How to make the right business case for a tech spend
CIOs should help evaluate management goals to support long-term strategy. Learn how IT can assist business objectives and justify tech spending with a business case.
The particular C-suite role a CIO reports to has a major impact on the degree to which technology can support or drive business strategy.
Organizational alignment gives major clues of IT's position and value within an organization. A CIO who understands their placement in the organization can better align with business goals and more effectively advocate for technology investments. Understanding what their supervisor wants to accomplish can give insights to help justify how the CIO can use technology to achieve those objectives.
CIO reporting to the CFO: IT as cost center
In many cases, we see that the CIO reports to the CFO. What this usually means is that the CFO perceives the IT department as a cost center and will focus on cost cutting.
CFOs have an eye on improving the bottom line, so if the CIO is reporting to finance, the CIO typically needs to focus on reducing IT spend.
CFOs tend to discourage enterprise technology investments and otherwise instruct CIOs to keep IT costs low. In response, CIOs need to defer maintenance on IT systems and keep legacy systems running instead of turning to new, more modern technology. CFOs begrudgingly renew contracts and defer maintenance. Three- to four-year lifecycles turn into much longer lifecycles.
In the CIO-reporting-to-the-CFO structure, the CIO rarely has budget approval. If the CIO does have some budget approval, it tends to be at a low threshold, around $10,000 to $40,000. IT leadership autonomy tends to exist only for tactical Opex. The CFO tends to require approval for most IT costs, although the CEO will need to approve the largest expenditures.
The CIO-reporting-to-the-CFO structure works well only where commoditized, nonstrategic IT is adequate to support business goals. Some industries where this might make sense include smaller manufacturing companies, smaller community banks and companies where most IT functions are mostly outsourced. This CIO reporting structure only makes sense if the business fundamentally relies on cost savings and cost avoidance more than innovation.
Advice on making a case for technology spend
In the case where the CIO is reporting to finance, the best way to get approval for technology investments is to create a business case that outlines a straightforward financial justification for the investment. For example, CIOs should make the case that a $100,000 spend will save $400,000 rather than focus on more strategic goals such as improved customer service or reducing errors.
CIO reporting to the COO: IT as efficiency booster
CIOs report to COOs when the focus of the organization is on process improvement, uniformity and scale -- read: efficiency. This alignment is typical of large manufacturing companies and very large service companies, where developing repeatable processes that a large number of people can follow is critical for business success.
Like the CFO, the COO is usually concerned with cost savings. But when the CIO reports into the operational leader, process efficiency is just as important as cost savings. The COO understands the importance of having standards, training and documentation to scale. With this CIO reporting structure, the IT leader will have more ability to invest. However, the litmus test for investment is how spending money can replace staff or allow operations to scale better. The CIO will usually have a larger signing authority for budget. But spending will usually be limited to items that finance has already approved.
This CIO reporting structure makes sense in process-driven organizations that depend on standards development and refinement.
A CIO who understands their placement in the organization can better align with business goals.
Advice on making a case for technology spend
CIOs who report to COOs should advocate for investments based on how a particular technology will support operational usability, repeatability and scalability.
CIO reporting to the CEO: IT as strategic differentiator
The group of people directly reporting to the CEO are those who the chief executive believes lead critical functions that determine the success of the business. Consequently, if a CEO chooses to make the CIO a direct report, the top company leader sees IT as a function that has a direct, strategic impact to the business.
CIOs who report to the CEO have the most control over technology budgets, because IT is strategic for the business and may have a significant budget to spend on IT. While CEOs or the board will likely still need to approve large capital expenditures, the CIO's role in justifying and influencing this investment is significant. Some examples of such expenditures include major data center migrations, such as moving internal systems to cloud IaaS services such as AWS or Azure or creating an online marketplace for a previously physical service or product. The CEO is likely to see a new product or new market as strategic, where reducing Opex as more an efficiency play.
Advice on making a case for technology spend
A CIO reporting to the CEO should focus on business value to make the case for a particular technology investment. CIOs should focus less on how to save money and more on how to create new opportunities for business growth. IT businesses are most likely to have this structure, whereas IT service companies tend to have the CIO in a primary role.
How CIOs can align with business strategy
Regardless of the CIOs position in the enterprise, it is wise to always consider the impact to the business on any IT decision. Ultimately, all positions roll up to the CEO. The more a CIO can show how IT aligns with the business, the more likely they will be to get their initiatives funded.
One way the CIO can increase their effectiveness is to build a justification matrix, which combines values, benefits and risks as column headers against executive roles in rows. The CIO should then think about the value to the other person of an investment they want to make, so they can couch the value of that investment in terms most likely to resonate with the intended audience.
