I’ve had this IT funding fantasy for years (I know, it’s really sad that my more exciting fantasies are to do with IT funding scenarios!) Supposing the CIO had to do a fund drive every year or every six months the way our local National Public Radio stations had to operate in order to fund certain IT activities?
I actually hate the NPR fund drives, but I love what privately funded radio brings compared to all other forms of news and quality radio programming in the USA, and I realize that the funding model is necessary and ultimately important to the NPR mission.
Listening to my local radio station’s NPR funding appeal for a couple of weeks twice a year always gets me thinking about IT funding and my “IT Charitable Donation Fantasy.” I’m not suggesting this is the way to fund all IT activities – far from it. I believe that funding, for good or bad, drives behavior, so if we want responsible business behavior around IT assets and activities, we need to think through the desired behaviors and how funding models promote or detract from those behaviors.
Three Distinct IT Funding Pools
It is useful to carve IT spending into 3 broad categories:
- IT infrastructure. This should be defined very broadly to include all shared IT capability. To borrow from Prof. Peter Weill’s definition, IT infrastructure is the base foundation of IT capability budgeted for, centrally coordinated and shared across the enterprise. I don’t see this being funded through a charity-like, voluntary basis. Like all infrastructures, nobody really wants to fund it, and few understand the technology details, risk management, capacity planning and other implications that render IT infrastructure either reliable and supportive of the business mission on the one hand, or unstable and get in the way of the business mission on the other. I think IT infrastructure is best funded as a kind of tax – in a way that fairly represents the proportional value to the organization that uses it. Depending upon the nature of the business, this might be a function of headcount, divisional revenue, or some other factor. And, as an aside, the CIO should be looking to continuously improve the cost per unit of infrastructure over time.
- Business Solutions. These should essentially be funded by the business units that require them and will benefit from them. If more than one business unit, then the combination of business units will fund the solution in proportion to the degree of benefit or value each derives. This will never be pure science and will typically involve some kind of negotiation between the parties. By the way, this type of activity should have a robust value realization approach to go along with the funding. (I’ve posted on value realization quite a bit in the past – if you are not familiar with this material, please either search my blog for “value realization” or drop me a line, and I’ll send you the links.)
- Innovation/Research and Development. This is the part of the IT budget that I think lends itself best to a voluntary funding model. The most common funding practice I come across for this category of activity is “stealth funding” – i.e., the CIO squirrels away funds from other activities, and runs them below the radar – some unspent training dollars here; some savings from a renegotiated vendor contract there; some money left over from a project that came in under budgets, and so on. The problem with stealth funding is that it is unpredictable, and it hides from the customer base the fact that money for innovation and R&D is actually necessary, and a sign of a healthy IT organization.
Fund Raising for IT R&D
So, how might this work? First, the CIO needs to decide a funding target for IT Innovation and R&D. This might be something between 1% and 5%. Then build a business case – how will the funds be used? Why should the business care – how might they benefit? Typically, these funds will be invested in a mini-portfolio of activities, from low-risk to high-risk, and from short-term to long-term. Will there be an expected payback on the whole portfolio?
For those business heads that chose to participate, will they get any special treatment compared with those who chose not to participate? (This is a thorny question! NPR does not threaten to cut me off listening to the wonderful Morning Edition or All Things Considered, or any of their great weekend shows should I not ante up each year for “membership.”) For the CIO, I’m not sure how best to play this out. I think some special treatment might be the ability to participate in business experiments that are associated with the R&D activities, but there may be other quid pro quos for those who pony up to the R&D fund.
So, what do you think? How “fantastic” is my IT funding fantasy? Are any of you doing anything like this? How is it working? Could it work? Answers on a postcard, please!