Keep your CFO in your court by self-funding innovation

Innovation is essential for businesses to remain competitive in today’s fast-paced and ever-changing marketplace. In addition to other benefits, it improves productivity, brand recognition, and value, opens up the door for new partnership and relationship opportunities, improves problem-solving and decision-making, and enables you to look at things from different perspectives.  However, innovation can be costly, and securing funding for innovative projects can be challenging. One of the best ways to handle this is through self-funding innovation to keep your CFO in your court.

What is self-funding innovation? 

Self-funding innovation is the process of using existing resources to fund innovative projects. Instead of relying on incremental corporate or LOB funds (or even external funding or investment), IT departments can use existing budget or reinvested savings to finance new initiatives.

The CTO of one of our customers recently emphasized the importance of self-funding innovation. He said, “It’s always a zero-sum game. Finance says you can do all these projects so long as you self-fund.” Even if your company does provide incremental funds for certain IT investments, self-funding much of your innovation can be valuable.

For the CFOs, the self-funding idea goes beyond “I don’t care because they’re working inside their budget.” It much more fundamentally goes to the heart of the CFO role. CFOs are responsible for ensuring that the business operates within its financial means and remains financially stable.  By encouraging self-funding of innovation, CFOs can ensure that the business is financially responsible and pursues innovative projects to drive growth and competitiveness.

With self-funding innovation, IT can also demonstrate financial responsibility and prove their commitment to managing their finances effectively to the CFOs. This makes IT a partner to the CFO.

Is self-funding innovation a zero-sum game?

Our CTO friend referred to self-funding as a “zero-sum game”. It certainly is to some extent because of a fixed budget, but in another sense, is it really?

Zero-sum games are situations where one player’s gain is fully equal to another player’s loss. For instance, poker is a zero-sum game as the winning player’s gain is exactly equal to the loss of the other players. In an IT budget, a zero-sum game committed to managing their finances could effectively mean, for example, that an investment in application modernization might require an equivalent cut in the service desk budget.

I would suggest, however, that self-funding innovation out of the IT budget can be a positive sum game.  How could this be? Let’s find out.

If an innovation project with quick ROI results in expense savings, the latter can be used to fund the project and possibly even contribute to other projects.  Now the immediate and quite reasonable question is where does the funding come from in the first place for the innovation project? Although it may be possible to arrange the timing of projects to get the investment money, an easier and more flexible approach is to work with a service provider who can help identify low-hanging fruit and prioritize a roadmap of projects to realize short-term ROI followed by longer-term savings.

Potential quick ROI projects

So what types of projects provide the quick ROI necessary to make them good candidates for self-funding?  Here are a few examples:

• Cloud Migration through Rehosting and Replatforming – On-premises servers, applications, and data that have not been virtualized continue to be a major opportunity for cost savings. Although lift-and-shift migrations do not give you the full benefits of native cloud environments, they are relatively easy and low-risk approaches for reducing costs in a matter of weeks. In our experience, the cost savings can exceed 40%. The savings may be sufficient to subsequently self-fund more extensive refactored application modernization to get the full agility and scalability benefits of the cloud.

 

• Modernization of BI and Executive Dashboards – Careful identification of appropriate tools and migration of self-service capabilities can help you consolidate and standardize legacy reporting and dashboards to quickly reduce licensing and maintenance costs. At the same time, modernization can provide decision-makers with the information needed to direct the business.

 

• Software License Optimization– Software licensing in the cloud and SaaS world is frequently complex and consulting experts in this area can be extremely helpful. In our experience, high-quality Software License Optimization can save around 20% of the software licensing costs.

 

• Application Maintenance Right-Shoring– Application maintenance consumes a generous portion of IT budgets. If you have not yet achieved an ideal balance between on-shore, near-shore, and off-shore support, a vendor with expertise in the three models and experience in making them work together can ensure significant cost savings.

 

• Robotic Process Automation (RPA)– Automation of manual processes can typically reduce errors by 90% and bring major cost savings. RPA is typically used to automate structured, rules-based back-office processes.  For example, Celsior helped one of the top U.S. banks to automate the manual processing of checks and loans. Through an RPA solution, errors were reduced, processing time was cut by 95%, and large cost savings were ensured.

Encouraging Risk-Taking

Innovation involves taking risks, and some innovative projects may not succeed. However, by self-funding innovation, businesses can encourage risk-taking and create a culture of innovation within the organization.

This can be appealing to CFOs who may be concerned about the financial risks associated with innovation. By demonstrating that innovative projects can be funded responsibly and the benefits of innovation can outweigh the risks, businesses can keep their CFO in their court and encourage them to support future innovative projects.

Conclusion

By aligning self-funded innovation projects to business goals and values, IT can ensure that innovation is targeted toward achieving specific outcomes which are important to the business.  This can help CFOs see the value of innovative projects and understand how they can contribute to the overall success of the business. Over time, the financial discipline of self-funding IT may win over the CFO and wider executive team in those cases where self-funding is not practical and a LOB or corporate investment is necessary.  By demonstrating the strategic value of innovation, businesses can keep their CFO in their court and secure their support for future innovative projects.

ABOUT THE AUTHOR
George Ferguson
Marketing Lead
Celsior