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Trends in IT Needs, Purchasing, and Strategy

Written By: josh chalifour
Published On: September 13 2011

Is there a tension between the people authorizing IT spending in your company and those determining the needs? The roles of each C-level position, combined with current approaches to IT, may tell the story of how “strategic” your IT systems really are. More importantly, this tension underscores the involvement IT must have in understanding and participating in determining needs.

I recently read this article from Information Age, which covered new Gartner research on the roles of the chief information officer (CIO) and chief financial officer (CFO). The article highlighted several findings, the first of which was that CIOs usually require CFO authorization for IT investments. Second, it seems many IT departments report to the CFO.

Finally, the report found almost half of its respondents think of IT as strategic to their business. These types of findings support the author's contention that CFOs need to have a common understanding with CIOs on how to best take advantage of technology. The CFO position, as you'd imagine, keeps its hand on the purse strings (though that's not necessarily the case across the board). The article did not mention the role of the chief executive officer (CEO).

The functions of these C-level roles impact IT’s strategic importance to an organization because they tend to focus on different areas of responsibility, leaving IT personnel to direct their attention toward improving their company’s competitiveness through the appropriate tools. This can work if those tools make it easy for the business users to run their own reports, make customizations, etc., which they’d otherwise ask IT to do. For IT to be strategic, IT needs a good understanding of business needs—and this seems to be the case, as I’ll discuss momentarily.

A common reading of "the modern enterprise" promotes changing from on-premise systems to cloud-based systems. Bluntly, this means some hands-on IT jobs will disappear, while responsibilities involving selection, communication, and training come to the fore. Generally speaking, this is indicative of IT personnel employing their skills toward the strategic side of business.

While authorizing purchases naturally plays a significant part of C-level functions, the responsibility for determining IT needs doesn’t dominate the roles of those who are making strategy decisions—and certainly not all strategy decisions involve IT. The following graph shows an overall percentage of IT decision-making roles performed by each C-level position (revenue details will follow).

C-level executives and their primary IT decision-making roles full year 2010

Figure 1. C-level executives and their primary IT decision-making roles full year 2010

Approximately 13% of CEOs indicate that their primary IT decision-making role is to authorize IT purchases. They are followed in this regard by CFOs, and then CIOs.

Few C-level decision makers consider determining IT needs their primary role (never more than 6%). If those who are responsible for corporate strategy and approving IT purchasing don't occupy themselves much with determining IT needs, how can IT be strategic? I suggest that supporting the area of determining needs is a key to IT’s shifting role.

I mentioned that in one reading of “the modern enterprise,” the IT responsibility for selection gains prominence, and of course a critical early step in the selection process is determining needs. IT must develop a good comprehension of the needs and communicate them well to the people deciding and ultimately authorizing the purchases. In that case, then, the CFO (or CEO if s/he authorizes purchases) needs to share a common understanding with CIOs.

The scope of C-level responsibilities changes as companies transition from small to large. For example, C-level purchasing authority for enterprise software typically shifts completely when a company's annual revenue rises above the $250 million (USD) mark. This is likely due to sharper distinctions in roles and responsibilities in a business’s operations.

Let's dig a bit deeper into what the CEO, CIO, and CFO positions are doing. The next graph shows the percentage of IT decision-making roles (“authorize purchases,” “determine needs,” “evaluate or recommend brands and vendors,” and “research only”) identified as being the primary responsibility for each C-level position.

You can see how these roles change from small, to medium, to large enterprises. This data is based on 9,811 responses to surveys designed to help respondents uncover software solutions that would be likely to address the requirements of their companies. The graph is segmented by the annual revenue of the respondents' companies.

Primary role in the IT decision-making process full year 2010

Figure 2. Primary role in the IT decision-making process (full year 2010)

This graph shows a significant range in the roles played by CIOs, CFOs, and CEOs when it comes to the process of purchasing enterprise software. The person most frequently authorizing purchases varies considerably from small, to medium, to large enterprises.

CEOs authorize purchases more frequently than they research or determine needs. With the exception of small businesses, it's more likely that the CFO will have a primary role authorizing purchases than the CEO. But when annual revenue reaches the upper end of the spectrum this role tends to be performed by the CIO, but just slightly more often than by the CFO. The CIO's role tends to flow toward the research and evaluation prior to authorizing purchases. Regardless, determining needs usually bottoms out as a low point in the roles these positions occupy.

If we assume that IT sometimes reports to the CFO, or at least that CIOs require the CFO's purchasing authority, it's interesting that while a relatively small number of CFOs have put efforts into evaluating software, many of them still do. This would seem to be a likely tactic in treating IT as a strategic asset. Perhaps CIO and CFO rolls are blurring as well.

I was chatting with my colleague Lorne Goloff (TEC’s VP of Selection Services) and he’d observed that sometimes CIOs are even becoming CFOs. He made the point that if you’ve got a good understanding of the corporate infrastructure and needs of the lines of business, you’re likely going to be able to use that understanding in preparing budgets and authorizing purchases

Public accounts of large IT project failures are easy to find in the news. Digging into these cases, it’s often a misconception or miscommunication of needs (within the organization or with its chosen software vendor) that contributes to the failure. Of course such failure saps funds and productivity from a company.

Should we worry  that the role of determining needs still ranks so low across the board? Generally speaking, IT purchasing could originate from infrastructure needs or line-of-business needs, and determining these needs probably involves IT differently.

For example, recently a very large enterprise engaged TEC for an enterprise resource planning (ERP) selection project. The company’s inventory management line of business had initiated the project because it had a number of problems that it needed the software to solve. It was the line of business that had determined the needs for the software but, they didn’t work in isolation. Rather, they included a member of IT in their selection team so that they could ensure the system would be the right choice with all of the infrastructure requirements in place.

Conversely, if a company initiates a software selection project from the infrastructure perspective, IT personnel are going to have to bring in members of the various lines of business while they determine needs.

In both cases, for IT to avert failures as it shifts toward a more strategic role, it needs to understand both infrastructure and line-of-business needs, while being involved in communicating those well up to the C-level personnel that authorize the decisions.

A lot might be supposed from the graphs in this post. What happens in your organization? Do you find that IT’s role is shifting, as many industry analysts claim? How does your IT organization communicate requirements to those responsible for authorizing purchases?
 
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