A survey on the state of innovation reveals the many obstacles faced by ISDs as well as the benefits of investment in innovation. And as incredible as it may seem, the management of day-to-day business is the main obstacle to investment!
Rimini Street, Inc.a global provider of business software support services and products, unveiled in mid-September the results of a recent global survey designed to better understand the priorities and challenges facing decision-makers in financing and investing in innovation.
The investigation, led by Vanson Bourne... (1)a technology market research company and analyzed by llan Oshri - a professor at the Graduate School of Management at the University of Auckland - is based on the responses of 900 CIOs, IT managers and financial decision makers from a wide range of industries located in North America, South America, Europe, the Middle East, Africa and Asia Pacific.
One of the conclusions of this study reveals that, despite the recognition of the importance of innovation and business transformation, IT and finance executives face major obstacles, including the budget spent on "managing day-to-day business" (77%), "the lack of Board support for investment in innovation" (76%), but also "the constraints of existing contracts with suppliers that limit innovation" (74%).
Balance between spending on innovation and maintaining business operations
While most organizations claim to have the drive and ambition to innovate, 71 % of the survey respondents indicated that their company is struggling to find a budget for these initiatives. With shrinking IT budgets, IT and financial decision makers are being challenged to pursue and invest in growth strategies for their business, while balancing this directive with the large budget required to maintain and manage their current operations.
Getting the Board of Directors on board
In addition, at the top of the list of obstacles faced by IT and finance executives when seeking a budget for transformation initiatives, 76 % of respondents cited "lack of support from Boards of Directors for significant investments in innovation". While the survey confirms the existence of innovation leadership at the Board level, half of the respondents also note that they have not been able to convince the Board that investment in innovation is critical to the business.
Respondents also agree that the board refrains from complex transformation projects that integrate the entire IT infrastructure (64 %), that it is more focused on cost reduction than innovation (63 %) and that the board is not convinced that the company has the necessary competencies to achieve innovation objectives (57 %).
This attitude of the Board of Directors towards investment in transformation projects is a major challenge for CIOs and IT and finance executives. Indeed, looking to the future, they focus on supporting the growth and competitive advantage of the organisation.
So, what are the levers for IT and finance executives to change the mindset of the Board of Directors and gain their approval to lead the business transformation initiatives they so desperately need?
"Most companies are more comfortable producing predictable and reliable results and are less inclined to question accepted corporate conventions. », said Mr. Oshri. « However, organizations that excel in innovation adopt a dual mindset that balances investments in uncertain but transformative innovation projects with a focus on operational excellence. This balance is extremely difficult, but essential to success now and in the future. »
The benefits and tangible spinoffs of investments in innovation
Demonstrating return on investment is essential to gaining Board support for innovation spending. It is clear from the survey data that return on investment is an essential element in increasing such expenditure. More than one-third of respondents reported that their organization has already generated increased revenues (37 %) or reduced operating costs (35 %) as a result of their investment in innovation.
These same respondents also report an average increase of 14 % in annual revenues and an average decrease of 12 % in operating costs. In addition, 83 % of the respondents recognized a clear link between innovation and their competitive position in the industry. What are the reasons why half of the respondents indicated that they were unable to convince the Board of Directors of the critical need to invest in innovation initiatives?
Respondents who reported that they have already experienced an increase in revenue as a result of investments in innovation are less concerned about their innovation budget and are more likely to be able to convince the Board to invest more in innovation. The same group also reported that they have already experienced improved productivity (62 %), increased customer satisfaction (60 %) and increased competitiveness (53 %), all as a result of their spending on innovation.
According to Dave Jackson, CIO of Welch's - the $700 million processing and marketing subsidiary of the National Grape Cooperative - when the company recognized the changes in consumer buying patterns, its strategy shifted to limiting IT costs to reinvest savings and resources in new marketing initiatives.
"Welch's needed a strategy that would support increased business functionality and innovation while reducing costs," Jackson said. "We knew we needed to invest in the future and maximize our IT budget at the same time. So we shifted our budget to a third-party support model and immediately saved approximately 70 % of our annual maintenance and other associated costs. This helped us to advance our IT strategy by innovating around the limitations of our core ERP with Cloud Computing technologies.
Large supplier strategies hamper innovation
Many survey respondents expressed concern about over-reliance on enterprise software vendors. In addition to the 74 %s who stated that being "locked into vendor contracts that limit innovation" was a barrier to innovation, 54 %s agreed that they are under pressure to adopt their Cloud vendor's strategy.
The lack of innovation by traditional software vendors, combined with the pressure to respond more quickly to changing business needs, is prompting IT and finance executives to consider new strategies to reallocate capital and resources to innovation and growth. This reality requires rethinking cost components and budget trade-offs, exploring innovative options across the entire IT landscape, and considering third party support for their enterprise applications.
(1) Vanson Bourne is an independent market research specialist for the technology sector. Its reputation for solid analysis is based on rigorous research principles and the ability to solicit the views of senior decision-makers in all technical and business functions, in all industries and in all major markets. www.vansonbourne.com