Digital transformation: Allocating your budget for the biggest business impact

Voegele: “We have to embed technology as an accelerator of business strategy.”


Image: PMI

One of the most commonly used words by CIOs is value: modern IT leaders are hyper-focused on generating the best possible return from the technology that their business units demand.

That’s something that resonates strongly with Michael Voegele, chief digital and information officer at tobacco company Philip Morris International (PMI), who says any attempt to transform the business through technology will be useless unless the IT organisation focuses on delivering value.

Rather than taking a reactive approach, where the IT team looks to cobble together technological responses to the challenges the business faces, Voegele says successful technology teams are proactive and work alongside their business peers.

SEE: Guide to Becoming a Digital Transformation Champion (TechRepublic Premium)

“We have to embed technology as an accelerator of business strategy,” he says. “We have to have very, very early and integrated conversations about what the business challenges and the problems are that we are trying to solve.”

Every few months, business leaders at PMI meet to decide how they will allocate funds to the IT projects that are most likely to drive the business strategy forward and deliver long-term value.

“We have established cross-functional pool thinking, where the functional heads decide what are the most important projects,” he says. “That’s a fundamental change – we have established a quarterly drumbeat, rather than a yearly assignment of slices of budget.”

Business and IT metrics are aligned to joint targets, which Voegele says makes a significant difference to the way that people across PMI – both in business functions and the IT team – look at deploying technology solutions.

“Now it’s not about delivering a project for a set budget or by a set time. It’s about, ‘do we elevate the top line in the market, or do we drive consumer net promoter scores by implementing those technology solutions?’. It’s not just about pressing the button at the go-live, but about materialising the stated benefits from the business case.”

Voegele says this integrated approach to measuring project success means value from IT is now strongly linked to achieving organisational objectives. That’s a big shift from when he joined the company in 2019, when the IT budget resided in the hands of the tech chief, who then split this budget for projects across different business functions.

Voegele recognises this old-fashioned approach to budget allocation wouldn’t provide the right foundations for digitisation at PMI, which is an organisation that’s aiming to make its own radical business transformation.

Well known for its heritage in cigarette manufacturing, PMI is in the midst of a shift towards selling smoke-free products that are designed to create a nicotine-containing tobacco vapor, without burning and smoke. While the company itself says these are not risk-free, they are a better choice than cigarette smoking.

“Our target audience is legal, adult smokers – we don’t take our risk-reduced products to non-smokers; it’s very clear. This is about converting and helping smokers to convert to a different product that is risk-reduced,” he says.

Voegele’s role is to create the digital processes to support this business transformation. As well building an internal platform to support day-to-day operations, his team is building digital channels to help PMI’s local operations sell risk-reduced products in line with strong regulatory requirements.

“Tobacco isn’t the kind of place you would naturally think of going,” he says, referring to his decision to take the role. “But now, with that vision of actually ending selling cigarettes in the future, and actually being part of helping to support the solutions to all the problems that come with smoking, I think you can really make a fundamental change.”

Voegele says his team has made significant progress during his first two years at PMI around a series of key digital transformation pillars, such as dealing with legacy systems, developing the right technology capabilities for PMI in the longer term, and creating integrated accountability between IT and the business for technology delivery.

Delivering value isn’t just about going out and buying additional technology components, despite the potential benefits that emerging technologies – like artificial intelligence, Internet of Things or virtual reality – can bring. Voegele says value-driven IT organisations must also have a clear understanding of the tech assets at their disposal.

“A lot of times, value is about sweating the assets that we actually already have as an organisation and doing more with those resources. We don’t want the default option to be where people try and find something that’s new and fancy, and we don’t really know what the value will be once it’s implemented,” he says.

When it comes to developing systems and services that end users require, Voegele has overseen the creation of an 80-strong team of software engineers that are embedded into the business. These engineers help to build digital capabilities for the various business units at the global and local level.

Voegele inherited 2,600 business applications when he joined PMI in 2019. His team has already cut this estate by 500 and has plans to remove another 500. More than 200 applications, meanwhile, have been moved from an internal data centre to the cloud.

All decisions on technology implementation are made in an integrated way. Now, instead of giving every business unit an equal share of tech funds and staff, Voegele has created a much tighter relationship between budget allocation and business impact.

This integrated approach to tech spending is the type of value-led approach that McKinsey says all CIOs will need to focus on delivering in the future. The consultant says boardroom executives want their CIOs to move beyond simply managing IT to leveraging technology that creates value for the business.

Analyst Gartner suggests successful IT organisations no longer just support corporate operations, as they traditionally have, but instead participate fully in delivering value to the business. For Voegele, the only way for CIOs to deliver long-term value from technological investments is to work alongside the rest of the business.

“Our place at the table of the management teams across the organisation is as a partner – we need to be seen as a trusted partner that can challenge, not just the technology choices, or make the technology proposals, but one that’s integrated into the business conversation and solving its problems,” he says.

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