10 Questions You Should be Able to Answer

Columnist Steve Andriole poses 10 questions that you should be able to answer.
Posted December 30, 2005

Steve Andriole

Steve Andriole

It is amazing to me that many of the companies I work with cannot answer the following questions. Can you?

1. How much money do you spend annually on all flavors of technology and technology support services?

It's important to know the total and the relative allocations across the obvious categories -- hardware, software, communications, support and consultants - but also across categories of special importance to your company and your industry, like privacy and security in the financial services industry and supply chain planning and management in the manufacturing and distribution industries.

2. What percentage of your gross revenues do you spend on technology (again, broadly defined)?

The numbers here are important to determine if you're a tactician obsessed with managing costs or if you're a strategist seeking competitive advantage from your technology investments. Companies that spend 4 percent or less of their gross revenue on total technology investments per year tend to be operationally and tactically focused, that is, on managing technology as a cost center.

If the people in your organization wax poetic about how they look to technology for strategic advantage, but spend less than 4 percent of gross revenue on technology they need a wake-up call. Companies that spend more than 4 percent - and upwards of 10 percent - of their gross revenue on technology are genuine strategic technology investors.

3. How much do you spend on technology per employee?

The numbers here actually range from $2,000 all the way up to $40,000 per employee per year. Obviously, the high end is insane -- unless there are very special circumstances (none of which come to mind here). The key here again is spending segmentation: How do the annual expenditures break down per employee per year? Does it go for hardware, break-and-fix, access to communications networks, cellular phones, security or consulting?

4. What are your direct competitors spending on technology?

If your competitors are spending twice what you are it could mean several things. Perhaps you are spending too little, or perhaps they are spending too much. A little competitive intelligence here is worth its weight in gold. Not only do you need to know what they are spending, but you also need to know how they are spending their technology dollars. The same segmentation you use to profile your own spending should be used to profile your direct competitors' spending.

5. What is the average spend (as a percentage of gross revenues) on technology in your industry?

Your competitive intelligence efforts will expose your direct competitors' spending but you still need to benchmark your (and your competitors') spending against the whole industry. You may discover -- as with your direct competitors' technology profiling -- that you are spending way less than the industry average... or way more. Or, you're spending way differently than the industry. For example, you may be spending more on communications than the industry or way more on enterprise applications. Discrepancies should be carefully analyzed.

6. What is the history of your technology spending?

Are you trending toward becoming a strategic technology investor or a cost-obsessed bean counter? Are you spending more and more every year on consultants (while you internal budget remains the same or also increases)? What's getting cheaper? If you extrapolate out a few years, what will your spending look like? Are you comfortable with the trends? Or do they represent a series of yellow and red flags?

7. What is the breakdown between 'operational' and 'strategic' technology?

This one is very important -- and dovetails with technology spending as a percentage of gross revenues data you also need to collect and analyze. Operational technology is all that technology that relates to infrastructure, including communications networks, back-office applications, and internal communications and other applications, like eMail, workflow, groupware, and the like. Strategic technology touches customers, suppliers and partners.

The ratio here is telling: If all of your technology investments are operational then you are clearly a tactical technology investor and probably missing some strategic opportunities for leveraging technology on to new and merging business models and processes. The trends here are important: are you becoming more operational or more strategic?

8. How much of the technology budget is discretionary versus non-discretionary?

Is there any freedom in your budget? If the boss came in and asked for $500,000 for a strategic project would you be able to find the money? Or $100,000 for a tactical one? Is most of the annual technology budget already accounted for, or is there some room for special projects, pilots, etc.?

9. What is the total cost of ownership (TCO) of your major spending categories (hardware, enterprise software, security, communications, etc.)?

This is real trench data. It's important to know the total cost of applications, PDAs, cell phones, etc., in order to better understand where the money goes. Hard and soft costs should figure into all of these calculations.

10. How do you measure return on your technology investments (ROI)?

If you don't measure ROI -- with explicit operational and business metrics -- then it will be impossible to get a feel for the impact that your technology spending is having at your company. If there's no dominant methodology, then you should -- along with the financial professionals at your company -- develop one.

Once you get the answers to these 10 questions put them in a dashboard for everyone to see, unless, of course, the answers are - well - not what you think everyone should hear. You make the call.

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