Many businesses find themselves at a crossroads when it comes to technology modernisation. Some face tough decisions about what to do with their IT estate that, in truth, they may have been putting off for years. Replace legacy systems and architecture now, or stumble on for another business cycle?

There is also another conundrum. Many businesses have little choice but to increase their tech budgets each year to fend off new (and, in all likelihood, more agile) market entrants. But as the tech cost base increases, this puts more scrutiny on the optimisation of those tech costs, particularly from investors seeking guaranteed returns. 

Solutions are not always as binary as they might appear. For example, as we explained in a recent post, there is often a third, middle way that avoids either a complete and continued reliance on antiquated legacy systems, or a rapid and complex integration of new technologies. 

It’s worth taking a step back, however, to try and unpick some of the more fundamental reasons tech modernisation programmes don’t always go to plan. Here are three common mistakes CEO make when deciding how to modernise their tech stack. 

  1. No clear long-term vision. CEOs typically have a good understanding of their short-term tech plans, for example, how a specific investment will remedy an identified issue in an operational process or help meet the needs of an existing market or customer base.    What’s often missing, however, is a clear understanding of how longer-term technology investments will align with the company’s overall strategic goals. This can lead to a focus on shorter term plans and initiatives, whose outcomes seem more certain and whose importance seems more immediately obvious. One consequence of this short-term focus is that decisions on legacy architecture are continually kicked down the road. In terms of alignment with strategic goals, it can also mean a focus on serving the needs of today’s customers, rather than considering if the technology is likely to be fit-for-purpose for future market opportunities. 
  2. Limited understanding of the make-up of tech costs. CEOs need to be able to skilfully balance the need for technological and digital innovation with effective cost control. Having a proper understanding of your tech cost base requires being able to attribute costs to specific business products and services in a structured, flexible and auditable way. In practice, this can be challenging, as it requires having an end-to-end view of the full range of tech costs (across applications, infrastructure, people and third parties). See our previous post that explained the importance of calculating your tech cost-to-serve. Without having clarity and transparency over their tech cost base, many CEOs miss opportunities to work more effectively with their CTOs/CIOs and make strategic decisions to reduce costs or invest to drive growth. 
  3. Underestimating the complexity of technology change initiatives. CEOs often downplay or underestimate the need for specialised expertise and resources when undertaking complex tech modernisation programmes. This can lead to project failures, and increased expense over the longer term, as sticking plasters are applied to fix unforeseen problems. These issues can sometimes be compounded by cultural failings in the way tech decisions are made, i.e. investment decisions in tech programmes not being driven by business outcomes. In an ideal world, tech programme outcomes should reflect the strategic goals of the company, not necessarily the vision of the tech architects. 

Tech modernisation takeaways for CEOs

  • Be clear about the medium and long-term plan, and how you will drive other senior executives (CTOs, CIOs) on the journey. What is the target in terms of technology and people? How will it affect the cost base? What is the timeframe? Successful CEOs will recognise the importance of balancing short-term objectives with a clear and sustainable long-term technology strategy.
  • Aim for transparency in your tech cost base. Work with your executive team to ensure you understand how costs are linked to business products and services, which in turn can be related to strategic goals and growth drivers. 
  • Recognise and prepare for complexity. Build in contingency budgets and implement appropriate assurance activities, so that if problems do arise, you can act swiftly to address them.