Legacy Modernization is Holding Canadian CIOs Back From Innovation

With balanced cost optimization and investment priorities, Canadian organizations can accelerate progress

CIOs are shifting their investment pattern in response to digital business, with CIOs worldwide already spending 18 percent of their budget in support of digitalization. While CIOs in Canada have made conservative progress in digital initiatives, they are behind in modernizing legacy environments, preventing innovation at scale.

Gartner’s annual survey of more than 2,500 IT leaders worldwide, with 130 responses from CIOs in Canada, showed that innovation is a higher business priority for top performing businesses (where digitalization is “fully baked” into their planning processes and business model) than the rest of the field, whereas cost optimization dominates trailing performers’ (organizations with little to no digital initiatives) goals. Canadian business priorities have a mix of operational improvement (technology initiatives, digitalization) and revenue targets (growth, customer focus).

We asked Chris Howard, vice president and distinguished analyst at Gartner, to explain what some of the key priorities are for Canadian CIOs this year.

Q: Even though Canadian CIOs have made some headway in digital business, what is holding them back from full development of digital initiatives?

A: Cost optimization work was a big focus for respondents worldwide in 2016, especially in regions where industry felt the pain of low crude oil prices. We saw the effect beginning in western Canada two years ago, gradually permeating related industries and government revenues. Although the price of crude is gradually increasing, in December 2016, it had regained only half the price attained before the downturn.

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In Canadian organizations, like the rest of the world, IT cost optimization forms only a small part of the total equation: Most respondents indicated that their priority was actually in business cost optimization. An underlying reason here is that IT departments have been cutting costs aggressively over the past decade, and especially since the Great Recession. There is still technical debt to be reduced, but the real savings are in optimizing the business through the effective use of and investment in IT implementation. Canada, however, is behind the overall average on the balance between running day-to-day IT services and delivering innovation. This is a continuation from last year’s survey where respondents showed a spending bias toward “core renovation” instead of on innovation and digitalization.

Q: CIOs have a good vision for technology investment and disruption and are prepared to remix their partner portfolio. But what factors will inhibit their success?

A: The perennial answer to that question is “skills and resources,” and this year it is no different. Canada is aligned with its global peers with one exception: the organization’s understanding (or buy-in) to the business value of IT. This indicates a slight lag in IT maturity, probably exacerbated by the continuing focus on legacy modernization in Canadian respondents. Until technical debt is under control, and the CIO moves the IT department out of transactional mode, it is very hard for a business to shift their mindset toward IT from cost to value.

Q: Given that legacy modernization and cost optimization are still key focuses for Canadian CIOs, which technologies are expected to be investment priorities in 2017?

A: When it comes to top technology investments, business intelligence (BI) & analytics persists in the top spot year after year. It is clear that this capability is seen as the key that unlocks the digital value door. Advanced analytics (as in, predictive and prescriptive) are fundamental to customer, citizen and user engagement. Analytics underpin the mediation and value exchange occurring in digital ecosystems.

With respect to other technology investments, Canada is similar to the global total, with the exception of cyber/information security and legacy modernization where planned investment is higher.

Looking out a bit farther, Gartner asked respondents to identify the most disruptive technologies over the next five years. Here again, advanced analytics took the top spot with 88 percent of Canadian respondents, but we see Internet of Things (IoT) and smart machine technologies (machine learning, virtual customer assistants, augmented reality and others) starting to appear. Blockchain appears as slightly more than a “blip on the radar” as Canadian and multinational organizations (primarily in financial services) experiment with use cases for that well-hyped architecture.

Gartner clients can learn more in “2017 CIO Agenda: A Canada Perspective.” This is part of a series of country-level reports tied to Gartner’s 2017 global CIO Agenda survey “Seize the Digital Ecosystem Opportunity.”

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