The IT department is losing its role as a driver of technology innovation to other parts of the business, according to a major study.
CIOs have largely failed to increase their spending on innovation – but HR, operations, finance and marketing are picking up the slack, by spending between 2% and 3% of their budgets on innovative IT projects.
The findings are part of a major survey of 165 organisations, representing £29bn in IT spending, by CEB (formerly the Corporate Executive Board), a member-based advisory company.
“The fact that innovation is happening in the business, rather than the IT department, is a reaction to the fact companies have not been able to carve that spending out of the IT department,” said Andrew Horne, a managing director at CEB (pictured).
Despite attempts by IT leaders to reverse the trend, by cutting IT maintenance spending, the savings are being soaked up by other spending commitments, rather than going into IT innovation, the research reveals.
But other parts of the business – such as HR, operations and finance – are picking up the slack by developing cloud services, customer relationship management (CRM) applications, collaboration tools or just issuing their teams with iPads to make their teams more productive.
Resources for IT innovation
Shadow IT budget bigger than CIOs realise
These shadow IT budgets are equivalent to 40% on top of the IT departmental budget, the research reveals – twice the figure most CIOs assume.
By contrast, the proportion of the IT budget devoted to innovation and developing new business opportunities has remained static at around 30% for the last four years.
IT needs to be less controlling about technology
CEB advises IT departments to work with the rest of the business in supporting experimental work, rather than attempting to put a stop to shadow IT spending.
Other departments are more likely to know which technologies will help them work more effectively than the IT department, said Horne.
“We think IT cannot support the speed and level of expenditure on innovation. IT does not have enough knowledge of the customer, employee and workforce to say which technologies might be useful and which not,” he said.
But this approach needs a change in mindset for many IT professionals.
“A lot of CIOs get it, but it is hard to cascade that down to the teams. The IT people on the front line are still of the old mindset, if it's not officially sanctioned, it should be stopped,” he said.
Unhealthy IT spending
Nevertheless, research shows that half of shadow IT spending is what CEB dubs "unhealthy spending", that would be better off being moved back to the IT department.
“There is still some unhelpful buying of commodity equipment that IT could buy at a lower price, or parts of the business buying and running IT themselves, like the classic service under the desk. That is not a good sign,” said Holmes.
One approach is for the IT department to develop guidelines that will help them understand whether a shadow IT project is likely to be of genuine value to the company, or an unnecessary risk – an approach taken by some CEB members.
For example, the value of a finance department developing an enterprise resource planning (ERP) system is low and likely to be high risk if it fails.
But developing collaboration technology or big data could add value to the business and is unlikely to have a negative impact if it goes wrong.
“These are areas where there is an opportunity for IT to stand back, and see what happens. Don’t jump on the project, and don’t try and stop it,” said Horne.
Read more about IT spending in 2014