Part 1 – The importance of mid-market organizations understanding innovation opportunities

By - October 1, 2015

The International Data Corporation (IDC), which is the leading market research firm for Information Technology predicts that “by 2018, one third of share leaders in virtually all industries will be disrupted and reinvented.”

Technologies that we refer to as the third platform including cloud, mobile, social, big data and the internet of things have converged together and are now readily available to offer businesses an unprecedented ability to innovate.

I was recently speaking about this prediction with one of our directors who said something really interesting to me.  He said, “if I owned a mid-market company, this would really scare me.”  He argued that companies in the mid-market were in perhaps the worst situation to respond to this challenge because they don’t have the resources of larger competitors to invest, but, they do still have some level of baggage and technology debt that smaller start-ups don’t have, which makes them less agile.

So, what does a mid-market company do?  As our conversation continued, the optimist in me started to think about this in a different way. Perhaps mid-market companies are positioned best to respond to this challenge.  They certainly have some level of resources to invest in innovation. They also have an established brand and don’t carry the huge technology debt or the stakeholder performance expectations of a much larger competitor.  As I thought about this more and discussed with several of our clients, I got the same question.  “How do I get started?”

In part 2 of this series, I’ll provide seven steps we employ to trigger innovation in mid-market companies that can be readily adapted to respond to the opportunity mentioned above.

As a first step, mid-market leaders first need to understand how they currently spend money on information technology (IT). Gartner and Forrester have conducted extensive research and determined the average business spends 3.5 percent of revenue on IT.  Some organizations current spend 65 percent of the budget on, “keeping the lights on,” that is, maintaining legacy applications and infrastructure. This leaves 35 percent of the average IT budget to be spent on implementing strategic business solutions.

Ideally, mid-market IT leaders should be spending 50 percent of their IT budgets on maintenance and 50 percent on strategic business solutions.  To take advantage of innovation opportunities, organizations have 2 choices.  You can either increase capital investment in IT or reprioritize IT spending and shifting your IT spend from keeping the lights on to strategic innovation.   The later may sound very simple but it’s not as easy as it sounds.

Technology debt is not easy to eliminate.  Consider outsourcing commodity IT requirements that are creating technology debt. Start with the simple things such as ongoing application support of packaged software, IT help desks, infrastructure management or commodity business process outsourcing (BPO). Management should choose reputable partners who have established solutions with the scope and service level that you need to satisfy your stakeholders.  This will help reduce or shift IT spending to strategic projects.

To find out more about this or other ways that McGladrey can assist you with your business needs, contact McGladrey’s management consulting professionals at 800.274.3978 or email us.

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