Run, Grow and Transform (RGT) is a classic model used by organisations for managing their IT. The approach is aligned to the traditional operating models of managing IT spend within the organisation. Run has remained consistent and is still relevant as organisations will always need a portion of their budget to keep the business running or keep the lights on.

However, Grow and Transform are becoming inseparable. It is becoming difficult to differentiate between the IT initiatives which contribute towards Grow vs Transform, as most of the IT initiatives related to growth require transformation due to the rapid adoption of subscription and consumption-based services, which provide flexibility and scalability to the organisation.

The Run-Grow-Transform (RGT) Model

Businesses attempting to move up the digital value chain may have to rethink the suitability of the RGT model, more specifically IT management and cost allocation. Organisations need to systematically move budget from Run to be able to reduce complexity and allow for advancements.

Operate, Expand & Innovate (OEI)

In the RGT model, IT tends to operate largely in isolation as the focus is ‘to keep the lights on’ however, as enterprises acquire digital capabilities to pursue larger goals of becoming customer centric and achieving revenue enhancement, no longer will they be able to clearly distinguish the changes as Run or Grow or Transform as their attempts could overlap across these three areas.

This has implications for business functions and IT and more specifically the mandate of CIOs. They need to dive deep into such pursuits and bring appropriate changes across working methods, team structure and budgeting. Changing cost allocations is particularly challenging and requires a complete evolution of IT management.

The operating model of the OEI approach would encourage innovation and collaboration as it necessarily brings the business and IT together as decisions should be made jointly on how technology solves specific business problems and the value it generates for the business.

Operate

It is no longer common for IT to control the full operational cost of providing IT services. Instead, departments within the organisation are responsible for a portion of the budget for systems and tools they use, which does not provide clarity across the total IT spend for an organisation.

The increase in subscription and consumption-based services has led to a rapid increase of the overall IT operating cost (Shadow IT). To manage and optimise operating cost of IT it is important for an organisation to understand the overall IT cost incurred by the organisation, the services it provides and the value it is delivering to the business.

Expand

It is no longer satisfactory for IT departments to only expand their technology footprint, but they must also measure the value of this expansion with a Value Management Office (VMO – sometimes called a Technology Business Management Office).

Organisations can do so by consuming additional external technology services and forming a VMO which allows businesses to optimise the current operating cost and position the organisation to be more agile to boost revenue performance, increase productivity, gain competitive advantage and showcase the value which is being generated by IT within the organisation.

Expansion not only helps in optimising the operating cost, but also lays the foundation required for promoting innovation within the organisation. All initiatives classified as Expand should be directly related to tangible or nontangible returns (such as 10% budget reduction of operating cost or increased productivity).

Fig 2. How CIOS can shift more budget to innovation

Why CIOs must focus on activities that innovate their IT organisation

Innovation has become omnipresent due to the increasing rate of disruption in the marketplace. Individuals, organisations and even countries either claim to be innovating already or are seeking better ways to innovate. Think of them as R&D and strategic directional adjustments; anything you initiate for the purpose of a future direction, product, or opportunity for the business.

These are initiatives that are strategic and will hopefully provide a future financial or competitive opportunity, however, they have no way to predict or define the value or the return of the initiative.

These initiatives are the smallest percent of the budget initially as they have the highest risk of providing any return. There has been rapid growth in innovation funding in banking & finance, retail, and automotive industries whereas a steady growth has been seen in other industries, making it very important for organisations to balance the budget and spend for innovation.

Why delivering success depends on People, Process and Technology

The VMO needs to be staffed with the right blend of skills, not only focused on finance and commercial skills but also on business engagement and communication expertise. These professionals need to be supported with the right financial management and stakeholder management processes.

Fig 3. Delivering success depends on establishing a robust VMO structure

The business also needs to move away from spreadsheets toward an IT Financial Management toolset such as ClearCost. The cost model and procedures around the implementation of ClearCost drive transparency and business engagement.

ClearCost can natively categorise costs by Run, Grow and Transform (or Operate, Expand & Innovate!) to assist with decision making that will drive your business toward sustainable growth and innovation.