This article was originally published on Technology.Info.
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Most technology leaders know that, from time to time, colleagues outside their department make their own IT investments - but they seriously underestimate the extent of that spending, or the contribution it makes to their company’s innovation efforts, according to new research from business advisory firm CEB.
In a survey of 165 organisations representing more than Â£29 billion in IT spending, CEB found these so-called ‘shadow’ IT investments may potentially add a further 40% on top of official IT budgets.
The average total IT spend of most organisations is around 4.3 percent of company revenues, they reason - but IT controls only 3.1 percent of this. The remaining 1.2 percent is business-sourced IT, procured in areas of the business such as marketing, sales, human resources, procurement, finance and legal.
But almost half of this business-sourced IT spending, however, is invisible to technology leaders, the reckon. “On average, business partners spend almost twice as much on technology than IT estimates,” says CEB.
For instance, the researchers says, CIOs figure that around 4 percent of the marketing department’s budget is spent on technology, but they estimate that figure to be as high as 10 percent in some organisations.
“The perception gap is explained by a variety of reasons - from IT’s miscalculation of business partners’ interest in owning IT initiatives, to vendors selling directly to business functions, to the growing difficulty of defining what is and isn’t IT spend in the age of the cloud, consumerisation and the convergence of corporate IT, industrial IT and productised IT,” explains CEB research consultant Veena Variyam in a blog posting on the research.
More worrying still, it could be that the rest of the business is spending more on technology innovation than the CIO, she suggests. Up to 70 percent of official IT budgets, after all, is spent simply ‘keeping the lights on’, while another 20 percent goes on incremental improvements.
By contrast, business partners can devote up to 50 percent of their own technology spend on experimenting with new capabilities. “In this case, a large share of a small number trumps a small share of a larger number, so business units control up to three-quarters of the total IT innovation spending in the enterprise,” says Variyam.
As a result, CIOs have little to gain from attempting to curb or roadblock this spending. They just need better oversight, according to CEB. They should think of business-led IT spending, Variyam suggests, as “an unexpected budget boost.”
“IT cannot stop or completely control this additional funding, but it can influence it,” she says. That means adopting an “educate and integrate” approach that aims to “identify and curate the best experiments suitable for enterprise scale; provide advice and support around integration, security and vendor management; and generally empower business partners and employees to make well-informed IT decisions.”