Case
Aligning the IT Budget with Company Needs and Objectives
On acquiring another company, a large US based entertainment firm instanlled a new
CFO/COO in the acquired company’s management. This new executive sought to better
understand the financial and operational drivers of the business.
Even though much work was done in this area during the due dilligence efforts before the
deal closed, executive management wanted to validate the financial condition of the
acquired company. IT was one of the areas about which the new operating executive was
concerned.
During the due diligence effort, the CIO of the acquired copany seemed evasive when
answering some key questions about the company’s IT spend, but because of the dealclosing deadline, further in depth analysis of IT was delayed until after the acquisition
was completed.
During his initial discussions with the CIO, the new CFO/COO continued to feel that the
CIO was not telling him everything about the company’s IT prioritites and overall IT
spend and about IT’s relationship with the business units. The COO/CFO asked an
outside advisor to review the existing IT budget, to provide a realistic assessment of the
company’s IT spend, and to assess the overall IT organization and its effectiveness.
The advisor attempted to work with the CIO in dissecting and reassembling the IT
budget, based on various business scenarios that highlighted different different sets of
priorities. However, the CIO was very uncooperative. After a short time, it became
abvious that the IT budget the CIO had submitted did not really reflect the business units’
objectives, and that no real accountability had been built into the budget. In addition, the
CIO had not spent any meaningful time working with the business units’ executives in
trying to understand their crititcal needs. The budget reflected only the CIO’s views of
what he thought the business units should have rather than what they actually needed.
After learning this, the new CFO/COO removed the CIO and asked the advisor to work
directyl with the executives of each of the business units to come to an understanding of
their ey business issues and priorities. The COO/CFO demanded an objective and
accurate picture of the company’s IT needs, as well as the resulting IT budget
requirements.
Over time, the IT budget was deconstructed, examined as to the strategic fit of various IT
assets and future IT needs, and reassembled. As a result of this analysis, the COO/CFO
was able to redirect and streamline the IT budget. A number of the larger IT projects
were put on hold by the parent company, and the budget that had been allocated for these
projects was freed up. Greater fiscal and operational control was embedded into both the
IT organization and the business units. A new budgeting process was established and
implemented, together with appropriate IT management and fiscal processes and new
measurements.
Business unit management became more involved in the IT planning and prioritazation
process, and IT budget and projects were better focused on key business prioritities. At
the conclusion of this exercise, the IT budget more accurately reflected and realisticially
represented the company’s total IT spend and was a far wiser budget.