How LoB technology spending is disrupting central IT

IT spending by non-IT business units is growing more than twice as fast as traditional IT departments

Once upon a time, IT had a special place in most organizations. Working under G&A or finance, or reporting directly to the CEO, IT was the group that other departments had to petition in order to find appropriate technology solutions for their business needs. However, according to a new report commissioned by Hewlett Packard Enterprise and conducted by C Space, this model is becoming increasingly outdated as lines of business (LoB) become more involved in critical IT decision-making.

The report, which draws from discussions with hundreds of IT and business managers, found that for some LoB managers, more than 30 percent of their time is spent making IT-related decisions. This includes identifying IT needs, realizing opportunities to use technology to overcome inefficiencies or improve operations, researching available solutions, and keeping up to date on technology trends.

The LoB functions involved include operations, accounting, and marketing, according to Jon Strobel, a senior C Space consultant and co-author of the report. There are three general scenarios for how they implement IT, he says:

  1. LoBs are traditional clients of their IT departments and demand central IT resources—and IT budgets—to serve LoB business objectives.
  2. LoB departments have "embedded IT," such as business managers or DBAs who have some IT functionality. They must coordinate with central IT, but their reporting and budgetary relationship is with the business unit. In this scenario, the LoB pays for the technology under its purview, but central IT might manage the data center storage and compute resources. 
  3. LoB departments operate shadow IT, which involves unilaterally making IT spending decisions and purchases with their own budgets, as opposed to using IT budgets.

"The classic example of shadow IT is the sales department deciding that rather than following IT's rules, they just sign up for Salesforce on their own," says Strobel. "IT discovers later on when issues crop up." He adds that IT departments often resent having to implement and support technologies they had no say in purchasing.

The three scenarios are not mutually exclusive. A business unit may have the freedom to make shadow IT purchases for software but will be obliged to wait for approval from central IT for network infrastructure or server hardware, according to Colleen Schulz, a co-author of the report and senior C Space consultant.

Regardless of who makes the IT purchasing decision, IT spending by non-IT business units will reach $609 billion this year, according to an IDC forecast, and will continue to grow at a 5.9 percent compound annual growth rate (CAGR) through 2020. This is more than twice the 2.3 percent CAGR IDC predicts for technology spending by IT departments. This year, non-IT business units will spend a projected $150.7 billion on applications, $120.3 billion on project-oriented services, and $70.3 billion on outsourcing, according to IDC.

Schulz notes that expenditures on hardware, applications, and infrastructure have traditionally come out of the IT budget. But as IT spending has remained flat relative to the overall budget, technology needs are increasing. "LoBs are using their own business budgets and project budgets to pay for the technology," says Schulz. "So project managers are approving purchases on their own, rather than going to IT to get approval."

LoB IT: Millennials on the march

IT has always had to deal with requests from LoB departments. What's different now, says Schulz, is better access to information and a desire to use it to advance their business goals and stay ahead of the competition.

"In the past, tech may have been a specialty. Today, people view it as part of their jobs," says Schulz. She adds that changing demographics are also boosting the influence of LoBs on IT purchases and decision-making. "More millennials are in the workplace now. If they know that they can be doing a business task in a more streamlined way, they are not going to wait for IT to tell them it's OK."

The trend is not only related to the bring-your-own-device (BYOD) phenomenon. The report states that a growing reliance on cloud-based platforms, and the need to understand that data to optimize operations and gain a competitive edge, has resulted in LoB departments calling the shots for cloud and big data purchases.

"They are talking about buying data or buying cloud services," Strobel says. "Applications are key. Data is key."

How IT and lines of business influence tech dollars
Lines of business are changing the way tech dollars are spent

What LoBs buy

The report is based on discussions with 575 IT and LoB executives, who were asked about their influence at their respective organizations to purchase various types of IT products and services. LoB participants included many types of managers, including vice presidents, product managers, and technologists affiliated with LoB departments.

Not surprisingly, a large proportion of LoB respondents said they were involved in purchasing decisions for workstations (64 percent), mobile devices (52 percent), and applications software (48 percent). However, respondents also reported high levels of involvement in decisions related to purchasing networks (46 percent) and servers (42 percent).

A generation ago, IT departments were the primary sources of information about technology products and services. Today, nearly everyone uses technology in their day-to-day lives. Any LoB staffer can turn to Google or online networks to ask questions—and get answers. In short, LoBs are more likely to get involved in IT purchasing decisions because technology is no longer something that only IT specialists have access to.

The LoB influence even extends to enterprise security, with 37 percent of LoB managers reporting involvement in purchasing decisions. According to the report authors, this should come as no surprise considering that LoB managers are often knowledgeable about particular security issues and the potential impact on customer and client data in the event of a breach.

Strobel notes that different departments will have their own concerns when it comes to security. Marketing will want to ensure that customer lists are securely stored. Finance will need to lock down credit card and banking details. Operations may be concerned about a competitor getting ahold of a schematic that describes production settings for a proprietary manufacturing process. "Each of them has their own information they want to make sure is fenced in and protected," he says.

While the LoB's knowledge of security matters tends to be defined by specific business requirements, central IT has a much broader view that encompasses the entire organization. "IT also knows that any breaches will be on them, not the business unit, so they manage security," Strobel explains.

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Decentralization of IT

The LoB trend reflects new tensions in organizations, as LoBs in traditional client/central IT scenarios tire of waiting for technology projects to be approved and budgeted by central IT gatekeepers.

While many organizations have begun to adopt embedded IT or shadow IT models, the report predicts that the IT department of the future will be increasingly decentralized and business units will have more and more autonomy when it comes to IT purchases.

"Basically, central IT isn't the most efficient way to do business or purchase technology," Schulz says. "Instead, it is being decentralized to more business-driven decisions. IT departments will live within business departments, rather than existing as separate entities."

The LoB trend will continue to impact how organizations make IT purchasing decisions, especially as Generation Z (defined by C Space as including people born since 1995) enter the workforce. This spring, the first crop of Generation Z college graduates will be entering professional careers.

"Generation Z have had access to mobile computing practically their entire lives," Strobel says. "They may not use the technology, but they expect to have it." He continues, "Generation Z think they can do something, and then there is frustration when they are told it can't happen." If young employees feel they can't have access to technology to do their jobs, they will go somewhere else to find it. 

This article/content was written by the individual writer identified and does not necessarily reflect the view of Hewlett Packard Enterprise Company.