
- Optimize investments holistically. Enterprises should invest their discretionary funds in the best initiatives available – the investments that will have the greatest impact on the success of the enterprise. If this is done in a transparent fashion, leadership will agree that these funds are well spent.
- Understand level of service and capabilities enabled. We need to know what we are getting for the money in terms of services, products, and capabilities, how that changes over time, and how it impacts on-going spend. To do this, one needs to define service or product expectations and then measure against them.
Achieving metric harmony
Companies that have the capability to measure unit cost to serve, optimize cross enterprise investments and understand what service and product capabilities they get for the money seem to have a leg up on all three challenges I’ve outlined here. Confident that they’re on top of their technology spend and have metrics harmony, leaders can focus on what really counts—achieving their technology priorities.
See more IT Strategy insights