Anjani Kumar, Global Chief Digital Officer at Collabera shares his views on why digital budget be separate from enterprise IT budget...
If you keep digital budget as part of IT budget, there is a high possibility that it might be reused in some form that is not really digital spend. The bigger reason, however, is that every executive must understand why digital budget shouldn't be part of enterprise IT budget. It is because digital transformation is not just IT transformation – but is made up of business transformation (BT), IT, culture and IT security as well. Out of these four, only two direct concern the IT department. The other two, BT and culture, make up digital creation, which may or may not be IT’s responsibility. Therefore, if companies are to allocate digital and enterprise IT budgets separately, it may vary, depending on the industry, organization and demographics. Typically, the digital budget is a measure of the percentage of a company's IT budget while ideally it should be of the percentage of the company’s revenue. The IT budget is in tune 0.6% to 4.2% of the company's ROI; thus, digital budgets should be at least 50% of IT budget if not more or 0.3 to 2.1% of the company's revenue.
Historically, the enterprise IT budget used to accommodate a lot for infrastructure and a little for applications. Slowly that has changed. Today, in many organizations, budget costing for applications outweighs infrastructure, especially with SaaS subscription, IT infrastructure gets hidden under the application subscription. Lot of organizations still grapple with 30-50% of this budget gets used for IT operations i.e. keeping the lights on. Therefore, true digital transformation can help in optimizing the same over a period of time.
Today, every company embarking on a digital transformation initiative realizes that digital technology is more expensive than traditional technology. For instance, if your company wants to invest in any one of the technologies, namely, analytics, artificial intelligence, machine learning, mobility, IoT, you must chart a clear roadmap, explaining the nitty-gritty’s to your business about how you plan to use this budget and the timeline in which you plan to realize the ROI. It is because your business may know how the IT budget is consumed, but accounting for digital budget is fairly new to business execs and finance, and therefore, the buy-in for such projects can be difficult.
One way to overcome this complexity is by explaining your business how a small portion of this budget will be allocated for POC and a working prototype, while the rest of the budget will be released only after weighing in the pros and cons of the initiative. It is only after business sees some success; they can take risks to invest in digital technologies in the future. As business executive tastes success with a digital transformation initiative, it is likely that one may see a spike in the digital budget next year.
A lot of times, the outcome of a project is not as you initially defined before the start of the initiative. This can be due to many reasons such as adaptability, integration with other business, and competition etcetera. So, there should be some buffer in the budget to take corrective steps. A lot of enterprises are already thinking about disruption in advance and approaching it like a startup while working on applying business model thinking. For instance, how can we disrupt the industry before getting disrupted and most of these projects are innovation and incubation of business model and mostly with huge or open budgets?
In many Fortune 500 companies, digital transformation, and hence, digital budget is already either part of board agenda or Chairman/CEO’s pet initiative. As a result, this gives prominence to the creation of a digital budget. In the last few years, and as per Gartner, every year more and more top execs embraces digital transformation as their priority.
Another aspect which is impacting digital budget creation is the fast depleting shelf life of technology and automation. In the near future, we will see digital budget become a norm and it will not just come out of IT budget but also from business (enabling business and new revenue stream) and operations (automation and optimization of cost). The next few years will be interesting for the fate of digital budget in the enterprise.
As told to Shubhra Rishi, Assistant Editor - B2B, CIO&Leader