Who Runs The Funding Innovation Process?
Updated: Mar 16, 2023
Digital transformation has been, remains, and will be the core strategic business goal. To prove it, we use some research data. In 2018, the frontier technologies market size was $350 B. Following UNCTAD's last report, it will reach $3.2 T by 2025.
Agree, 5G, IoT, Big Data, robotics accelerate enterprises growth. But who should define and spend a corporate budget on their implementation? It's a controversial issue, considering that both business representatives and IT engineers continually fight to dispose of the budget solely.
Today we will talk about who most often belongs to this right and whether it is worth categorically delineating IT department and management side powers.
So let's start with the general.
A budget is an amount of resources laid down for a particular financial period to cover various expenses. Speaking about the IT industry, it is worth mentioning two types of budget:
for innovation (that is the topic of discussion),
and for maintenance.
In the first case, the expenditure items are any initiatives involving technology implementation for business development. Take, for example, a real-time campaign management system implementation. It is a natural business transition to a higher level of customer service and loyalty system management. It will bring significant benefits virtually immediately after deployment.
In the second case, we mean any suggestions for optimizing the existing systems operation, updating, or them, etc. They do not give noticeable benefits for the business right away, but they may well play a decisive role in its development in the future.
Let's say updating any legacy system. It is unlikely to bring significant improvements in profitability here and now. However, a new version of a product will make the staff daily work much easier. In the future, it will undoubtedly increase the employees' productivity and boost their impression from interaction with your company. But it doesn't happen in a matter of days.
Anyway, business and IT departments strive to manage a budget for development regardless of its nature. Let's analyze different points of view as to why the management of a budget should be in the hands of tech guys or management representatives. Both of the following opinions are correct in their way, but we will try to come to a common denominator.
Who Should Manage The Budget: IT Department Opinion
Taras Chornyi, Chief Technology Officer at JEVERA, shared his vision:
"Agree, engineers understand the technical intricacies of any development better than the business side. It would be more rational to give reins of power to the IT department, because:
1) We can more accurately estimate a project and provide an amount of the research and development budget.
2) Following the above, engineers can allocate budget funds efficiently without compromising the business.
3) If the business side acts as the budget manager, then redundant communications take place. Developers will need to defend their position and explain why a company needs to cover any IT expenses.
Most often, the situation is exactly like the following. The business manages funds - the IT department performs tasks. Due to the difficulties in communication here, a company loses valuable things: time, resources, customers."
Who Should Manage The Budget: Business Side Opinion
Evgeniy Aleksandrenko, Digital Transformation Officer at JEVERA, also believes that engineers need to participate in IT budget planning and management. However, he convinced that the final word should always be behind the business:
"Innovation is never for innovation's sake. Behind any initiative, first of all, there must be some measurable business goal: increase in conversion, income, whatever.
Management knows better what bottlenecks retard the development of the company and builds strategies for their elimination. Innovation is just a way to simplify business processes, satisfy customers and employees, and go beyond the competition.
The IT department should and even must actively work with the budget. However, the business side position is crucial. A management task is to evaluate the current enterprise condition, prioritize initiatives and run R&D budgeting for developments that are vital to a company."
New Innovations Budgeting In Retail, Banking And Telecommunication Industry
Analyzing the above opinions, the management of a budget for development should be supported by a synergy of IT and business areas. It will be difficult for them to cope with this without the help of each other.
On the other hand, there should still be the first among equals in the process.
For example, in retail, management has the final word on innovation. This industry's success heavily depends on digital product implementation. Here, innovation can largely affect the business. Therefore, it is risky to give the decision on its financing in the IT specialists' hands. The same goes for the telco industry. The more active a corporate innovation policy is, the more principal the role of management in this process.
And vice versa. Let's consider any traditional bank or old-school financial services company. For this industry, safety and stability are paramount. Therefore, the role of innovations is secondary. It is a high point for IT engineers. They must keep the systems running smoothly and can manage the budget to achieve this goal without the business side's direct involvement.
Based on the usual practice, a business side manages the budget for innovation, and the IT department runs the investment for maintenance.
To ensure efficient operation, the order should be as follows:
the business decides to approve investments in any strategically crucial development;
engineers spend the budget for maintenance to keep the efficiency of the digital system operating.