The Budget Challenge

I recently completed the annual ritual of budgeting for the next fiscal year. It is a tedious process and involves a fair bit of effort comprising of collation of inputs from multiple functions. Not that one minds the effort as it provides another opportunity to create some excitement with IT and help the enterprise with some new ideas, but it has a few challenges too.

Our budgeting exercise is a 3 stage process.

In stage 1, the BAU (business as usual) is addressed comprising of hardware, networking, licenses etc, which is the easy part. Progressing to the second stage, we discuss new solutions/systems for current and future business initiatives. This negotiation is fun and we push each other to the limit on how much more we can get while the business unit heads try to minimize what they need to give away. The real challenge comes in stage 3 !

This is when the leadership team/management team gets together to review the numbers for the new year and go over each department budget with a purpose to reduce Capital Expenses and perceived unfruitful operating expenses. A steady state organization will typically find that IT contributes to a significant portion of their capital expenses and some of the operating expense. My recent experience was interesting from two perspectives which I am highlighting below for you.

Discussion on the capital expense veered into uncharted areas of whether everyone needs a laptop or we can reduce our outlay by providing them with desktops; Is it possible to extend the useful life of a computer by another 12 months if some users only use email and word-processing with occasional internet access; and a few others on similar lines.

When we get into project outlays for development, changes and software solutions, the debate gets interesting. Why does System A require 12 man-month effort ? Can it not be completed in 8 ? Why are we continuously changing System B ? Mr. CFO, can you not ask your people to use Excel instead of this expensive Business Intelligence tool ? Everyone does not require Internet access....

How do you manage this ? One of the things that works is advance communication on what IT proposes to do in the next year and how it will impact business outcomes. This message goes bottom up from line managers to their respective leaders who are aware of what they will be paying for and the benefits that will accrue. Failure to do so will result in endless debates and heartburn when budgets get slashed and the ability to innovate is constrained with limited funds. This is important when every function is under pressure to reduce expenses year on year.

I am sure that there are other ways of managing this phenomena, would love to hear from you on this.

P.S. The high point of a similar exercise narrated by a friend-CIO: "Why do you need to spend $120K for a switch ? By the way what kind of switch is it that costs so much ? The switches in my home come for a lot less. I want to see it" !!

Best wishes for a Happy New Year.

CIO Clubs

In the last few weeks I attended a 2 CIO meets, one vendor sponsored and the other setup by the top 10 CIOs of Pharmaceutical companies. The theme of discussions typically ended up with a debate on why some CIOs are successful in creating alignment with their business groups and CEO while many continue to struggle.

One of them with over 30 years of experience stated that his peers (other CXOs) avoided him most of the time and rarely granted him an audience to discuss IT projects. His frustration was obvious and was desperate to seek wisdom from others in the room.

Another luminary CIO raised the question of reporting relationships and his view was that if the CIO reports to Finance, not much progress can be made; however if the CIO reported to the CEO, the possibility of gaining mindshare and hopefully traction within the company is a possibility.

It all comes down to the qualities exhibited by the CIO and interactions with his boss (CEO or CFO) and peers. To gain acceptance within the enterprise, the basic requirement is that the CIO understand the business and create empathy within his team with the issues and align the work done by IT with the business goals. In the end it does not matter who the boss is (though it helps to report to the CEO), the CIO can make it to the executive table by demonstrating business acumen and highlighting the value created by the IT team.