Balancing IT Cost Containment and Innovation in Engineering Firms

A large portion of my time is spent talking to chief information officers (CIO), chief digital officers (CDO), and other technology leaders, listening to their challenges, and assisting them with solutions that improve business and operational performance.

A challenge I often hear is: How do we balance the need for IT cost containment with the drive to be innovative and try new digital technologies?

For engineering firms, IT is no longer a support function that “keeps the lights on”. It’s a strategic enabler of business transformation and value creation. It’s a team that understands business drivers and the company mission, doing all it can to help support and drive value to the organisation and in some cases, directly to clients.

For all the value IT brings to an organisation, its spending is constantly under scrutiny and pressure from various stakeholders, such as the board of directors, the CFO, business units, and clients. So, how can tech leaders at engineering firms manage this dilemma and deliver both efficiency and effectiveness in their IT portfolio, and in some cases even transform their departments and company? Here are five steps and best practices you need to consider when navigating this complex terrain.

Understanding and Aligning with the Firm’s Business Strategy

The first step you should take to help decide what to invest in is to understand your business’s strategy and priorities, so you can ensure alignment. Don’t think of IT as supporting the business, but rather as being part of the business. Driving a digital agenda has become a priority, whether you are doing this as the CIO or the CDO. Find out how other business units set goals, know what those goals are, understand how success is measured, and what the key drivers and challenges are for each business unit in your firm.

Once you have a clear vision of the business strategy and priorities, communicate them effectively to your team, your vendors, and your strategic partners. Make sure you use the same language as the business when evaluating IT and digital projects and initiatives, such as value, risk, alignment, feasibility, and impact. Once you understand your firm’s strategy, priorities, and language for evaluating investment opportunities, you can confidently move to step two.

Categorising and Optimising Your Firm’s Project Portfolio

The next step is to categorise your IT/digital spending and optimise your project portfolio. Not all spending is created equal. A good model that has been in use for many years is run, grow, transform – or run-the-business (RTB), grow-the-business (GTB), and transform-the-business (TTB). RTB spending is essential for maintaining the current operations and performance of the IT systems and services. GTB spending aims to enhance existing capabilities and improve the effectiveness of IT processes and solutions. TTB spending focuses on creating new capabilities and enabling new business models and opportunities through innovation and digital advancement.

You might also hear this referred to as efficiency (RTB), effectiveness (GTB), and transformation (TTB). You need to optimise your portfolio by balancing these three types of spending, based on the business strategy, priorities, and current digital maturity. You also need to identify and eliminate any redundant, obsolete, or low-value IT spending that does not contribute to the business goals. This will free up funding for digital investment.

The more innovative you need to be, the more you need to spend in GTB and TTB, and therefore the less in RTB and eventually GTB. For instance, you might currently be at an 80%-10%-10% split between run, grow, and transform, but might seek to drive to 60%-20%-20%. These are goals you should set in conjunction with stakeholders across the business to ensure alignment.

Adopting a Value-based Approach to IT Investments

Understanding where your current spending is and where you want to spend will lead you to step three, which is all about adopting a value-based approach to IT/digital investment decisions, rather than a cost-based or technology-based one. This means that each IT line item, digital project, or initiative is evaluated based on its expected value to the business, in terms of revenue growth, cost reduction, customer satisfaction, competitive advantage, or strategic alignment.

You also need to consider the risks, costs, benefits, dependencies, and trade-offs of each option, but cost is only one consideration and not the main one. Use a rigorous and transparent methodology for assessing and prioritising investments, such as business case analysis, return on investment (ROI) calculation, value realisation tracking, or portfolio optimization. Involve the relevant stakeholders in the decision-making process, such as the business sponsors, the end-users, the technical experts, and your vendors and strategic partners.

Creating an Environment and Culture that Fosters Innovation

Fourth, it is important to foster a culture of innovation and experimentation in your firm by encouraging creativity, collaboration, learning, and risk-taking. You need to create an environment in which people can explore new ideas, technologies, methods, and solutions, without fear of failure or criticism. Provide them with the necessary resources, tools, time, and space to experiment with new possibilities. Reward innovative efforts and outcomes.

Adopt an agile and iterative approach to IT and digital development and delivery by using methods such as design thinking, prototyping, minimum viable product (MVP), or DevOps. These methods allow you to test assumptions quickly, validate solutions with real users’ feedback, deliver value faster, learn from failures, and adapt to changing requirements.

Collaborating and Communicating Across Your Firm

Finally, be sure to communicate and collaborate with the rest of the firm on new initiatives. Transparency ensures alignment and support. It also helps build trust and rapport with your peers in other functions, such as finance, marketing, sales, operations, or human resources. Communicating and collaborating with your wider business lines opens the door to a deeper understanding of their needs, expectations, and concerns regarding IT and digital projects and initiatives. You should be able to clearly demonstrate how your projects or initiatives can add value to their functions, solve their problems, or enhance their performance.

You also need to solicit their input, feedback, and suggestions on how to improve the project portfolio. Every project is an investment in company resources, so having alignment is crucial because this investment has an opportunity cost of resources not being used on something else. If you can align your projects or initiatives with the overall corporate vision, mission, and values, and clearly communicate the purpose, goals, and benefits of each project in the portfolio, there’s no doubt you will gain broad support. And remember to showcase your team’s achievements and successes and celebrate them with the company.

Final Thoughts

Striking the right balance between running the business and growing and transforming the business isn’t easy. Digital investments and innovation cost money, and no one has an unlimited budget. It is your job as the CIO or CDO to work with other groups across the business to determine where the emphasis for your team should lie and to make smart decisions on which projects to invest in.

By understanding the business strategy and priorities, categorising and optimising your spending, adopting a value-based approach to investment decisions, fostering a culture of innovation and experimentation in the IT/digital organisation, and communicating and collaborating with the rest of the firm for any new initiatives, you will succeed.

You will deliver both efficiency and effectiveness in your portfolio, aligning your projects and initiatives with the business’s goals and values, and provide transformational ideas and investment over time.

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