IT investments usually represent a significant portion of expenditures in middle market organizations. But many executives are unsure whether they are getting maximum returns from such investments.
Complicating matters is that returns can sometimes be difficult to quantify. Investments in areas such as software, hardware, communications, and professional and support services will be easier to quantify as compared to measuring improvements in areas such as process capabilities, customer intimacy, collaboration, quality of work life, security, and risk management.
Software investments historically involved up-front purchase fees and ongoing support costs. This perpetual licensing model has evolved to a cloud-based “software as a service” model, resulting in a shift from capital expenditures for software investments to an operational expense approach. This frees up initial capital needed to purchase applications, enabling organizations to access more updated and capable software applications.
Hardware and Communications
Investments in hardware and communication technologies are another key quantifiable area for most organizations. Companies traditionally invested primarily in on-premise server systems, but many are now migrating their servers onto a publicly-hosted environment such as Amazon Web Services (AWS) or onto other private hosting arrangements through their IT providers.
Thanks to drastic reductions in laptop and tablet/mobile pricing, most companies are now able to establish more frequent hardware upgrade cycles and maintain an updated set of equipment at all times. As hardware and communication technologies become more powerful and less costly, companies are able to achieve higher returns on these investments while providing greater access to users in their organizations.
Professional and Support Services
Professional and support services represent a large and growing portion of technology spend for many organizations. IT systems have become have become more powerful and many companies have reduced internal IT resources, leading to an increased need for professional services to provide expertise on an as-needed and on-demand basis. This offers an exciting opportunity for companies that can manage such external resources effectively because they can maximize their IT spend by having access to highly skilled resources when needed.
There are several other benefits of IT investments that are a bit harder to quantify, but can significantly impact an organization’s success.
Process Capability Improvements
Process capability improvements achieved through technology-based solutions can have varying degrees of impact, ranging from slight improvements in efficiencies to major transformations. Compare your organization’s current “as-is” capabilities to its planned “to-be” state to get a better feel for the potential impact and ROI of such initiatives.
Investments in technologies designed to increase customer intimacy have become key for many organizations. Such investments, if executed effectively, increase customer loyalty while reducing back office operational costs. Customers like to be in control; they want to learn about products and services, place orders, obtain online support, and access information from their mobile devices – all when it is convenient for them. For many companies, not being able to provide these capabilities could result in being squeezed out of the market by the so-called “Amazon effect.”
Collaboration and Quality of Life
Returns on technology expenditures designed to increase employee collaboration and quality of life can be difficult to measure. Technology that enables easier information and knowledge sharing and allows employees to work from anywhere at any time can lead to greater effectiveness and organizational learning. Although harder to quantify, these are clearly factors that impact hiring and retaining talent, and can help bring the organization’s culture in line with today’s workforce preferences.
Security and Risk Management
Security and risk management have become key management concerns. Organizations are increasingly dependent on their IT systems for their daily operational needs and if these systems are breached or compromised in any form, either from internal or external sources, it can result in significant damages ranging from revenue loss to brand erosion and legal issues. As such, IT security and risk management investments should be viewed as required in order to better protect the overall well-being of the organization and related stakeholders.
Technology-related investments play a key role in defining products, services, and markets, and they can dictate who will be the future winners and losers. Carefully assessing how these investments will drive your organization’s success is critical.