Digital transformation: CIO / CMO and the crisis of confidence

Digital transformation: CIO / CMO and the crisis of confidence

Summary: Research shows that enterprise technology spending has grown far beyond IT. CIOs and IT must change or become increasingly marginalized.

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A few years ago, Gartner analysts predicted, "by 2017, the CMO will spend more on IT than the CIO." As you can see from the opening slide on their presentation (registration required) about the topic, Gartner trumpeted this prediction loudly:

Gartner CMO will spend more on IT than CIO

Although Gartner phrased its prediction to gain attention, the detailed explanatory presentation offers vague and rather inconclusive data to support the core assertion. In fact, during an episode of CxOTalk, Gartner Fellow, Mark P. McDonald, told me he was somewhat uncomfortable by the whole thing; if you are interested in background about that famous Gartner prediction, the conversation is worthwhile.

Nonetheless, it is clear that marketing technology will consume higher budgets over time, and a quick look at Scott Brinker's Marketing Technology Landscape super-graphic tells the story. With so many companies and segments related to marketing technology, it's obvious that this is a rich and important field. Click the graphic itself to see a huge version:

Marketing Technology Landscape supergraphic

With the Gartner prediction as background, I was intrigued to learn of two recent research reports, from unrelated sources yet describing similar results, that add color to the breakdown of technology spend outside IT. 

Avanade-shift-in-IT-and-technology-spend

The first study, from technology consulting firm Avanade [PDF], explains that 37 percent of "budgets allocated in 2014 for technology investments are now controlled by departments other than IT." Some important results from the Avanade survey:

  • Business groups outside IT control 37 percent of total technology spend in the companies surveyed
  • 69 percent of business unit leaders believe they can make better, faster departmental technology decisions when IT is not involved 
  • 79 percent of C-level executives believe they can make technology decisions better and faster than IT staff

Avanade based its research on a survey of "1003 C-level executives, business unit leaders, and IT decision makers."

The second study, from CEB [PDF], which describes itself as a "member-based advisory company," claims that "business executives now spend an additional $0.40 on technology for every $1 managed in the traditional corporate IT budget." Key points from the CEB research:

  • The business, rather than the CIO or IT, direct 40 percent of total enterprise technology spend (assuming total technology expenditure consists of IT and non-IT combined)
  • CIOs significantly under-estimate (by half) the level of technology spend outside IT
  • Spending on technology-related innovation mostly occurs in the business (75 percent) rather than in IT (25 percent)

The CEB study included 165 organizations responding. A breakdown by function for technology spending outside of IT is shown below:

CEB-shift-in-IT-CIO-spending

IMPLICATIONS FOR THE CIO

It is obvious that technology spending outside IT is happening on a large scale. However, there are two, more subtle, implications:

  1. The CIO and IT department are increasingly at risk for becoming a legacy provider rather than a driver of forward innovation
  2. Business departments outside IT, including marketing and others, will fill the innovation gap created by IT

We are entering a period of digital transformation that will take years to play out. Although fundamentally about business, the digital transformation journey relies on platforms, networks, and technology as crucial enablers. At this early stage, indicators suggest that business leaders have lost confidence in the CIO's ability to solve problems and deliver innovation quickly and efficiently.

Without CIO leadership and intervention, this trend is likely to continue.

Also read:

Is 'marketing' ready for digital transformation?

Accenture: CIOs must embrace digital transformation

Business transformation and the digital CIO

Digital transformation and the high performance enterprise

MIT CIO Symposium: Lessons on digital business transformation

Research: CIOs and the 'digitalization' of business

CxOTalk with Oliver Bussmann, CIO of UBS AG

CxOTalk with Brandon Berger, Chief Digital Officer of Ogilvy and Mather

CxOTalk with Tanya Cordrey, Chief Digital Officer of Guardian News and Media

CxOTalk with Perry Hewitt, Chief Digital Officer of Harvard University

[Disclosure: Avanade is a client]

Topics: CXO, Enterprise Software, Leadership

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2 comments
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  • Does this reflect a certain type of company or industry?

    It would be interesting to see if there is any pattern regarding the types of companies or reporting line of the CIOs who participated in the study.

    In some ways, the move of tech spending to LOBs and business functions reflects where the need is, especially if a tool is specialized to a business function. Perhaps it's time to consider to locating some IT support with the LOB or business function. So that IT understands, what the business needs within the context of the work that needs to get done.
    elizab
  • Does this reflect a certain type of company or industry?

    It would be interesting to see if there is any pattern regarding the types of companies or reporting line of the CIOs who participated in the study.

    In some ways, the move of tech spending to LOBs and business functions reflects where the need is, especially if a tool is specialized to a business function. Perhaps it's time to consider to locating some IT support with the LOB or business function. So that IT understands, what the business needs within the context of the work that needs to get done.
    elizab