By Sam Wilson, UK Country Manager at Serviceware
Progressive digitization and the associated technological innovations have been one of the most important investment points in companies since the COVID-19 pandemic. According to a recent Sage study, the majority (92%) of UK businesses see technology as integral to their business resilience and survival, but worry about lack of capital, knowing where to invest and not having the right policy framework to enable economic growth. Although a lot of digital investments must be made quickly to maintain business operations, rising inflation costs mean that companies are now finding themselves in a governance phase, in which investments must be redistributed and their value creation potential explored.
Technology Business Management at the heart of entrepreneurial transformation
Today, there are already comprehensive technology alternatives for IT Financial Management (ITFM) that simplify the data collection process for businesses and ensure control and optimization of IT costs. Such ITFM tools help organizations of all sizes capture critical operational, project, and supplier cost data in real-time and provide executives with the ability to identify and manage the cost, quality, and value of technology services deployed across the enterprise. According to a Gartner forecast, by 2024, 70% of CIOs will use a dedicated ITFM system or tool to manage and analyze total IT spend. However, ITFM provides comparatively little concrete guidance in measuring or driving the business value that can be measurably achieved through IT investments such as cloud.
Determining this added value is the task of another discipline that leads to managing IT as a business: Technology Business Management (TBM). TBM starts with aligning organizations around a common business objective. This requires them to create full transparency about IT and shared services by breaking down and presenting the costs of IT purchases, involving all affected departments and addressing their needs. The main goal, then, is to use an ITFM solution to determine the value of all IT investments and make the costs transparent. This will enable CIOs and CFOs to make a data-driven assessment of the value created by IT services and investments. In principle, any company can start quickly, as method and taxonomy are predefined based on the guidelines of the Technology Business Management Council.
Integrated implementation of TBM
Some TBM-related data models have been known to fail due to the high complexity of their implementation process. Rigid data models are not adaptive enough to allow for adjustments to the data that have often grown historically and can only be changed gradually. However, since organizations and business models are individual and, consequently, the requirements for the decision-making levels are unique, an approach is needed that implements an individualized viewing and reporting level. Flexibility must not be restricted in favour of standardization at business level, no matter how well-intentioned.
Software solutions with a more flexible cost model such as the Digital Value Model (DVM), start with the status quo in a company and use a combination of the ITFM methods and TBM taxonomy to meet all individual requirements. This cost model or data structure enables real added value without the compulsory use of a unified model. In this way, the best possible success can be guaranteed for each individual company.
Off to the cloud – but at what price?
While companies in many places are already using cloud-based software for business processes, such as customer relationship management (CRM), or financial accounting, the possibilities of the cloud for other core activities are endless. For financial institutions, this includes consumer payments, credit scoring, account statements, and invoicing. But it is not only in the financial sector that companies have recognized the benefits: Gartner predicts that the number of companies using the cloud to drive innovation will grow significantly, with an expected $500 billion in global spending on public cloud services this year. Cloud computing promises not only better scalability of IT services and increased organizational and administrative flexibility, but also fast, inexpensive implementation and variable costs based on actual demand.
However, the reality in many companies is different: They pay for applications that are not used or only partially used. In addition, cloud users must also be prepared for higher costs in the course of inflation. In addition, there are costs incurred during the migration period, while the current IT systems and processes must be maintained at least in part in order to be able to handle the day-to-day business.
Challenge: Cost overview and investment added value
Cloud investments can bring many benefits, but only generate sustainable added value for the company if the rising cloud costs are brought under control and the technological added value of the IT assets, and the Technology Value Optimization, is clearly defined. However, through the use of Cloud Economics & FinOps principles, companies can achieve and maintain cost savings of up to 40% for multi-cloud applications. Transparency and the correct allocation of technological costs can play a decisive role in cloud investments in order to identify necessary entrepreneurial measures and drive business changes. The focus must always be on future benefits.
Difficulty and complexity arise when the material costs, investments, and services have to be put in relation to each other. In other words, when you actually want to consistently look at and evaluate the entire structure and impact services of IT as a business. Traditional cost allocation models, budget plans, reporting, and analytics often turn out to be too rigid and fragmented to support agile transformation.
Transparency as an economic responsibility of CIOs
A transparent overview of costs is essential so that decisions can be made based on real costs, understanding of value, and the potential for optimization. If the value that technology investments add to the business is not known, digital transformation cannot reach its full potential. Solutions like ITFM and the methodology of TBM give leaders a holistic view of the business and empower them to make a sustainable investment.