CXOs balance the need for new investments in digital technologies to drive innovation and interoperability while addressing challenges with macroeconomics, IT resourcing and cost inflation. Sebastian Grady, President of Strategic Initiatives, Rimini Street, discusses how scarcity of budget, IT skills and labour affect a company’s Digital Transformation roadmap and the biggest challenge for CIOs.
Rimini Street, a global provider of enterprise software products and services and a leading third-party support provider for Oracle and SAP software products, as well as a Salesforce partner, has announced the findings of the Censuswide Buyers Sentiment Survey, IT Leaders: The Future Outlook Report 2023, examining CIOs’ and CTOs’ IT strategies, initiatives, challenges and focus. The Rimini Street-sponsored research polled more than 1,000 respondents across more than seven industries in the UK, Ireland, the Nordics and the Gulf states, and found IT leaders continuing to prioritise Digital Transformation and interoperability of technologies to achieve strategic, financial and operational business objectives in 2023. The report further showed that respondents had to balance their digital innovation investments against a variety of current challenges affecting their organisation such as talent shortages, supply chain disruptions, macroeconomic cost inflation and geopolitical realities, including complex global sanctions and de-globalisation.
Key survey respondent findings
- 62% say Digital Transformation is a high priority in 2023, but among this group, 77% are only in the planning stage of projects and 56% currently do not have a Digital Transformation project.
- 76% of respondents have heard of composable ERP and 84% of this group are expected to make investments in composable ERP in 2023.
- 47% feel the increased cost of living has led to the inability to meet salary expectations for new and existing staff.
- 67% want to reduce legacy enterprise application support costs by switching to third-party support.
Digital Transformation for composable ERP
A majority of IT leaders agree that a Digital Transformation project is in their near-term roadmap, however, there are mixed sentiments due to scarcity of budget, IT skills and labour. There is also a weighing of possible security and implementation risks associated with embarking on such projects, as noted by 43% of respondents. The number-one driver towards making such investments in 2023 is to pivot towards becoming a much more flexible, scalable and agile organisation, with a strong movement towards migration to the cloud to allow for composability and compatibility of their existing IT technology stack and enterprise application with new software applications that fit their unique business needs.
Respondents strongly believe the adoption of composable ERP strategies should be considered a change management programme requiring employee buy-in (47%) and that IT leaders should plan for additional talent and financial resources to support the new ecosystem of technologies (43%).
CXOs take action against low-value vendor support
While increases in IT budget for the new year remain conservative, 44% of IT leaders feel additional pressure by their board of directors to show increased return on investments for their technology spend. With a significant portion of IT budget allocated towards enterprise application software, CIOs and CTOs are reviewing the total cost of ownership associated with their purchase and maintenance of enterprise applications, especially the increased cost of hiring internal resources and additional contractors to close the gap when vendors fail to provide quality support.
Other respondent-noted pain points include:
- Being locked into an existing enterprise software contract (20%)
- Requirement of unnecessary upgrades to resolve issues (51%)
- Having to reproduce the issue to prove the root cause to the vendor before receiving support (40%)
A majority of IT leaders (67%) seek to reduce the total cost of ownership for existing, matured enterprise software by switching to third-party support programmes, with almost half of participants (48%) looking to outsource support and maintenance services to free up their IT teams to work on more strategic, innovation-focused projects.
Talent and skills shortage paves way for innovative hiring, retention and reskilling strategies
Across the globe, organisations are finding continued challenge in filling the talent and skills shortage while preventing the loss of key staff due to burnout (42%). The increased workload for those remaining signals loss of productivity as they become much more reactionary, ‘fighting fires’ instead of working on projects to optimise and evolve their IT roadmap (46%). Surveyed respondents are embracing the new talent acquisition and retention environment by becoming more flexible in their hiring models, including the hiring of talent with less experience and fewer skills, but with a willingness to learn (60%). Other actions taken to fill the talent gap include cross-training of existing staff (39%), offering unique perks and benefits such as a four-day workweek and engaging third-party services to provide ongoing or project-based support, application management or outsourcing services (47%).
I caught up with Sebastian Grady, President of Strategic Initiatives, Rimini Street, who offers some further expert insight into Digital Transformation development and tips for those starting out on their journey.
Can you provide some further insight surrounding the current challenges respondents are facing when it comes to their digital innovation investments?
I would start with the positive in that 62% of respondents across Europe, Middle East and Africa (EMEA) say Digital Transformation is a high priority this year, but there are also variations as it is a higher priority in the Gulf States (66%) than it is in the Nordics (60%) or the UK (59%) – interestingly there is also a big gap between CIOs (54%) and CTOs (69%) saying it is a high priority.
Many are still in the early stages of transition, as 77% of region-wide respondents are only in the planning stage of projects and 56% currently do not have a Digital Transformation project. Perhaps one reason for the slow progress is a level of concern about how risky transformation is with nearly half of CIOs (48%) compared to CTOs (40%) worried about such change being risky – this compares to the average of 43% of respondents across EMEA.
That sense of risk is perhaps informed by an understanding of the internal and external pressures organisations are facing as they consider Digital Transformation initiatives. The top three challenges are resources being allocated elsewhere (which is the biggest concern for both CIOs and CTOs), followed by worries about being locked in by vendors to existing enterprise software contracts and needing to weigh up the security and risks involved in transformation. As organisations plan their IT strategies for 2023, they are very concerned about justifying to the board that the IT expenditure is delivering value to the business (the biggest concern for CIOs), ensuring the successful implementation of IT initiatives (the biggest concern for CTOs) and preventing burnout and keeping up morale among employees.
The tech skills shortage also came through loud and clear. Among the top three concerns respondents said the cost of living means salary expectations cannot be met for new and existing staff. They are also seeing more recruits demand a four-day week working policy, which organisations are not set up to provide and senior executive teams are demanding a return to the office which is putting off recruits. The knock-on effect for existing teams is that they are struggling with workloads due to having to constantly fight fires which means they are becoming less productive. Existing teams are having to rely more and more on external partners to deliver IT initiatives and respondents are worried they are going to lose key staff due to burnout. With the competition for talent not slowing, this presents major challenges for organisations looking to deliver on their Digital Transformation plans.
How do scarcity of budget, IT skills and labour affect a company’s Digital Transformation roadmap?
Simply put, the successful completion of such programmes will be under even greater scrutiny than ever before from the board thanks to the scarcity of resources – both people and finances. Success will rely on careful planning, a strong relationship with your technology partners and an ability to find the skills or upskill your existing team to fulfil your goals.
How does pressure from the board of directors to show increased return on investments for IT leaders’ technology spend impact an organisation’s innovation strategy?
The biggest challenge for CIOs asking for funds to invest in Digital Transformation is the market context. Whenever there is an economic slowdown, instinctively every board is inclined towards cost savings to demonstrate profitability and have the resources to ride out the downturn. Consequently, growth is seen as less of a priority as it is perceived to require investment.
However, we would question why you have to choose between profitability and growth. We would argue both are possible and uncertain economic times can add a healthy element of focus to an organisation’s approach. From our perspective, that means being much more focused on where innovation can add the most value to the business. The top priority must be agility, so that organisations can respond to volatility in the market place. This requires solid foundations in your core ERP system, but that does not mean existing systems must be replaced. This will enable you to be measured in your IT investments, managing your expenditure and the level of disruption to your IT systems.
IT budget challenges are exacerbated by the requirement to ‘keep the lights on’ with top existing ERP vendors like Oracle and SAP while still finding budget to fund new digital initiatives that will move the needle by increasing revenue, cutting costs and taking market share from competitors.
Survey respondents cited three top issues with vendor support including the need to upgrade to resolve issues (51%), escalating to an experienced engineer (45%) and having to reproduce the issue to prove the root cause (40%). Third-party support companies are generally priced at 50% of the cost of vendor maintenance or support but when you eliminate the need to upgrade to resolve issues, staff with only experienced engineers and resolve issues on base and custom code through root cause analysis, the costs savings increase dramatically to 75-90%. These savings help fund digital innovation allowing organisations to increase both profitability and growth.
What are the benefits of digitally transforming a business and what tips would you offer to those starting out on their journey?
Having worked with a number of our clients supporting them on the path to transformation, there is clear value to modernising your IT systems. The more agile and responsive you can be to customer expectations, the better the chances for your organisation to achieve growth. As such, it is understandable that the majority of respondents to the survey are looking to move their ERP to the cloud.
Our main advice to clients is not to view transformation as a ‘big bang’ project where you are having to rip out existing systems and replace them with cloud-based versions of your applications. A more pragmatic approach will be what we call the smart path to transformation where organisations optimise the existing systems they have, before evolving them over time and transforming those applications first that will offer the most value to the organisation.
We see this innovation happening at the edges, around core Enterprise Resource Planning (ERP) applications. You can still optimise your core ERP to meet your ever-changing business needs, while integrating these systems with applications at the edge of their environments from best-of-breed vendors who offer functionality that is tailored to their requirements.
Of course, the application vendors are setting artificial deadlines on full support for existing applications such as Oracle Database (for example versions less than 19c are no longer receiving security alerts and critical patch updates), eBusiness Suite (version 12.1.3 no longer receiving security alerts and critical patch updates) and SAP ECC6 (mainstream maintenance ending December 31, 2027), but customers should not see this as an argument to move these systems to SaaS equivalents straight away. Such change will cause significant disruption as customisations will have to be relinquished in favour of adopting vanilla processes in the vendor’s SaaS applications. When our survey suggests justifying the value of transformation to the board as a major concern, can you really claim that moving core ERP systems (that work well today) to the cloud will deliver the most value to the business? Maybe, maybe not – but if you embark upon the journey take a smart path that maximises RoI on your IT budget spend.
