Special Feature
Part of a ZDNet Special Feature: Digital Transformation: A CXO's Guide

How to use digital transformation to win budget

Digital transformation is a topic on everyone's mind, but getting money to do it requires a compelling transformation story.

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Image: iStock/g-stockstudio

Added to a growing list of executive concerns, one of the more recent and interesting questions is "Could we be 'Uber-ed?'"-- referring to the ride-sharing company that has forever changed the taxicab and broader transportation industry. Technology has long had the ability to drastically change industries and business models, but now technology is combining with innovation, business strategy, and unprecedented speed to create what's been termed 'digital transformation'.

While this change isn't exactly new to IT leaders, the breathtaking speed with which industry upsets are occurring has drawn attention to the opportunities and threats that digital presents to incumbent businesses.

Assess the landscape

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Digital Transformation: A CXO's Guide

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Your admonitions about technology-driven change may have fallen on deaf ears in the past, but there are now myriad examples of disruption based on digital. Indeed, industries that once seemed impenetrable to outside competition due to high costs of entry, or asset-heavy operating models, are some of the most easily disrupted through new technology. The Ubers of the world made the extensive physical assets and geographic footprint of the taxi industry an albatross around the neck rather than a barrier to entry, and similar disruptions are occurring in industries from shipping to entertainment.

While one only has to look around the competitive landscape to see examples of digital disruption, spend some time with your team or trusted advisors to determine how digital could disrupt your business, and also how you could disrupt the status quo, or even an adjacent or unrelated industry where the unique capabilities of your company, plus some digital mojo, could change the game.

The challenge of IT budgeting, especially for large-scale initiatives, has always been connecting the spend to the results. With digital, however, this exercise becomes more compelling. Rather than painful machinations about TCO or ROI, a new platform might allow you to deliver a game-changing new service, or investing in internal innovation could leverage your existing data and processes to out-maneuver a threatening startup.

Seek input and buy-in from your peers once you have your initial digital 'story' developed, as this will ultimately be the foundation of your digital transformation budget. Time invested in circulating and refining this story will pay dividends later, as each element of your transformation budget will link back to enabling your digital story.

Budget for capabilities, not systems

Once you have a view of the landscape and the opportunities and threats presented by digital, narrow the focus to a collection of initiatives that your company can embark on in order to thrive in the changing market. Avoid confining your thinking to what you can do with the current systems and organizational constraints during the initial phases of this exercise, and once you've drafted an initial portfolio of digital transformation initiatives, assess what capabilities you'll need against what you have and identify the gaps.

This should be familiar to anyone who's done a classic 'fit/gap' analysis; however, the focus is squarely on digital capabilities versus technology and systems. For example, if one of your transformational efforts requires communicating with customers at any time, on any device, you might put an item in your budget for the capability of 'location-based offers' versus a line for beacon technology.

These gaps are the areas where additional spend is required, and as each directly relates to a needed capability that's linked to a digital transformation initiative, it will ultimately link to the business disruption it's meant to mitigate or create. Instead of financial gymnastics, your transformation budget is two degrees away from the strategic impact it's meant to create. Now, your budgetary debates center on which transformational objective to pursue. If your peers hesitate to fund a key capability, then it should be abundantly clear which transformational objectives become more difficult or impossible to achieve.

While IT budgeting is often marketed by painful debates about whether a theoretical 'productivity benefit' will result in 2 percent or 2.25 percent savings, digital transformation presents a unique opportunity to link digital capabilities directly to transformational initiatives. This ultimately elevates the budgetary process to discussions about which strategies your business wants to pursue, versus debates about how you've calculated TCO and estimated various efficiencies.

With proper preparation and a compelling shared vision of the future, you may find your budgetary discussions become more about how quickly you can execute given significant resources, versus where you can squeeze more blood from a stone.

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