- Sweeping tech overhauls don’t come cheap and require new strategies for funding. It’s one reason why companies are moving away from allocated capital investments, where money is provided for specific projects.
- Instead, Bill Briggs, Deloitte’s global chief technology officer, said organizations should pursue models that allow project leads to work independently without continually having to ask the C-suite for additional funding.
- Such an approach, he said, is creating a closer relationship between chief financial officers and chief financial officer, and spurring the former to bolster their tech literacy.
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Corporations are eager to pursue sweeping digital overhauls and tap into burgeoning technology like artificial intelligence — but those transformations don’t come cheap.
Worldwide spending on tech upgrades, for example, is expected to close in on $2 trillion by 2022. For many of the major overhauls — like McDonald’s using artificial intelligence to better predict customer ordering habits — the full payoffs are unlikely to be realized immediately. Some tech leaders are even planning out tech investments for as long as 10-year horizons.
Given the competition for money within organizations, tech leaders need to get more creative around funding initiatives. That’s why their relationship with the chief financial officer is only going to increase in importance in 2020, Bill Briggs, the global chief technology officer at the consulting firm Deloitte, said.
“If you want to go faster, if you want to be more agile, you want to be more responsive and create more outcomes, you’ve got to do something different with the funding,” he said.
Outside financing projects, companies also have to adjust how they calculate the return on the investment, particularly since many of the tech initiatives span departments and don’t have an immediate profit tied to them. Determining those outcomes early, however, is imperative to seeing short-term results for efforts that may take a decade to complete.
“Very few of our clients have actually quantified technical debt,” Briggs said. The ones that have are better positioned to “have a payoff schedule that has some short term benefit. It’s not just a long-term project.”
At Deloitte, Briggs leads the consulting giant’s chief-information-officer program, which works closely with tech leaders at large US companies to help them manage digital overhauls. A 21-year veteran of the firm, Briggs said even he was working closer than ever with the head of Deloitte’s chief-financial-officer practice.
He provided insight into how companies could take more novel funding approaches, as well as the arrangements that the consulting giant uses to help clients pursue digital transformations.
Investing and measuring outcomes, not deadlines
Companies that are tackling tech upgrades are likely to pursue several initiatives. The customer-support center, for example, may be experimenting with natural language processing, while the compliance team builds an AI tool to better monitor fraud.
To prevent tech leaders from having to continually press the C-suite for funding, there are a number of mechanisms that leadership can employ to make those investments while still being able to carefully track their progress. The first step before deciding on a plan is figuring out the overall tech strategy, the timeline for return on investment, and the organization’s level of risk aversion.
“The further out the bets you’re making, the less certainty you have on timing and the degree of the pay-out,” Briggs said.
Once those decisions are made, there are several options leadership must weigh when determining funding. Organizations are moving away from allocated capital investments, where money is provided for specific projects that are approved on an individual basis, according to Briggs.
Instead, models like capacity-based funding allow companies to give specific product teams a bulk investment to use for tackling a specific problem, like how to better restock shelves in a grocery store or modernize legacy systems by bringing them to the cloud.
It’s saying the C-suite has faith in “the leader of that product having their eye on a roadmap that justifies continued investment. So we’re going to measure them not on time and budget, but are you actually delivering outcomes,” Briggs said.
Another option is nonallocated investment pools, or essentially a bulk pot of money, which can be used across lines of business, so teams from various sectors that are all aligned under one digital strategy can access it.
Both mechanisms allow tech leaders to pursue pilot projects that can serve as a proof of concept for greater investment. State Farm’s innovation center, for example, succeeded in part because the enterprise provided a separate pool of funding for it.
In those models, tech leaders shouldn’t necessarily justify their outcomes on an annual basis during budget discussions. Instead, Briggs said they should regularly be defending the investments against a broader overhaul strategy, like figuring out how AI can be used to improve customer service, which could take much longer than just one fiscal year.
New funding approaches mean better CFO tech literacy
It’s not just companies that are rethinking their funding models. Even consulting firms like Deloitte offer novel approaches to work with clients to help fund major tech upgrades.
Under what Briggs defines as outcome-based arrangements, fees to Deloitte are paid back through profit-sharing and other results-oriented benchmarks. The approach requires substantial up-front analysis, given that the consulting firm is effectively investing in the client’s overhaul plan, he said. “It’s putting money where your mouth is,” Briggs said.
The litany of funding approaches available, Briggs said, is leading finance chiefs to increasingly bolster their own tech fluency. It’s another key reason why chief financial officers and chief technology officers will work so closely together in 2020.
Finance leaders “need to get deeper and understand the potential in front of them,” he said. “The CFO is personally more curious to understand how they can help shape the investment decisions themselves.”