As the second wave of digital transformation rises, it’s easy for companies to become enamored by the prospects of adding virtual/augmented reality, Internet of Things, machine learning and more to their technology roadmaps.
But there’s an important question to ask when considering all this new technology—does your technology roadmap have a financial roadmap?
As you fill out your financial roadmap, there are three main themes to keep in mind—justifying a long-term plan, focusing on operating levers rather than financial levers, and the interlocking models necessary for success.
Justifying a Long-Term Roadmap
The day-to-day life of a CIO is filled with constant pitches for new project ideas. Sometimes these new ideas are pitched in the greater context of the business and sometimes they aren’t—but all of them are pitched as singular projects.
The collection of individual projects eventually leads to a complicated mess of technology that makes it increasingly difficult to adapt to new trends in the long term. One budget cycle and a handful of projects won’t be enough to untangle the technology complexity within your organization while also capitalizing on emerging technology opportunities.
This is why you need to build a strategic, multi-year financial plan to accompany your technology roadmap. But it’s important to note that the purpose of your long-term financial roadmap isn’t to reject every new project request. Rather, you can use the financial roadmap to shape project requests to fit the proposed multiyear plan.
Shaping project requests rather than approving/denying them is a fundamental shift in your daily operations. However, the shift helps you remain flexible as new opportunities emerge so you can grow your business without losing accountability.
Focusing on Operating Levers Rather than Financial Levers
Your financial levers are the metrics controlled by the CFO—debt to equity ratio, accounts receivable turnover, P&L statements, etc. While these are important, technology transformation usually addresses the structural cost components of how a company makes revenue.
The revenue/profit formula will vary by industry and even by company, but it’s something that all executives intrinsically understand. For a services business, the financial lever might be the cost of customer acquisition. But the operating lever is the sales/marketing process that grows your customer base—if you can reduce acquisition costs while growing the customer base, you will be more profitable.
Basically, focusing on operating levers instead of financial levers means understanding the formula for how your business profits and competes in the marketplace. Once you have this understanding, you can align the capabilities of your technology organization to focus on the capabilities necessary to achieve business metrics.
This applies directly to your IT budget. Your CFO has likely reviewed your spending on things like travel, entertainment, bonuses, training, and more—but these don’t drive productivity in the tech organization.
By focusing on operating levers, you should ask, “how much does my existing landscape of tech assets cost to run every day?”. When you have a roadmap to address this question through something like automation or virtualization, you can use the budget you’ve freed up to align with the CFO’s formula for a profitable business.
The key here is for CIOs to work with the financial roadmap in a way that constantly focuses on improving operating levers, whether they are on the business side or the technology side. When you focus on these operating levers, you inherently achieve the necessary financial outcomes that many companies currently focus their roadmaps on.
The Interlocking Models to Create a Financial Roadmap
There are three models in play here—the technology model, the financial plan, and the business model. For a multiyear financial roadmap to successfully support your technology roadmap, all three of these models have to work together to build momentum.
There has to be a cross-organizational understanding that long-term success could mean short-term difficulties. For instance, the first year of the roadmap will see low productivity in IT as investments are made in the technology layer to reduce operational costs. But then once you reach year 2 and beyond, you build momentum for business/financial success as more budget is available to address business needs.
Once you get going with all 3 models interlocked, you will see ongoing improvements in IT budget productivity that will translate directly to business value. Don’t fall into the trap of thinking the success of all 3 models is linear—there will be ups and downs at first and executives (not just the CIO) must adjust business unit expectations accordingly.
This will likely be the most challenging theme as you try to align a financial roadmap with your technology roadmap. As a CIO, your job is to find a way to set up a dialogue with your business partners and a create an agenda for executing in a way that isn’t just valuable for the technology organization. You have to bring value to the business itself.
This is partially going to be an exercise in storytelling—painting a picture of the current tech complexity in the organization to convey how important it is to align the financial and technology roadmaps.
If you want to learn more about setting up a dialogue with your business partners and developing the story necessary to align the technology and financial roadmaps, download our free ebook, Enterprise Technology for Business Outcomes.