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Rise of “shadow spending” on IT budgets as line of business gets braver

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28th Nov 2013
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The CIO is in the dark about IT budgets in the brave new world where line-of-business managers buy their own infrastructure and devices, according to a new survey by the Corporate Executive Board.

CIOs also underestimate how much money is spent by other business functions on IT, said the CEB.

Close to 165 firms with a combined tech spend of $29bn responded to the questions from the CEB, who estimate that up to 40% of this budget is unofficially spent by departments not directly under the IT department’s control.

The biggest ‘culprits’ were identified as HR, Marketing, Operations and Finance. Among the sample group, between 6% to 9% of HR budgets are being spent on IT, including talent analytics and cloud-based infrastructure.

Andrew Horne, MD at the CEB, said that this isn’t cause for concern and that “shadow spending” is now a “sign of innovation” rather than a threat, which it was seen as “in the past.”

"Failing to recognise the extent to which tech driven projects ate happening outside of the IT department can be a real worry, yet trying to maintain total control is equally a step in the wrong direction."

Interestingly, it seems CIOs have far less of their IT budget available to spend on innovation. While 70% or more of the official IT budget is used to keep things ticking over and 20% towards incremental improvement, other functions can devote up to 50% of their tech spending on innovation.

IT budgets among the 165 firms in the sample group will rise by an average of 3% next year, said CEB.

This is interesting because in the past IT expenditure was more tightly controlled by the CIO. There were also practical obstacles - buying in new infrastructure required physical installation of servers but now cloud-based systems can be rolled out much more quickly. Now that line of business is spending more on IT, hopefully this will help ramp up collaboration as departments have to talk to each other to ensure infrastructure aligns and all systems can talk to each other.

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