Making the Case For Tech Innovation

by
Tech innovation

Many of us remember that after the Y2K boom in the late ’90s and the cloud craziness that followed, IT costs associated with applications, infrastructure, and support grew unconstrained. Rationalizing IT costs was a tremendous need in the large public companies I worked with, and I continue to work on aligning IT investment to business value today. Since the late ’90s, Boards and executive leadership realized that the same level of IT investment that drove up market cap for companies like Google, Apple, and Amazon does not necessarily work for traditional manufacturing and service companies.

I find that many companies struggle to support an IT investment with a sound business justification, and lack adequate IT governance (these are the same companies that will analyze the need for office space 6 ways to Sunday.) The key is demonstrating how to enable the business strategy using smart technology investments and then finding the funds by repurposing low-value-added investments — what I refer to as a “self-funding architecture.”

What is a sound business justification? Recall the “must-have” value propositions from my message last week, based upon (1) differentiated capabilities (e.g., customer/market-facing), (2) internal cost efficiency, and (3) new strategic capabilities. But you can use two other categories of IT investment for justification.First is compliance. We all have applications or components required for a measure of compliance: local, state, federal, or contractual. If your business has a compliance need, you often have no choice but to determine the most efficient way to support that compliance effort (think Sarbanes Oxley, Dodd-Frank, tax returns, etc.). The second category is risk. Examples of IT investment that mitigates risk are cybersecurity and automated preventative control over cash. Risk is often (over) used as a category. In some cases, managers try to use risk to justify an IT investment when the business justification is not easily determined.

First is compliance. We all have applications or components required for a measure of compliance: local, state, federal, or contractual. If your business has a compliance need, you often have no choice but to determine the most efficient way to support that compliance effort (think Sarbanes Oxley, Dodd-Frank, tax returns, etc.). The second category is risk. Examples of IT investment that mitigates risk are cybersecurity and automated preventative control over cash. Risk is often (over) used as a category. In some cases, managers try to use risk to justify an IT investment when the business justification is not easily determined.

A business justification’s revenue side is often referred to as a “soft” benefit because it is difficult to prove. Businesses often use annual cost savings to make a “hard dollar” case for IT investment (I recommend factoring three years’ worth). Cost avoidance is commonly attached to reduced capital spend (think periodic server refresh). It usually counts once. So a simple business case for cloud migration might have costs for cloud hosting and the migration project, and the benefits would break down like this:

  • “Hard” benefits of cost savings related to elimination of on-premise backup/recovery, spam filtering, and disaster recovery
  • “Hard” benefits of cost avoidance related to elimination of server upgrade/replacement
  • “Soft” benefits of workforce productivity increase and competitive positioning

Lastly, some IT investments are considered “table stakes” depending on your business and industry. For example, you do not have to make a business case for a general ledger, customer billing system, or payroll system; you require those to have a viable business. However, you might want one if you are going beyond the minimum requirements for those kinds of systems.

As always, let me or one of the partners at BKM Sowan Horan know if we can assist you in thinking about using an investment in technology to enable business value.