Maximize Returns on Technology Investments
There are two reasons companies invest in technology, to drive the business forward and to keep the lights on.
If a technology brings value to your organization - helps it achieve strategic business objectives such as revenue growth, customer retention and market share growth - then you should invest in it.
If, on the other hand, a technology is a cost of doing business - needed, but not valued - you should focus on minimizing its costs.
Using technology to your advantage
The focus of your core business determines when you should approach technology as a strategic investment and when you should look for a cost-effective solution.
Technology that is a strategic investment must return value to your core business. Never invest in technology for the sake of technology. Technology by itself has no value. It must have a purpose and help your organization achieve strategic business objectives such as improved financial performance and marketplace competitiveness.
The technology return on investment can be direct or indirect.
Direct return on investment is straightforward. If I invest ten dollars in a technology and get twenty dollars back - through faster sales, increased performance, reduced costs, etc. - then the return on my investment is clear.
If there are multiple investments available, start with the one that has the best return. With time, your investments will yield a repeatable profit that you can use to invest in riskier projects.
Indirect return on investment, on the other hand, is not always obvious. Indirect return is an enabler of value and requires a different set of metrics. In this case, by investing in technology you create an environment that enables you to achieve business value in a way that otherwise would not be possible.
For example, companies often do not invest enough in IT infrastructure because they don’t see a direct relationship between their investment and the return on that investment.
They don’t consider investments in IT infrastructure as strategic investments, and approach managing IT infrastructure as managing a cost center. Their goal is to minimize the costs by purchasing the cheapest hardware and software, and upgrade infrastructure services only at the last moment when it is absolutely necessary, just before the business operations are to about to come to a halt.
However, investing in IT infrastructure is as important as investing in business applications and services that use it. Without a good infrastructure, business applications and services cannot thrive. And if the technology doesn’t thrive, the business doesn’t thrive.
Investing in IT infrastructure
IT organizations often lack the strategy and vision on using IT infrastructure to enable innovation. After focusing exclusively on higher level business software applications and workflows, such organizations ultimately realize that without a robust IT infrastructure the software applications that use it cannot reach its full potential.
At that time, investing in IT infrastructure will require more resources and time, and erode the overall business application value. In addition, there may be consequences for the business, such as lost opportunities to capture a larger share of the market.
Organizations consider IT infrastructures less important because investing in IT infrastructure does not provide visible returns on investment right away. There cannot be direct returns on investment because IT infrastructure by itself has no value. The value is in IT services and capabilities you build on top of the infrastructure.
Returns on IT infrastructure investments are indirect.
IT infrastructure is like a foundation of a building. If you have a robust and flexible infrastructure you can take advantage of it to create profitable business services, and pivot quickly when the market conditions change.
The real business value is in software - business applications, services and products. This is where returns on investment are direct. However, without a good infrastructure, building a profitable business becomes a challenge.
IT infrastructure does not necessarily mean physical equipment, like servers and storage in your office or data center. It is the foundation on top of which you create value. It can be on-site, in a data center or in a public cloud - or at all those locations.
IT and business leaders often look at IT infrastructure as being located “here” or “there”. They calculate that by moving their infrastructure from their data center to a public cloud will decrease costs or simplify its management.
IT infrastructure is a set of tools. Each tool has a purpose. Moving tools from one shop to another doesn’t bring value or solve problems. Using the right tool for the job is a better approach that can make a real difference in helping you use technology to your advantage.
The technology life cycle
Whether a technology has a direct or indirect return on investment, if it improves your core business and makes it more competitive you should consider investing in it.
After you deploy or implement a new technology, it needs to get adopted. The goal is to minimize the technology adoption period by continuously communicating with stakeholders and end users in advance of the technology implementation. After the implementation, there needs to be procedures and processes in place to continue to educate users, and IT staff has to be available to answer questions and assist with adoption issues.
A newly deployed technology enters its value-add sweet spot after it becomes widely adopted. This is the time to take the full advantage of young technology. Eventually all new technology reaches maturity and ultimately becomes a liability, at which time - or ideally before it reaches this stage - you need to replace or update it.
Understanding the lifecycle of technology is critically important. You need to know when to buy and when to retire particular hardware, software, service or another technology your company has been using to drive business strategies. If you don’t replace it on time, it becomes a legacy technology.
Once a technology becomes legacy technology, with every passing day it becomes more difficult to replace it. Replacing legacy technology takes a lot of effort. It is expensive and disruptive to company operations.
The longer you wait to upgrade legacy technology, the harder it gets. Until one day it becomes almost impossible, because it would either take too much time or be too expensive - or both. Even if you have unlimited resources, you should never find yourself in this situation. The amount of disruption such changes bring to the business has the potential to derail all the great work that was done so far.
When Apple released the first iPhone, it had no competitors. If you wanted a smartphone, you had to buy an iPhone. As iPhone competitors came to market and released their own smartphones, consumers started to have a choice. Over time, each smartphone manufacturer ended up with a portion of the smartphone market.
Apple then released another product – an iPad. Again Apple ruled the market, until competitors created their own products. Apple clearly understands the technology lifecycles in their market and how to take advantage of it. When it comes to your business, you should understand it too.
As you manage technology in your organization, pay attention to technology life cycles:
- Is the technology you are using still giving the business competitive advantage?
- Or is it past its peak and on its way to reduced relevancy?
- Is any technology currently in use likely to become legacy technology?
Always focus on your organization’s core business and approach technology management from the business perspective. Understand how different technologies bring business value and accomplish strategic business objectives.
Have a technology roadmap. Create long term plans to manage technology and replace expiring components on time. Try not to get stuck with supporting legacy environments. They will be a drag on your budget, monopolize the scarce staff resources and keep the IT department from focusing on what really matters, which is respond quickly to immediate business needs and capitalize on up-and-coming market opportunities.
Keeping the lights on
IT managers have two jobs. Their primary job is to leverage technology for competitive advantage and to drive the business forward. As strategic partners they are a valued members of the organization and involved in many business-growing projects.
Their secondary job - keeping the lights on - is taken for granted.
No one every asks you about the technology’s supporting function. Your organization assumes you are doing what needs to get done and doesn’t necessarily give you any credit. The expectation is that all these digital devices, software and services should just work with minimal or no effort. How hard can it be?
Technology that supports the organization is needed, but not valued. It has no return on investment because it is not an investment. It is the cost of doing business.
The focus is on controlling the costs while still having the adequate technology to support the IT and business operations.
A sensible approach is to follow the industry standards and look for savings:
- Negotiate a better deal with a vendor or reseller
- Purchase multi-year hardware and software support in exchange for additional discounts
- Mix and match solutions depending on particular needs of a department or group within an organization
Avoid the temptation to chase extreme cost-effectiveness that may de-stabilize the IT and business operations. You ultimately pay more for solutions that are very inexpensive and too good to be true, either with actual dollars to replace equipment that broke prematurely or software that doesn’t work well, or in your staff time while they troubleshoot problems that shouldn’t be there in the first place.
- Knowing what to invest in and what to save on is one of the most important decisions you make as an IT leader.
- Technology investments are strategic investments. Invest in technology that brings value to your business.
- Save on technology needed but not valued, like desktop computers.
- Stay on top of technology lifecycles and plan ahead to upgrade and replace technologies as they mature and ultimately lose relevance.
- Invest in the right technology at the right time.
- Never invest in technology for the sake of technology.