CIOs lose hold of the purse strings as departments go it alone with tech projects

Shadow IT means marketing, HR and operations are running their own projects. But this might not actually be bad news for the CIO.

IT chiefs are massively underestimating the amount of money spend on tech projects by other departments as execs bypass the tech department to get their own initiatives up and running.

CIOs estimate that the IT spending of other parts of the business represents as much as 20 percent on top of the official IT budget. But figures from the industry advisory body the Corporate Executive Board (CEB) suggests the real figure may be closer to 40 percent.

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Part of the reason for this unbudgeted IT spend, or 'shadow spending', is that business managers often want to try out technology for themselves. This maybe because they want to test it personally or because they want to trial an ideas in their own department before taking it to IT.

In the past, shadow spending has been seen as a risk or threat, according to the CEB's managing director, Andrew Horne, but it should be seen as "a sign of healthy innovation", he said. "It is a valuable opportunity for IT to work more closely with business partners to develop new capabilities."

The key question now for IT departments is "how much are your business counterparts spending on IT", Horne says. "We asked companies that question and they said 20 percent but when we looked at it in our own survey we found it was more like 40 percent."

According to the CEB common subjects for this test treatment are cloud services, CRM applications and document sharing tools. Another popular move is to trial iPads and similar technology to see if they offer an increase in productivity.

IT is on the horns of a dilemma as on the one hand, IT managers want to keep control of IT and especially IT spending, while on the other they cannot be seen as a road-block to the sort of innovation that others within companies can promote and suggest.

Marketing, HR, operations and finance functions are most likely to dedicate their own budgets to technology. For example, six to nine percent of the overall HR budget is now dedicated to IT as businesses buy in cloud-based HR systems or talent analytics packages to better understand existing staff and new recruits. 

Horne says that IT is going through a cultural change where "where CIOs need to educate their people so that they work better with other departments". He believes that is happening now, but believes IT departments need to be working actively at it.

There was some good news to for the IT industry from the CEB survey which found that  total IT budgets for the year ahead are set to increase by three percent, driven "almost entirely" by rises in operating expenditure.

While capital expenditure will remain flat at 0.3 percent, spend on mobile applications is set to accelerate in 2014, with almost two thirds (65 percent) of employees dissatisfied with the mobile technology available to them at work.

For the survey, the CEB questioned 165 organisations representing more than £29 billion in IT spending.

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