Biggest blocker to innovation is overspending on "keeping the lights on" - finance leaders
"State of Innovation" survey reveals numerous obstacles CIOs face, despite tangible benefits and ROI from innovation investments.
Rimini Street, a global provider of enterprise software products and services, and the leading third-party support provider for Oracle and SAP software products, has revealed the results of a recently commissioned global survey to better understand the priorities and challenges IT and finance decision makers face when it comes to funding and investing in innovation.
The survey, conducted by Vanson Bourne, a technology market research firm, and analysed by llan Oshri, Professor of the Graduate School of Management, University of Auckland Business School, is based on responses from 900 CIOs, IT leaders and financial decision makers from a broad range of industries, located in North America, South America, Europe, Middle East and Africa, and Asia-Pacific.
Is the board on board? An obstacle faced by IT & finance leaders when seeking budget for transformational initiatives, 76 percent of respondents cited “lack of board support for significant investment in innovation.”
A key finding of this research is that despite recognising the importance of innovation and business transformation, IT and finance leaders face major roadblocks including “spending too much keeping the lights on” (77 percent), “lack of board support for significant investment in innovation” (76 percent), and being “locked in to vendor contracts that restrict innovation” (74 percent).
Balancing Innovation Spend with Maintaining Business Operations
While most organisations claim to have the drive and ambition to be an innovator, 71 percent of the global survey respondents indicated that their firms struggle to find budget for these initiatives. With shrinking to flat IT budgets, IT and finance decision makers are challenged to pursue and invest in growth strategies for their business, while balancing this directive with the significant budget required to maintain and run their current operations.
Getting the Board On Board
Also topping the list of obstacles faced by IT and finance leaders when seeking budget for transformational initiatives, 76 percent of respondents cited “lack of board support for significant investment in innovation.” While the survey confirms there is innovation leadership at the board level, half of the respondents also note that they failed to convince the board that investing in innovation was critical for the business.
There was also agreement among respondents that the board refrains from complex, transformation projects that integrate the entire IT infrastructure (64 percent), the board is more focused on cost-cutting than innovation (63 percent), and the board is not confident that the firm has the skills to meet innovation objectives (57 percent).
These board-level attitudes to investment in transformational projects create a major challenge for those forward-looking CIOs and IT and finance leaders focused on supporting the organization's growth and competitive edge.
So, how do IT and finance leaders shift this board mindset to receive approval to move forward with their much needed business transformation initiatives?
llan Oshri, Professor of the Graduate School of Management, University of Auckland Business School, and author of the report, “IT Leaders Frustrated with Barriers to Innovation and Falling Behind,” based on the Vanson Bourne research data, said that investing in innovation requires an organizational culture that encourages taking risks and accepting failure in order to learn.
“Most companies are more comfortable producing predictable and reliable outcomes, and are less inclined to challenge accepted conventions within the business. This risk mitigation approach is embedded into their DNA. However, organisations that excel in innovation embrace a dual mentality that balances investments in uncertain, but transformative, innovation projects with a focus on operational excellence. This balance is extremely challenging, but essential, in order to succeed today and in the future.”
The Benefits and Demonstrable ROI from Investment in Innovation
Demonstrating “hard” ROI is essential to gaining the board’s support for innovation spend. Clearly evident in the survey data was the fact that a return on investment is the secret sauce to more spending on innovation. Over a third of respondents reported their organization has already generated increased revenues (37 percent) or reduced operating costs (35 percent) as a result of their investment in innovation. Those respondents also respectively report a 14 percent average increase in annual revenue and a 12 percent decrease on average in operating costs. Additionally, 83 percent of the respondents acknowledged a clear link between IT innovation and their competitive industry position. The question then remains, with these statistics, why did half of the respondents cite that they have not been able to convince the board of the critical need to invest in innovation initiatives?
The survey revealed that those respondents who stated they have already experienced increased revenues as a result of their organization’s investment in innovation are less worried about their innovation budget, and are more likely to be able to convince the board to further invest in innovation. The same group also reported that they have already experienced improved productivity (62 percent), increased customer satisfaction (60 percent), and greater competitiveness (53 percent) – all as a result of their innovation spend.
According to Dave Jackson, CIO of Welch’s, a $700 million processing and marketing subsidiary of the National Grape Cooperative, as the company recognised changes in consumer buying habits, their strategy shifted to IT cost containment to reinvest savings and resources in new marketing initiatives.
“Welch’s required a strategy that would support increased business functionality and innovation while reducing costs. We knew we needed to invest in the future and maximize our IT budget simultaneously, so we shifted budget by moving to a third-party support model and immediately saved approximately 70 percent of our annual maintenance and other associated costs. That has helped us further our IT strategy by innovating around the edges of our core ERP with cloud technologies.”
Mega Vendor Strategies Hinder Innovation
Many survey respondents cited concern about the over-reliance on their organisation’s enterprise application software vendors. In addition to the 74 percent who stated that being “locked in to vendor contracts that restrict innovation” was an obstacle to innovation, 54 percent agreed that they are being pressured to adopt their organization’s vendor’s cloud strategy. Many respondents are also seeking clarity on the vendor’s cloud application roadmap.
Lack of innovation from the traditional software vendors, coupled with the pressure to respond to evolving business needs faster, is driving IT and finance leaders to look at new strategies to reallocate capital and resources to innovation and growth. This reality requires a significant rethinking of cost components and budget trade-offs, and exploring innovative options across the entire IT landscape including third-party support for their enterprise applications.
“This survey highlights that while CIOs and IT and finance decision makers understand the strategic value of investing in innovation and want to invest more to reap the many benefits cited, they continue to struggle to secure the funds needed to make these investments that are so critical to their business growth,” said Hari Candadai, group vice president, Global Product Marketing and Strategy. “We understand this push-pull dynamic, and are focused on helping our more than 1,580 clients today maximise the value of their enterprise software and liberate the considerable funds that are ‘hidden’ in their IT software support. This enables our clients to redirect these savings into business transformation projects which will not only help them maintain a competitive edge, but will also earn them additional merit with their CEO and board of directors for future innovation investment requests.”