The Business Times
This piece originally published in the Business Times Singapore (subscription required).
Every company's technology situation has unique aspects, yet most companies share a common trait: No matter how much they spend on technology, executives are often disappointed with the results. This creates a tension similar to how Leo Tolstoy described families: "All happy families are alike; each unhappy family is unhappy in its own way." And with technology spending expected to grow at 3.1 per cent annually over the next five years, information technology (IT) leaders feel intense pressure to deliver better results.
This is particularly true at companies embarking on broad digital transformations and searching for effective and efficient ways to self-fund the expansion of their digital capabilities. How companies achieve cost savings and long-term sustainability depends on their starting point. We find that most IT organisations fall into one of three types: neglected, indebted or gold-plated.
Neglected: Some companies spend only enough on technology to maintain current operations and fix problems. Their executives tend to view technology as little more than a cost centre. One oil and gas company, for instance, had grown rapidly while making only limited investments in technology for basic operational needs. When the company acquired a business almost twice its size, it found that its existing systems and infrastructure would not scale up to support growth expectations and capture the anticipated synergies. The technology staff was stretched thin, had large gaps in capabilities and was not up to the task of making difficult decisions about trade-offs. The challenge was determining where to prioritise investment.
Indebted: In industries where technology has suddenly become much more important, historically underfunded IT organisations may suddenly face big upticks in demand. They often struggle to keep up with the needs of the business and depend heavily on external contractors. This is now prevalent among retailers dealing with the rapid change brought on by online shopping. One national retailer that relied heavily on external providers, for instance, let its own capabilities stagnate. As the in-house technology teams fell further behind, it became more difficult to hire top talent. The complexity of managing this labour pool, coupled with mounting technical debt, greatly reduced the efficiency of every dollar spent on technology.
The writers are respectively a partner with Bain & Company in Chicago and also a member of the firm's global IT practice; and a partner in Bain's Singapore office.