More and more executives are acknowledging the strategic value of IT to their businesses beyond merely cutting costs. But as they focus on and invest in the function’s ability to enable productivity, business efficiency, and product and service innovation, respondents are also homing in on the shortcomings many IT organizations suffer. Among the most substantial challenges are demonstrating effective leadership and finding, developing, and retaining IT talent.
These are among the key findings from our most recent survey on business technology, which asked executives from all functions about their companies’ priorities for, spending on, and satisfaction with IT.1 Overall, respondents are more negative about IT performance than they were in 2012 and, notably, IT executives judge their own effectiveness more harshly than their business counterparts do. Compared with executives from the business side, they are more than twice as likely to suggest replacing IT management as the best remedy.
Comparing the 2013 responses with the previous two surveys, the data indicate notable changes in organizations’ current priorities for IT. Concerns about managing costs are down, while larger shares of executives now say their organizations are using IT to improve business effectiveness and information availability (Exhibit 1). Respondents cite these same objectives most often as ideal priorities, suggesting that companies are getting better at aligning their actual priorities with what’s ideal—and that more executives see IT as core and relevant to day-to-day business, not merely a cost center.
Exhibit 1: Organizations are using IT to improve business effectiveness and efficiency, not just manage costs.
To support these priorities, many companies are spending accordingly: 64 percent of executives say their budgets for new investments will increase next year, up from 55 percent who said so in 2012, though they are evenly split on whether operational spending will increase or decrease. When asked how their IT budgets break down, respondents say the largest share is spent on infrastructure—as they have said since 2010—followed by core transactional applications. Looking ahead three years, executives expect less of their budgets to go to infrastructure (Exhibit 2), perhaps because infrastructure is the area within IT where the head count is most likely to have decreased due to companies’ use of cloud-computing technology.2
Exhibit 2: In coming years, executives expect their IT organizations to spend less on infrastructure and more on analytics and innovation.
Despite the promise of increasing investments and aligned priorities, overall satisfaction with IT performance—particularly within the IT organization—is down. Smaller shares of respondents than in previous years say IT facilitates a range of business activities, especially the creation of new products and entry into new markets (Exhibit 3).
Exhibit 3: IT has become less effective at enabling business goals.
On specific functional tasks, executives from the business side are less likely than they were in 2012 to say IT performs effectively. The IT executives are even more negative. Just 13 percent of them say their IT organizations are completely or very effective at introducing new technologies faster or more effectively than competitors, down from 22 percent in 2012 (Exhibit 4). These results likely reflect the overall rising expectations for corporate IT—that it can, for example, provide service comparable to the consumer-grade cloud and mobile applications that are readily available outside the business.
Exhibit 4: Even IT executives report declining performance from their own function.
When asked how to fix the shortcomings in IT, the largest shares of all respondents say improving business accountability, reallocating funding to priority projects, and improving the level of IT talent would do most to improve performance (Exhibit 5). These sentiments are fairly consistent with prior results. However, one-fifth of executives also identify replacing IT management as a fix, up from 13 percent when we asked in 2011. We offered this option only to non-IT respondents in 2011, but in the 2013 survey, the IT executives had the option as well. Remarkably, 28 percent say new management would boost effectiveness, more than twice the share of business executives who say the same.
Exhibit 5: Surprisingly, more IT executives than business leaders see changing IT leadership as a priority to improve IT performance.
Struggling with Talent
Amid the increasing pressure and dissatisfaction, the enthusiasm to replace management highlights the concerns of some IT organizations that their leaders cannot manage change in rapidly evolving circumstances. Just 55 percent of all executives say their CIOs have a significant impact on their organizations’ business issues, and a nearly equal share says their CIOs are part of the most senior executive team. Across regions, those working in Europe are the least likely to say their CIOs are on the senior team.
What’s more, CIOs spend an average of only 8 percent of their time developing talent, an area where IT organizations have a clear need to improve. Fully two-thirds agree that it’s a significant challenge for their organizations to find, develop, and retain talent, with IT executives even more concerned about this than their business peers. This problem is a long-standing one for many IT organizations. But it is even more critical now as they look to roles that require more business experience and are in higher demand (such as analytics specialists and data scientists). The challenge is exacerbated by the lack of formal processes to govern IT talent and skills management. Just 23 percent of executives report the consistent use of such processes to manage talent, the lowest share across all of the governance processes we asked about.3
In the next 12 months, the most acute needs for IT talent are in analytics, joint business and IT expertise, and mobile and online skills, though there is considerable variation across sectors (Exhibit 6). Financial-services executives, for example, are less focused than others on analytics (only 22 percent cite this, compared with 40 percent of all respondents) but are much more concerned with enterprise architecture than respondents overall. There is also an interesting split between B2B and B2C executives on analytics: 58 percent of those at B2C companies cite analytics talent as a need, while only 40 percent at B2B companies do. This result suggests that B2B companies may not have been focusing as much on their analytics capabilities as their B2C counterparts—and that B2B companies will be feeling this shortage more acutely in the near future as analytics becomes even more critical to business.
Exhibit 6: The overall IT talent shortage is most pressing for analytics, but needs vary by sector.
Solving the talent issues will require multiple remedies, and respondents identify two in particular: improving culture within IT and improving compensation (Exhibit 7). Compensation can be resolved more tactically or operationally. In contrast, transforming the culture is a long and complex game that requires a comprehensive assessment of overall organizational health and a serious commitment from business leaders.
Exhibit 7: To address talent challenges, companies should focus on culture and compensation.
Beyond these IT-specific challenges, executives identify some other areas for improvement on the business side. When asked how their companies carry out application development and maintenance projects, IT executives say their organizations tend to follow a traditional “waterfall” approach to their work on legacy systems and a more interactive, iterative approach for new development work. Further, these respondents indicate a desire to increase the share of work they do using iterative approaches but identify barriers to this change. The top barrier cited is a lack of business ownership, followed closely by managers lacking an understanding of when to use an iterative approach.
- Address talent from the top. As IT continues to evolve as an important strategic tool, the required skills and staff are becoming harder to find and retain, especially in areas such as analytics and next-generation infrastructure. The results suggest that companies could better meet these needs with a more attractive talent value proposition that spans culture and morale, compensation, and career development—issues requiring focused attention from IT leadership. CIOs must be more involved in developing a talent-friendly culture within their organizations to tackle current and future talent issues.
- Increase business-side involvement. All executives must work to address critical gaps in IT by elevating knowledge in areas that span both the business and IT functions. According to the survey, there are three important areas for improvement: data and analytics, business-IT interactions, and approaches to development work. Given the current state of CIO influence, the task of bridging cross-functional gaps may fall disproportionately on non-IT leaders.
- Balance competing demands. Steadily rising expectations for IT underscore how fraught the landscape is for CIOs. These leaders must find a way to fulfill roles that may be at odds with each other—managing the IT function while also leading technology-driven changes. To that end, increased use of approaches (such as iterative development processes) that can help CIOs meet both mandates and manage two-speed IT organizations will become evermore important.
1. The online survey was in the field from October 8 to October 18, 2013, and garnered responses from 807 executives. Of these respondents, 354 have a technology focus, and the other 453 represent other functional specialties. The respondents represent the full range of regions, industries, company sizes, and tenures. To adjust for differences in response rates, the data are weighted by the contribution of each respondent’s nation to global GDP.
2. Technology executives were asked how their IT organizations’ head counts had changed, if at all, due to deployment and adoption of cloud technologies in four areas: infrastructure, application development, application maintenance, and vendor management. Thirty-five percent of these respondents say their head counts in infrastructure have decreased as a result of cloud use, while between 8 and 17 percent say the same for the other three areas of IT.
3. We asked about the use of formal processes for eight different governance functions. On average, respondents say their organizations have formal processes for three, the most cited of which are allocation of IT resources to projects (47 percent), IT portfolio planning and management (42 percent), and IT resource and capacity planning (41 percent). One-tenth of respondents say their organizations have no processes in place to govern any of the eight functions.
About the authors: Naufal Khan is a principal in McKinsey’s Chicago office, and Johnson Sikes is a consultant in the Stamford office.
This article was originally published by McKinsey and Company. Copyright (c) 2014 McKinsey & Company. All rights reserved. Reprinted by permission.