Self-funding is driving digital initiatives across organisations

According to Gartner’s 2017 CEO survey, 42 per cent of chief executive officers (CEOs) are now taking a digital-first approach to business change or taking digital to the core of their enterprise model. To fund digital initiatives, CEOs indicate that the largest bulk of money comes from selffunding, rather than existing budgets, as they see the primary purpose of digital initiatives as winning revenue rather than saving costs.

“This should give chief information officers (CIOs) a pause for thought, given that conventional IT management works mostly on the basis of using operating budgets,” says Andy Rowsell-Jones, vice-president and analyst at Gartner. Transformation requires commitment, leadership, strategy, technology, innovation and, importantly, money. This year and the next are likely to be the optimal timing points of overlap between the business cycle and the tide of digital business change.

In two years’ time, the rising cost of capital could make strategic investment more expensive, and playing digital catch-up is going to be harder. A few of the key ways to fund the shift to digital business are:

Internal self-funding: digital revenue pays—This will only work for short-term projects to gain immediate revenue returns, such as for digital marketing campaigns or price-elevating digital product features. This approach needs clear revenue attribution and is good for continuous, incremental growth, but will not work for disruptive market change.

Within existing budgets—It can work for relatively superficial digital business change over two to three years, if budgets are healthy, generous and need trimming. It is not good for rapid transformation as it might throttle existing business.

Investment from reserves—Reserves are the part of profit set aside for internal reinvestment to help the business in tough times, which digital disruption and market loss might fit under. If reserves are healthy, it might accelerate digital transformation with low financial impact on current operations.