I’ve been pondering the question of how does one determine the proper investment level for IT in a company if you don’t start with the current spending levels. In other words, how does the leadership of a company determine the right dollar amount to invest without referring to the run rate?
There are various benchmarks that can be used to see how an industry sector invests. For example, we can find out the average for the insurance industry or the retail industry. But I’ve not seen anybody provide 2nd order statistics for the industry groups that would help us understand the spread around the mean. I’ve also found cases where the companies in the study for my industry group were not at all like my company. The grouping itself can be flawed.
Even if one knows the average for an industry group, what does that tell us about whether we should spend more or less? I don’t typically want to be average. It might make sense to spend a lot more than the average based on the specifics of your company and its situation. One company might get huge leverage on their IT spending and thus more spending is appropriate and warranted.
There are two key components of IT spending. One is called the Run component and it consists of the spending required to keep the lights on. Typically, one would want to minimize this spending while maintaining a proper service level. It does no good to keep cutting the Run spending if the quality of service is going down along the way. The second component is a Grow or Innovate component and this is used to characterize projects that can help the business grow or innovate. This second component is where the real discussions should take place and where conversations with the business leadership can make all the difference. IT should be there to enable the business to move forward. IT has to spend minimally to keep it running but it also has to spend to help the business innovate.
I think the answer to my question is that there are two answers and they are answered differently. If there is lots of waste and redundancy in the Run part, then more spending might be warranted to streamline and consolidate to enable the Run component to get smaller later. If the Run component is already lean with single instances of everything, etc. then perhaps Run can be determined based on what is required to keep the same steady-state.
The Grow/Innovate component is a conversation and partnership with all involved. This part is where you can spend more or less depending on the story and ideas involved.