G00263531

The Importance of Operational Technology in

Budgeting for the Digital Business
Published: 10 September 2014

Analyst(s): Kristian Steenstrup

Organizations with a heavy investment in OT need to manage costs in a

more inclusive way. CIOs who have had an exclusive and narrow focus just
on IT spend can use this research to come to an accommodation with the
OT system investments, and with the groups that currently manage them.

Key Findings

OT investments traditionally have been out of sight of the IT organization. Technology costs and
their budgets are not always solely within the domain of IT.

Operations and IT view the role, outcomes and objectives of technology differently. OT is not
new, and has a long history with specific reasons why things are as they are.

Aligning the governance and budget of IT and OT will create cost-saving opportunities and a
reduced budget overall. OT buyers can benefit from improved negotiating, improved vendor
management, global contracts with appropriate discounting and possibly currency/tax benefits.

To take OT into account in a budget discussion, IT and OT governance have to be aligned.

Recommendations
CIOs:

Understand that digital transformation will not be solely an IT project, and in asset-intensive
industries, OT will play a big part. Document the perspectives and goals of each party in relation
to the overall technology investment.

Catalog modernized OT systems and their criticality and availability requirements, putting in
place a procedure for including future OT investments. Compliance risk could expose the
company to real shut downs if OT software is not compliant.

Look at overall software investment including appropriate licensing, license reuse (so they may
not have to pay for licenses at all) and compliance risk.

Rationalize software investments, and manage the costs by including both IT and OT under a
software budgeting and vendor governance process, which is shared by the IT organization and
the operations groups.

Table of Contents
Analysis.................................................................................................................................................. 2
Why Resolution Is Needed................................................................................................................3
Business Units' OT Strengths and Needs......................................................................................... 4
How IT/OT Alignment and Integration Reduce Costs........................................................................ 5
Examples From the Field.................................................................................................................. 6
Key Lessons Learned in IT/OT Alignment......................................................................................... 6
Words Are Important Have a Shared Understanding of Terms............................................... 7
Change Takes Time Make Sure Everyone Knows Why This Is Being Done.............................7
People Matter............................................................................................................................. 7
CIOs Need to Understand Their Own Value................................................................................ 7
Gartner Recommended Reading............................................................................................................ 8

List of Tables
Table 1. Benefits of Aligning IT and OT................................................................................................... 4
Table 2. Lessons Learned in IT/OT Alignment.........................................................................................6

List of Figures
Figure 1. Separated Governance of IT and OT........................................................................................3

Analysis
Since 2006, Gartner has published research on how capital-intensive industries use operational
technology (OT), and the role the IT department has played as OT becomes architecturally more like
IT products. From an investment perspective, OT is one of a number of technologies that make up
digital business (others are described in the special report "Every Budget Is an IT Budget"). In
addition to considering how OT costs may affect overall spending and be hidden from view, there
are lessons learned in the evolution of shared responsibility that can be applied to other forms of
technology. Should a CIO invest in joint initiatives in order to get more budget for being involved in
OT? Yes, and we believe investment in other forms of enterprise technology will be similar.

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The underlying budget issue is that IT has a defined budget, and provides services to business
units. OT, on the other hand, is embedded in the plant operating budget or investment budget, and
is not necessarily explicitly defined as an OT budget.
Some CIOs will be unfamiliar with the history and concepts of OT, and should become conversant.
The IT/OT dilemma centers on who owns what, and how to manage both parts coherently.
Traditionally, the two have been at odds, because the business unit is tasked with operational
performance, and the IT organization is tasked with providing strict controls and security to the
enterprise. OT systems came in with the plant and equipment, in most cases, and so were not part
of an IT review or budget. But as they evolve, a revised view is needed (see Figure 1).
Figure 1. Separated Governance of IT and OT

OT
(Individual LOBs)

IT
(CIO)
Enterprise
Software

ERP
Finance

Vertical
Application
Software

Geographic

Accounts payable

information
system (GIS)

Human resources

Enterprise asset
management
(EAM)

Payroll

Production

management

Corporate IT Network

Centralized

Supervisory control
and data
acquisition
(SCADA)

Energy

management
system (EMS)

Manufacturing

execution system
(MES)

Distributed

Programmable

logic controllers
(PLCs)

Advanced

protection relays

Sensors, monitors

and fault indicators

Meters

Control Network(s)

Source: Gartner (September 2014)

Why Resolution Is Needed

Asset-intensive industries are faced with suboptimal solutions that are impeding agility and will
thwart technology-driven maturation. Opportunity exists to coordinate IT and OT investments, but
intracompany disputes over IT/OT governance will be an obstacle to achieving the potential
benefits. In a do-nothing scenario, this will lead to a duplication of resources, and will result in an
environment with limited IT resources and funding for new projects. Ongoing support will be beset
with data quality and data security problems. Lines of business (LOBs) will continue to invest in OT
in isolation. It is not just convenience, risk or timeliness; there are increased, real costs from having
incompatible system designs and architectures, which could be avoided. This is fundamentally
different from shadow IT, which is a political governance problem. OT systems are architecturally
different, from a different class of vendors and are historically separated. The IT/OT clash emerges
because the operations, maintenance and repair cycle is the domain of the LOB, but the enterprise

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accounting and management is the domain of the IT organization. By aligning and integrating these
aspects, a better overall performance can be achieved.
From a financial and budget perspective, enterprises can gain improved negotiating leverage
(looking at the whole relationship and spend, rather than ad hoc), and improved vendor
management.
Operations groups can benefit from global contracts with appropriate discounting and possibly
currency/tax benefits, ensuring appropriate licensing, optimizing license reuse (so they may not
have to pay for licenses at all) and minimizing compliance risk.
Operations may be persuaded to start engaging by using IT procurement and sourcing for
commodity items, such as hardware and standard software.
Table 1 shows a summary of benefits from the alignment of IT and OT (see "Realize the Benefits of
IT and OT Alignment and Integration").
Table 1. Benefits of Aligning IT and OT
Costs

Risks

Speed of Business

Data Advantage

Lower project costs

Cybersecurity

Faster project
implementation

Closed-loop OT
systems

Reduced costs of
software procurement

Upgrades and patches

Coherent standards to
simplify design and build

Operations intelligence
for output

Reduced software
licensing costs

Fragmented technical
support

Unified project teams with

right skills

Reliability
improvement for
uptime

Reduced software
support costs

OT software
mismanagement

Agility to respond to business

change

External ecosystem
connections

Source: Gartner (September 2014)

Business Units' OT Strengths and Needs

Business unit technology leaders have typically come from field operations or engineering and have
strong backgrounds in how the business works. They value operational reliability, customer
responsiveness, cost-effectiveness and emergency responsiveness to outages. They are willing to
leverage new technology where it makes sense. For example, business unit technology leaders
traditionally installed supervisory control and data acquisition (SCADA) systems, and often wrote
their own programs for system analysis and managed the first minicomputers. These were the go-to
workers when desktops first showed up in operations offices, and they set up their groups' local
networks until corporate IT came along and took all that over. OT leaders have said, "What used to
be simple to take care of directly now goes through a lengthy help desk procedure by someone
who knows nothing about the immediate business need."

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Because of the need to quickly respond to individual project requirements, LOBs tended to come
up with multiple, disparate, "islands of automation," quick-hit solutions. Rather than being guided
by an enterprise technology architecture strategic plan, many OT solutions have resulted in
heterogeneous technology environments incapable of achieving platform harmonization and cost
reduction through economies of scale. This situation mirrors the early days of IT, and causes
excessive expenditure in many areas of support.

How IT/OT Alignment and Integration Reduce Costs

Cost reduction opportunities can involve the costs for:

Software procurement and management over its entire life cycle

Software licensing

External and internal costs of software support

IP networking, network management and IT operations

Future hybrid projects containing IT and OT initiatives

The continued separation of IT and OT actually increases the cost of technology deployment across
enterprises:

The independent selection and deployment of technology tend to result in inconsistent and
redundant databases, so information integration from the databases becomes an after-the-fact
concern, with added expense and complexity.

Resources are often duplicated, and not closely aligned in their decision criteria and decision
process, which leads to duplicated licensing, uncoordinated upgrades, inconsistent security
policies and duplicated communication networks.

The resistance that most operations groups have is that selection and implementation costs, as well
as duration, can increase, due to IT governance overheads, project team sizes, total cost
accounting (such as business unit labor), test environments and so forth. Some of these costs are
necessary, but are seen as overhead by operations. However, implementation disciplines are
valuable: Testing and retesting until "it is right" are often not factored into initial estimates, driving
up the true cost of software projects. From an operations perspective, delays cost real money. IT
needs to be cognizant of and sensitive to this if it plans to participate. If IT wants to be involved and
plans to be part of the support process, it will find that the 24/7 operational mindset is new to many
IT support staff members. For this reason, both sides need to make adjustments.
We expect to see this more frequently as the operational systems in asset-centric businesses (such
as utilities, mining, oil and gas, transportation and infrastructure) move from proprietary or unique
industry systems to ones based on common platform products, such as OSs (Microsoft Windows or
Linux) and common database platforms (Oracle and SQL, for example). The mutual benefits in
enterprisewide commonality and license or contract savings should be quantifiable not only as
shown in the following examples, but also in the cost of support and maintenance of systems that
increasingly have similar underlying architectures.

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Examples From the Field

When reviewing the IT costs in a U.S. water authority, it was revealed that the enterprise had
two corporate licenses for Microsoft. Because the operations and IT departments had
completely separate budgets and vendor governance processes, no one was aware of this until
it came time for a large-scale, integrated SCADA deployment (see "CIO Involvement in
Operational Technology Vendor Risk Management Mitigates Security Vulnerabilities").

A U.S. company found it had two corporate investments in Oracle RDBMS one for
engineering and one for IT. A rationalization of these saved the company money on annual
maintenance fees.

A Latin American company found that for an OT-related product, there was an annual software
maintenance fee of 43%. This came about because, at the time of acquisition, there was
substantial scrutiny over fit to purpose, performance, and ongoing support, but the software
contracts were not reviewed by the sourcing group within the company.

When a power company was contemplating how to get the ball rolling on an IT/OT alignment,
and to show why it needed to be done, the IT department was being audited around software
license usage and assignment. When it was suggested that the audit should include the
operations group, the revelation of undocumented licenses created the motivation for a full
alignment and integration project.

Key Lessons Learned in IT/OT Alignment

If we assume that for budget oversight there needs to be alignment of how IT and OT are managed,
then there are key lessons in how companies have been able to get to that stage. Gartner has
looked at different approaches to aligning IT and OT investment since the onset of OT alignment
coverage in 2006, and it has evolved as we met with hundreds of affected executives on both the IT
and OT (engineering/operations) sides of the fence (see Table 2).
Table 2. Lessons Learned in IT/OT Alignment
Lessons

Findings

Words are important.

A shared, understood and nonthreatening set of terms will go a long way to

creating a dialogue.

Change takes time.

It is important to ensure that everyone knows why this is being done and the
value derived, and to create a road map.

People matter.

Creating aligned standards and procedures will be an easier first step than
staff reorganization.

CIOs need to understand

their own value.

IT departments may not have full respect in the enterprise. Recognize where IT
practices work and where they do not.

Source: Gartner (September 2014)

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Words Are Important Have a Shared Understanding of Terms

Gartner introduced the term operational technology to recognize the substantive and real
differences between OT and IT. We suggest that all CIOs adopt this term for real-time and control
systems, or at least a distinct one to avoid needless internal confusion and misconceptions that
operational systems will become part of IT.
Create taxonomy around change: IT and OT are converging because of the OT vendors'
development, so seek alignment of how you manage IT and OT, and then approach the integration
of things and people. Also, avoid the word "ownership," which implies an all-or-nothing relationship,
often leading to adversarial "zero sum" games of power between IT and operations, which is
unproductive. Better terms to use are "responsibility" and "accountability," not ownership (see
"How CIOs Should Address Accountability and Responsibility for IT and OT"). Control and
ownership was only relevant to monolithic inseparable systems. Once the modern OT systems
moved to components based on IT architecture, and was separable (think servers/OS/DB/apps/
data/devices), then responsibility for the various parts didn't have to be in place in one team, but
rather provided as a service to the business.

Change Takes Time Make Sure Everyone Knows Why This Is Being Done
In our strategic road map for OT alignment, we are at pains to show five distinct steps to
transformation (see "2014 Strategic Road Map for IT/OT Alignment"). This model came about after
years of brokering disagreements and looking at failed plans between IT and engineering. We
realized that simply knowing convergence was happening (OT vendors were using IT components)
is not the same as agreeing it makes a difference. So, the first two phases relate to:
1.

Assessing the degree of convergence in your company/industry

2.

Getting consensus that it makes a difference in potential corporate risk and benefit and that,
therefore, something needs to be done about it

People Matter
The "integration" phase can create savings, and optimally comes as two distinct steps: integrating
systems and integrating people. Because of the problematic subjects of organizational realignment
and transfer of resources, this needs to be done when it is clear that change is necessary and
beneficial, and for some enterprises, can occur much later, if at all. This is why it is important to
avoid the word "ownership." Leave that out of discussions, because of the emotive aspects of
people, reporting lines and organization charts. In many cases, a positive financial improvement
isn't dependent on organization chart redesign, anyway (see "Case Study: Using RACI Charts to
Define OT Responsibilities").

CIOs Need to Understand Their Own Value

There is a big difference between the architecture, vendors, usage, availability and criticality of OT
and other digital technologies used in IT or in the consumer world of IoT. OT systems are often preexisting and pervasive in asset-intensive, equipment-oriented companies, and there are established

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practices for managing them (good or bad) in the engineering and operations areas. This means that
CIOs (if they want to get involved) have to assess and respect the established territory, and see
where they add value. In other areas of digital that we see emerging, there are new opportunities,
products and vendors in which CIOs can be a part at the outset (or not, if they miss the boat). For
this area, we are advising CIOs on how to manage their involvement in the OT portfolio (covering a
range from no involvement to full responsibility, in some cases), as it is an existing technology
portfolio. With other emerging digital technologies (such as consumer products and digital
marketing), it may be new to everyone in the company, and there can be a "race" to get there first.
Many CIOs are losing this race or are still sitting on the starting blocks awaiting the starting gun,
which everyone else has already heard.

Gartner Recommended Reading

Some documents may not be available as part of your current Gartner subscription.
"CIO Involvement in Operational Technology Vendor Risk Management Mitigates Security
Vulnerabilities"
"Every Budget Is an IT Budget"
"Define Digital Technologies to Decide Who Budgets for Them"
"Opportunities and Threats When Every Budget Is an IT Budget"
"The Four Futures of IT When Digital Business Makes Every Budget an IT Budget"
"How CIOs Influence Decisions When Every Budget Is an IT Budget"
"Digital Technology Budgeting From the Marketing Perspective"
"The Importance of Operational Technology in Budgeting for the Digital Business"
"Every Budget Is an IT Budget, but What About the Public Sector?"
"CIOs Should Let IT Asset Managers Win Them More Budget Until Digital-Business Governance
Improves"
More on This Topic
This is part of an in-depth collection of research. See the collection:

Every Budget Is an IT Budget

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