The Ever-Increasing Compounding IT Debt Dilemma

    

While there probably isn't a more exciting time to be part of an enterprise IT team than right now with all the technological advances in cloud computing, artificial intelligence, automation, and Internet of Things, it can also be challenging. 

For the past few years, only very few IT organizations have seen a slight increase in their budgets, while most teams had to make do with the same or even less money — despite an average increase in revenues. This often comes with hiring freezes and skill gaps — leaving IT managers frustrated as they try to figure out how to get more work done with fewer hands. 

But the biggest dilemma that CIOs have to solve right now is how to significantly reduce the regular IT Business-as-Usual workload in order to free up money, time and resources to innovate. But this isn't as easy as it sounds! 

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Most Of The IT Budget Is To Keep The Lights On

Over the past years, you probably heard the often-quoted Gartner statistic that eight of ten dollars enterprises spend on IT is "dead money". In other words, according to Gartner, 80% of an enterprise's IT budget is allocated to simply keeping the lights on (KTLO). While this statistic is from 2006, not terribly much has changed since then. 

Forrester Research surveyed IT leaders at more than 3,700 companies in 2013, and respondents estimated that they spend an average of 72% of their IT budgets on maintaining infrastructure, replacing devices, supporting ongoing operations and maintenance. Only 28% of the money goes toward new projects. Moreover, the recently released State of IT study by Salesforce notes that IT managers still spend 54% of their time on these maintaining-status-quo tasks.  

For example, assuming an enterprise has an annual revenue of $2 billion and spends a meager (but average) 3.2% on IT, $51.2 million is allocated to KTLO activities! This leaves about $12.8 million as project budget — which gets further divided for IT Transformation projects, such as Windows 10 migration projects, that eat up the majority of this budget, and a tiny portion for innovation that could be used to transform the business.

There is little left to contribute to growing the business, driving innovation, or building a competitive advantage through Digital Business Transformation. This calculation can be extremely frustrating for someone looking to increase their innovation spending, as keeping-the-lights-on functions are an essential task for IT and switching them "off" is simply not an option. 

But in a world, where innovation and growth is the number one business priority, business units and executive management are asking themselves why IT — who should be spearheading those initiatives since almost all of them are digital — isn't contributing more? 

And CIOs, who are becoming more business focused and tasked to drive innovation, are pulling their hair out wondering why it is so hard to lower the cost to keep running in place and allocate more budget to moving forward.

The Increasing Weight Of Compounding IT Debt

The answer to the dilemma lies in the nature of the task and it can be compared to credit card payments. 

Imagine, you have a high credit card bill that you are trying to pay off. You have a fixed monthly income and can pay off a certain amount every month. However, if you are only able to pay the minimum balance, the interest fees are quickly going to increase your overall balance — and you pay to simply maintain status quo or, even worse, get buried in more debt. 

The same is true for your IT maintenance workload. With each modernized service or new system comes more work. IT becomes inundated with change requests, support tickets, and issues that need resolving, that the team has a hard time to deliver them in a timely manner. 

So, they start a backlog. As the backlog grows, so does the pressure for the team. They are being perceived of as slow to deliver or incompetent, unwilling or unable to support their business units. If a business unit needs a new application, they are not likely to go to IT and patiently wait for their turn but they will most likely a) try to build their own application, b) buy a software-as-a-service that will at least fulfill 90% of their requirements, or c) hire a third-party developer or system integrator to build the application for them.

Eventually, the maintenance will be turned over to IT. This might not seem like a big deal now, but consider this: IT has to maintain corporate standards, ensure the organization complies to federal and other regulations, as well as is not causing additional security risks or vulnerabilities. 

And this leads to a crippling problem. For some organizations, this backlog can compound at an annual rate of 10 to 20 percent a year (which would mean that in the worst case scenario it would double in the next 5 years)!

5 Main Causes Of Maintenance Creep

In order to understand how to dig ourselves out of this hole, we have to examine where the inefficiencies lie and eliminate them. 

While in the past, IT's mandate was to maintain the regular hardware and application estate as cost-effectively and with the least business disruption as possible, IT now also has to:

  • Reign in the threat of Shadow IT organizations blossoming throughout the business units that are causing licensing issues, more IT help desk support tickets, security vulnerabilities, and many other problems. 
  • Modernize dinosaur legacy applications that have been deeply rooted in the enterprise's core business functions. In fact, according to the State of IT report, 52% of IT managers view "legacy technology as a major challenge to meeting their strategic objectives."
  • Accommodate new digital workplace requirements (such as Bring Your Own Device) and work much harder to satisfy the user experience expectations of a much younger, more demanding workforce. Employees expect the same level of technological advances at work as they have in their private lives. 
  • Accommodate faster upgrade cycles of X-as-a-Service solutions. For example, if your organization moved to Windows 10 last year, you will now have to upgrade your entire estate two times a year as new OS versions are released twice a year and lifecycles have become significantly shorter. 
  • Maintain more applications, platforms and devices each year. Usually, change or innovation for IT means more or additional technology to maintain. New technology leads to more helpdesk tickets, but it also requires more application testing and packaging as well as licensing. 

While these five main reasons are by no means an exhaustive list, it does give you an impression of why the problem of maintenance creep is so compounding and difficult to reign in. 

Conclusion

The question remains: what can you do about it? First of all, it is worth it to examine how your organization budgets and why your IT budget might not grow as fast as your revenue. Many enterprises lump together their business-as-usual budgets with their project and innovation spending. However, treating these separately might be worth looking into. While your budget for keeping-the-lights-on activities can be tied to a percentage of the revenue, consider keeping the innovation budget as a capital expense. 

However, this won't solve your KTLO inefficiency problems which cause crippling IT debt. As many of these tasks are manual, tedious, and repetitive, they are excellent candidates for IT automation. In the next weeks, we will explore how IT automation can help you to eliminate or accelerate a large portion of your KTLO tasks, which is a critical step in building a foundation for Digital Business Transformation. We will also take a closer look at real-world examples of what other companies have done to implement IT automation. 

Click here to download the IT Automation: The Path To Digital Transformation & Innovation Guide

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