Flipping IT Budgets Toward Innovation

As businesses, Chase and Carrefour Group appear to have little in common, at least at first glance. After all, Chase is an American bank, while Carrefour is a French grocery chain. But they do in fact share something noteworthy, especially for other businesses that care about innovation. Chase and Carrefour both heavily relied on their IT systems to meet changing customer needs and wants over the past two years, maybe even more  than their products, processes, and marketing savvy. And the strength of IT systems at both companies has proven to be a critical competitive differentiator, helping them identify new sources of growth and respond at speed in challenging and fast-evolving operating conditions.

Systems strength, for example, gave Chase the agility it needed to use Instagram to link consumers to the mobile web, and then easily operate their bank accounts or seek assistance from home using its banking app. And it gave the Carrefour Group the interoperability required to partner with Google to quickly launch a voice-activated grocery service where customers could add to their shopping list by saying words like “butter,” “milk,” or “eggs,” before picking their preferred delivery method—home delivery or pickup.

What is IT systems strength? At Accenture, we define it as a measure of a company’s ability to innovate at scale, calculated by assessing three factors: tech adoption, tech depth, and organizational culture.

TECH ADOPTION: Strategic and sequential adoption of technology is essential for a company to innovate on product and services. To gauge adoption and expertise, we consider the use of 30+ technologies such as AI, automation, and cloud and data-related technologies at the firm level. We also incorporate reinvestment and expertise development into the company’s tech adoption score.

TECH DEPTH: The extent to which adopted technologies are used across processes indicate a company’s ability to innovate and scale rapidly to keep up with market demands. To assess tech depth, we utilize the American Productivity and Quality Center (APQC)’s process taxonomy across the enterprise.

ORGANIZATIONAL CULTURE: An environment where daily learning and experimentation is the norm is a key to fostering innovation in fast-evolving environments. We use 13 Likert questions to capture the development of necessary culture and practices necessary to create and capture value from innovation.

We’re confident that systems strength made the difference at Chase and Carrefour Group because of two global studies we conducted, one in 2019, and the other in 2021.

In 2019, curious about the determinants of innovation at scale, we conducted one of the biggest global research projects in our firm’s history. After surveying 8,300 C-level executives, including 885 CEOs in 20 industries spanning 20 countries, we found a massive performance gap between companies with highest systems strength (at or above the 90th percentile)—and those with the weakest systems strength (at or below the below 25th percentile). Specifically, the Leaders were growing at 2x the rate of the Laggards.

Then came the pandemic, which compelled companies to rethink their business strategies and complete their tasks, quickly, in completely virtual environments. Observing these exponential changes, we repeated our global study in late 2021 with the aim of finding the drivers of innovation and value capture in times of such unprecedented crisis.

This study surveyed 4,300 C-level executives across 20 industries in 25 countries. And this time we found that the Leaders, 10 per cent of our survey, had progressed even further out in front, clocking 5x the growth rate in the past three years compared to the Laggards.

The Leaders’ continued investment in systems strength clearly paid off even during the pandemic. Having robust IT not only enabled critical innovation but also quick scaling and distribution – essential for the success of any company trying to keep up with fast-changing market demands.

What if your company isn’t leading?

All is not lost if you’re not already one of the leading companies. Following our second study, we were surprised to find the emergence of a new group of companies breaking performance barriers. Previously ensconced in the middle of the pack, this cohort managed to significantly accelerate their innovation-led growth despite being behind Leaders in terms of IT setup (quite far behind in some cases).

Comprising 18 per cent of our survey, we call this group “the Leapfroggers,” and they are, on average, growing 4x times faster than the Laggards. And according to our analysis, they had only to be above the 30th percentile in terms of systems strength to make a start.

How did they do it? Leapfroggers moved into higher performance brackets by flipping their IT budget allocation from operations to innovation.

“Our research shows top companies with high systems strength prioritize innovation over operations. Yet roughly 70 per cent of IT budgets are allocated for operations or maintenance, with the remaining 30 per cent earmarked for innovation.”

We’ve been tracking IT budgets since 2017. Our research shows top companies with high systems strength prioritize innovation over operations. Yet roughly 70 per cent of IT budgets are allocated for operations or maintenance, with the remaining 30 per cent earmarked for innovation.

During the pandemic, Leapfroggers couldn’t necessarily build up their IT systems—a process that can take a long time—but they could, and did, change their mindsets and investments to focus on innovation. Think new products and services, entering new markets, and redesigning business processes and ecosystem strategies, and a focus on innovation KPIs as opposed to IT KPIs. The Leapfroggers leveraged the combination of their existing systems strength (even if it was not great) and a higher innovation budget to adopt technologies such as Cloud, big data analytics, AI, and edge computing in months rather than years. And through this compressed transformation, they quickly began to close the gap between themselves and the Leaders.

Deutsche Telekom’s revenue jumped 35 per cent from 2019 to 2021, which we believe underscores the impact of logging higher innovation KPIs—a must for business growth in today’s volatile market, where companies are experiencing a concurrent change across multiple dimensions such as political, supply chain, consumer preferences, and macro-economic. In 2016, the German telecom giant decided to modernize its IT estate and invest in innovation, which gave it the resilience it needed to navigate the pandemic. Although the number of digital conferences jumped 322 per cent, and Netflix users soared 3074 per cent, Deutsche Telekom was able to keep its networks stable and secure, while also moving 16,000 service and call-center employees into their home offices within a very short time. More importantly, the company responded to the pandemic by making KPIs a priority. As a result, Deutsche Telekom now creates new experiences for customers via Chatbots, smart speakers and an app that “knows” the best available internet connection for your phone. It is even using AI to help strategic planners decide where to build out new fiber-optic network services.

Only a small group of companies are quickly adapting to changing customer behaviours and preferences, making dynamic decisions, and successfully innovating at scale. Like Deutsche Telekom, members of this group  understand the benefits of systems strength and innovation-focused IT budgets. This is what makes them either a Leader or Leapfrogger. Our research prescribes a two-step process for those looking to emulate Leaders and Leapfroggers. Step 1: Assess your IT systems strength. If you are above the 30th percentile, you can proceed to the next step. If not, continue to build IT systems strength. Step 2: Determine the allocation of your IT budget between operations/maintenance and innovation, and if it favors the former, then it is time to prioritize the latter by flipping your IT budget.

The authors would like to thank Gargi Chakrabarty and Regina Maruca for their editorial contributions to this article

About the Author

Ramnath Venkataraman is Accenture’s Integrated Global Services lead, responsible for Technology sales, solutioning, assets, offerings, and Advanced Technology Centers around the world. He is….Read Ramnath Venkataraman's full bio

About the Author

Prashant P. Shukla is the principal director of technology research at Accenture, and the Accenture Program Lead for MIT's initiative on the Digital Economy (IDE).

About the Author

H. James Wilson is Global Managing Director of Thought Leadership & Technology Research at Accenture. He is the co-author of Radically Human: How New Technology is Transforming Business and….
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