A Business Technology Place

The Yin and Yang of Hidden Technology Spend

The spending category with many names.

Not all technology spend within a company originates in the IT group. It’s widely known this behavior exists, but rarely discussed in the context of aggregating all technology spend. Industry writers have many names for it, including shadow IT, hidden IT, business unit technology spend, and rogue technology spend.  Some business managers enjoy the lack of publicity. They don’t want to draw attention to it for fear of losing it or getting into lengthy conversations that will slow down their progress.

Who’s to blame?

Typically, IT is caught in the middle and is often the one blamed for creating the environment that leads business unit managers to go around IT for technology services. Jaikumar Vijayan of Computerworld recently discussed how shadow IT spend with cloud services is growing.

Vijayan quotes a report from PricewaterhouseCoopers (PwC)

The risks from shadow cloud services include issues with data security, transaction integrity, business continuity and regulatory compliance, technology consulting firm PricewaterhouseCoopers (PwC) warned last week.

“The culture of consumerization within the enterprise — having what you want, when you want it, the way you want it, and at the price you want it — coupled with aging technologies and outdated IT models, has propelled cloud computing into favor with business units and individual users,” PwC said in a report.

One of the challenges IT managers have is they are asked to support and enforce regulatory and compliance statements. As an IT professional, I see security audits and questionnaires from current and prospective customers each week. The inquiries are becoming more lengthy and the expectations for security and compliance are growing. It’s expected that organizations have strict policies governing physical and logical security, encrypted data, backups, data retention, and data location. The kicker is that for existing customers, compliance with the regulations is mandatory. For prospective customers, compliance with the regulations could mean the difference between winning new business and losing it.

Here’s the rub. IT doesn’t make the policies, they are asked to enforce them. When IT managers support these regulatory requirements such as not allowing cloud storage, it invites users to find a way a around the policy to conduct business. Remember too, that IT is also constrained by the budget allowance each year for upgrades and is expected to maintain existing equipment with minimal changes to reduce risk of business disruption.

Is this really IT’s biggest nightmare?

I don’t think so. Here’s why. IT isn’t completely innocent of what’s happening. The PwC report quoted by Vijayan captures it well, “coupled with aging technologies and outdated IT models…” there is a growing trend for business unit managers to purchase their own technology.yinyang

I agree with the summary from PwC. But I also believe that in a general sense, we have to be pushed to get better at something. What I mean by this is that we need someone or something to challenge us to think differently, to strive for better results, and to find new opportunities for success. Being pushed is part of the foundation of success.

I think hidden IT spend is in some ways a ying and yang. Can hidden IT spend be complementary to IT spend? Don’t you think that IT leaders would also like to push forward into newer technologies and service models such as SaaS and IaaS? I see the whole debate as a challenge and wake-up call for IT leadership and Business leadership to find ways to advance the technology offerings and services of their company in order to provide better solutions for customers. Policies and regulations are not going away. Why not try to solve the puzzle of mapping technology advances to policy statements?

This can be a yin yang. But the key to success is to do it together. Said another way, the key to success is to do “IT” together. Just think what your business would look like if that happened.

Measuring the cost of IT

How should we measure the cost of IT?

The short answer is that there is no set answer. It depends.

I’m debating this question with myself as I want to deliver meaningful measurements back my stakeholders as well as create a repeatable view to measure progress over time. Ratios are a common evaluation method for financial accounting. So it seems natural to use ratios to measure the cost of IT in an organization as well. The most common ratio I’ve seen is spending as a percentage of company revenue. This gives a macro level picture of the cost of IT to the company. Gartner and other firms publish IT metrics based on industry data they collect. This doesn’t mean there is a right answer, but it allows companies to see how they compare to others in the same industry.

A challenge is consistent and agreed to measures of the factors in the ratio. In my case there are pockets of technology spending outside of the core IT function due to a decentralized alignment in the organization and profit centers of the business. Should I count all areas of technology spend in the company or only those associated with IT? Companies replying to the metrics survey undoubtedly have similar organizational inputs. So the answers in the survey are not an apples-to-apples comparison. But it may be as close as we can get!

But what’s really important?

Examining the ratio in terms of industry comparison may provide clues to help with determining average profit margin makeup for your company. But it seems to me that examining the ratio within the context of our company goals is as important or more.

  • Is the company trying to provide more automation through software? If so, then the technology costs may go higher than average to support this push with an expected offset in labor in other areas.
  • Is the company being positioned for sale? If so then the technology costs may be kept in check to prevent unnecessary open ended investments.
  • Is the company trying to differentiate itself from competitors through technology solutions or people solutions?

 

Change the mindset of IT as a cost center.

Looking at IT solely as a cost center is dangerous. The only way to improve cost centers is reduce costs. IT should be as concerned with creating solutions for productivity and revenue gains. So it’s a two-way street.

Tracking IT metrics should also include revenue gains and automation efficiencies. These metrics have a more favorable feeling to them than straight cost ratio. They represent value. I think value gains are tricky to measure as a attribution back to a technology effort. But it provides the basis for continued investment in a “cost center”.

I haven’t settled on a complete answer yet on how to best measure IT.  Maybe I never will. I suspect introspection and analysis will lead me towards new questions and then a natural course of tweaking and adjusting. Keep the calculator handy and align processes to aid with measurements. Happy computing.