Is There Really a Shortage of Funds for IT Business Innovation?

Is There Really a Shortage of Funds for IT Business Innovation?

One of the main challenges in the IT market is the continued search for ways to innovate. IT is the cornerstone of many organizations’ business strategy, and increasing investment in this area is crucial for companies that need to acquire new systems, maintain their current structure or enhance their competitiveness.

Despite the recent poor performance of Brazil’s economy, the country ended 2015 as one of the seven countries in the world with the highest technology spend, at nearly $60 billion USD. According to a joint study by the Brazilian Association of Software Companies (ABES) and International Data Corporation (IDC), this amount represents a 9.2 percent increase over the previous year. The annual support and maintenance fees paid to software vendors account for 10 percent of this figure.

Given this massive market, one question is: Why are IT leaders requiring more resources in order to meet continued business demands? Isn’t $60 billion enough to support the latest innovations?

What we really have, though, is a lot of new money being invested in old IT practices. One of the biggest categories in this annual spend is the $6 billion spent on software support and maintenance.

Today, Brazilian companies still invest heavily in legacy ERP systems — primarily in the maintenance fees paid to a software vendor. Quite often, that payment occurs because it is believed that a software vendor will automatically catapult a company into the digital world. And that is not necessarily a reality, for two reasons:

  1. A software vendor’s development plan does not always meet a customer’s needs.
  2. And, commercially speaking, a customer is often required to comply with contractual provisions that do not allow the adoption of new cloud technologies at a fair price. In this context, the best way out is to reassess the market and look for alternatives.

Most CEOs plan to acquire new competencies and invest in innovation, without necessarily increasing the IT budget. It is also important to note that budgets are becoming increasingly lean as a result of the ongoing economic crisis.

The upside of this situation is that managers have worked hard on understanding the factors impacting their budgets. As a result, they have identified the factors preventing the acquisition of new solutions crucial to maintaining a company’s longevity and ensuring its success in the market.

When this is not done, companies run the risk of losing market share or even ceasing to exist because they are outdated. The good news is that there is usually no shortage of money — rather it is sometimes being allocated inefficiently.

But how do you break free from the traditional model and direct funds to innovative projects that will bring financial returns to the business? One alternative is to move an organization’s annual support and maintenance service — which is typically provided by the enterprise software vendor — to a third-party support provider.

Software support is not typically part of a software manufacturer’s DNA and the cost of that support is pricey. By outsourcing this service to a provider whose sole focus is support, CIOs can better manage their costs and reallocate savings to more strategic business areas. This is an effective way to gain financial strength and meet user and customer demands without asking for a budget increase.

When IT executives become aware of new technologies and solutions in the market, they feel more secure about abandoning old models, which can help them reduce overall costs as well as free up funds for innovation and true digital transformation for their companies.

Given the new alternatives, spending new money on old structures, such as original software vendor support, is something that draws attention. Organizations looking at digital transformation must avoid wasting funds on outdated practices. The budgets for 2018 are being developed, and the market is offering options now.

With stable and cost-efficient operations, CIOs will have the freedom to adopt new platforms — cloud solutions, for example — and build a hybrid IT structure, regardless of vendor. This is the path forward for those who want to achieve the much-desired digital transformation. The ABES-IDC study indicates that by the end of this decade, adoption of cloud computing will grow 20 percent per year, and Brazil will remain one of the markets with the highest consumption of technology in the world.