Loknath Das July 4, 2017 Budgeting
As I’ve been working with companies that are in the process of digital transformation, nearly all mention a common challenge: “How can we create a budget for digital transformation initiatives for a multi-year digital journey?” I’ve blogged before about funding for digital initiatives veering off track due to the complex, cross-functional nature of a multi-year journey. But the budget approval problem starts at the outset. In fact, most traditional budgeting structures break down in the face of the challenges of digital transformation.
Obviously, digital transformation doesn’t come without investment or without costs, and it takes time to deliver on the promise. But funding for digital transformation journeys is particularly nettlesome. Often the promise of a digital transformation is some combination of better business impact as well as lower operating costs. Consequently, executives quickly gravitate to the lower operating costs. That leads them to design short sprints or projects to deliver savings. This strategy often is not realistic for funding the digital journey.
Why Is Funding So Difficult In A Digital World?
In a digital transformation journey, there are many different initiatives, all of which need funding. But the transformation involves running the initiatives across multiple departments or business units in a continual, iterative journey. Thus, some of these initiatives must be viewed in the context of a portfolio rather than individual projects or initiatives that pay for themselves.
However, normal budgeting and governance vehicles don’t lend themselves easily to portfolio analysis and portfolio funding. When multiple departments or business units are involved, they each need to sponsor, participate in the journey, generate the funding and perform oversight of the funding.
A portfolio or collective set of initiatives can deliver huge benefits both in business performance and cost reduction. But how to look at digital transformation funding through a portfolio “lens” rather than as individual initiatives is a frustrating dilemma that stymies many companies. The difficulties impede progress and often discourage or even defeat the effort.
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