Digital transformation: allocate your budget for the greatest business impact
One of the words most commonly used by CIOs is value: Modern IT managers are hyper-focused on generating the best possible return on the technology demanded by their business units.
This is something that resonates strongly with Michael Voegele, chief digital officer of tobacco company Philip Morris International (PMI), who argues that any attempt to transform the business through technology will be pointless unless that the IT organization does not focus on creating value.
Rather than taking a reactive approach, where the IT team seeks to concoct technological responses to the challenges facing the business, Voegele says successful technology teams are proactive and work alongside their peers.
SEE: Guide to becoming a champion of digital transformation (TechRepublic Premium)
“We need to integrate technology as a business strategy accelerator,” he says. “We need to have very, very early, integrated conversations about the business challenges and the issues we’re trying to solve.”
Every few months, PMI’s business leaders meet to decide how they will allocate funds to the IT projects most likely to advance business strategy and generate long-term value.
“We have a cross-functional pool thinking in place, where functional managers decide which projects are the most important,” he says. “This is a fundamental change – we have established a quarterly rhythm, rather than an annual allocation of budget slices.”
Business and IT metrics are aligned with common goals, which Voegele says makes a significant difference in how people at PMI – both in business functions and the IT team – view the deployment of technology solutions. .
“Now, it’s not about delivering a project on a budget or within a set time frame. It is, “Are we raising market turnover or are we improving consumer net promoter scores by implementing these technological solutions?” “. It is not, it is just a matter of pushing the button on go live, but realizing the stated benefits of the business case. ”
Voegele says this integrated approach to measuring project success means that the value of IT is now strongly tied to the achievement of organizational goals. This is a big change from when he joined the company in 2019, when the IT budget was in the hands of the CTO, who then split that budget for projects between different business functions.
Voegele acknowledges that this old-fashioned approach to budget allocation would not provide the right foundation for digitization at PMI, which is an organization that aims to effect its own radical business transformation.
Well known for its heritage in cigarette manufacturing, PMI is evolving towards the sale of smokeless products designed to create tobacco vapor containing nicotine, without burning or smoking. Although the company itself claims that these are not without risk, they are a better choice than cigarettes.
“Our target audience is legal adult smokers – we don’t offer our reduced risk products to non-smokers, that’s very clear. It’s about converting and helping smokers convert to a different product. at reduced risk, ”he said. said.
Voegele’s role is to create the digital processes to support this business transformation. In addition to creating an internal platform to support day-to-day operations, his team creates digital channels to help PMI’s local operations sell reduced risk products in accordance with strict regulatory requirements.
“Tobacco is not the kind of place you would naturally think to go to,” he says, referring to his decision to take on the role. “But now, with this vision to end the sale of cigarettes in the future and help support solutions to all smoking related issues, I think you can really make a fundamental change.”
Voegele says his team made significant progress in their first two years at PMI around a series of key pillars of digital transformation, such as managing legacy systems, developing appropriate technology capabilities for PMI long term and the creation of an integrated responsibility between IT and the enterprise for the delivery of the technology.
Delivering value isn’t just about going out and buying additional tech components, despite the potential benefits that emerging technologies – like artificial intelligence, the Internet of Things or virtual reality – can bring. Voegele says value-driven IT organizations also need to have a clear understanding of the technology assets at their disposal.
“Often the value is in leveraging the assets we already have as an organization and doing more with those resources. We don’t want the default option to be where people are trying to come up with something new and fancy, and we don’t really know what the value will be once it’s implemented, ”he says. .
When it comes to developing systems and services that end users need, Voegele has overseen the creation of a team of 80 enterprise-integrated software engineers. These engineers help develop the digital capabilities of different business units globally and locally.
Voegele inherited 2,600 business applications when he joined PMI in 2019. His team has already reduced that fleet by 500 and plans to cut another 500. More than 200 applications, in the meantime, have been moved from an internal data center to the cloud.
All decisions on technology implementation are made in an integrated fashion. Now, instead of giving each business unit an equal share of technology funds and staff, Voegele has created a much closer relationship between budget allocation and business impact.
This integrated approach to technology spending is the kind of value-driven approach McKinsey says all CIOs will need to focus on delivering going forward. The consultant says meeting room executives want their CIOs to go beyond simple IT management to take advantage of technology that creates value for the business.
Analyst Gartner suggests that successful IT organizations no longer just take charge of business operations, as they traditionally do, but participate fully in the creation of value for the company. For Voegele, the only way CIOs can generate long-term value from technology investments is to work alongside the rest of the business.
“Our place at the table of leadership teams across the organization is as a partner – we need to be seen as a trusted partner who can question, not only technology choices, or make technology proposals, but who is integrated into the business conversation and problem solving, ”he says.