Digital transformation garners significant attention today as organizations seek to exploit technology to transform business. It requires a vision, a strategy, and a budget. The first two ingredients rely on knowledge and insight. The third ingredient, budget, often calls for innovation and creative thinking as well. After all, technology is not free. So how are organizations funding digital transformation?
One approach is to identify areas of budget overspending that can be eliminated. In this model, audits uncover the overspending and budget is reclaimed and reallocated to a new project. This can be an effective approach, but financially efficiency environments may not identify enough financial waste to fund new initiatives.
A second approach is to levy an administrative R&D fee on top of the published service catalog rate to fund innovation. This approach works well in mature organizations where the lines of business paying for services recognize and expect the business benefits gained by the innovation being funded. In other words, if the business ROI is many multiples higher than the R&D fee, then the fee is accepted.
A third approach is to obtain budget funding on an initiative-by-initiative basis from the business. This is a common approach that requires formulating the digital transformation plan and then selling it to the business P&L owners to fund.
Which approach is best? The reality is that a hybrid of all three approaches offers optimum flexibility and agility to act on digital transformation strategies that transform business.