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Are budget cycles to blame for automation stagnation?

You already know the potential value of automation for digital transformation. The business case for automation is compelling. But, securing internal sign-off for investment can be a challenge.

Or so the latest McKinsey report found.

The report says one of the biggest challenges is inertia. Businesses are struggling to "break free from the soft tyranny of budget cycles", guilty of repeating die-hard capital spending habits.

The consulting firm found two-thirds of retailers fell into this trap where more than 90% of a given year's capital expenditure was a reprise of the previous year.

The report says:

"[Automation] technologies have been proved at scale and offer internal rates of return higher than historical retail hurdle rates—yet few retailers are
moving quickly to implementation. In some cases, the bottleneck is a lack of skills and capabilities. But one of the biggest challenges is the inertia of the business.

Retailers struggle to break free from the soft tyranny of budget cycles and the replication of last year’s capital spending.

Our corporate-finance research suggests that two-thirds of companies fall into this trap. For these players, more than 90 percent of a given year’s capital expenditures simply reprise those of the preceding year.

Only one-third of companies are dynamic reallocators, consistently shifting 30 to 40 percent to different business units or new uses over five to six years — that is, a reallocation rate of five to six percent a year.

The same is true of many more sectors beyond retail. 

Writing on Forbes Technology Council last month, Gustavo Gonzalez Figueroa said the lack of a detailed return on investment (ROI) plan is a typical barrier to executive sponsorship of automation projects:

"Be sure to formulate a detailed plan with a feasible return on investment (ROI), including how the integration will help overcome ERP issues. Only then can you seek out executive sponsorship."

Is this a challenge for your business? Are you struggling to break free from the soft tyranny of budget cycles? Leave a comment. 

Calculate your ROI

Enate's experts have created an interactive business case calculator to tackle this. Using industry-standard parameters and our expertise, you can calculate your ROI based on your own data - for free. The results also show your increased saving when using service orchestration alongside automation.

Calculate your ROI

Don't forget to download the Automation ROI Handbook. It's a guide to using the calculator and getting a greater return on investment in automation using service orchestration. It includes some essential automation parameters for building a strong business case.

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