Download the authoritative guide: Cloud Computing 2019: Using the Cloud for Competitive AdvantageWe know from industry analyses that strategic technology investors spend around 7%-10% of their gross revenue on technology, while companies that are considered tactical investors spend 1%-3% of revenue on technology. (Those in the middle I guess are operational technology investors, whatever the hell that means.)
But lets be candid: Most companies except for the really big 7%-10% spenders are technology cheapskates always looking for ways to reduce their technology expenses. This means that spenders in the 1%-6% range see their technology investments as cost centers, not profit centers.
They really dont have all that much confidence in technologys ability to contribute to profitable growth through up-selling, cross-selling or improved customer service; instead, they see technology as something that they must have to exist like telephones, furniture, company cars and, yes, expense accounts (though I think expense accounts are generally treated more gingerly). This means that technology costs like health care benefits and pensions need to be reduced regardless of the impact it might have on productivity or morale.
Part of the problem is how many companies acquire, deploy and support technology. Many of them should I actually say this? really dont know what the hell theyre doing. You know the ones. They think that CRM applications will reduce or eliminate customer disdain or that wireless PDAs will cost-effectively keep us all connected so we can help the business grow; or that multiple instances of multiple ERP applications promotes business agility. Its no wonder that these companies see technology as a cost center: all they do is over-spend on the wrong stuff at the wrong time with the wrong expectations.
Put another way, these are the companies that think technology costs too much because they spend too much. Rather than point a finger at themselves, they declare technology an unmanaged expense and proceed to kill as much of the technology budget as they can (while everyone keeps complaining about the lack of service). Ultimately, technology becomes one of the companys major scapegoats as they embark on a more or less constant search for a CIO.
It really is about perspective and money. Companies that see technology as a profit center see business models and processes differently from those that regard it as a cost center. They proactively look for ways to improve business models and processes with technology, not in spite of technology. They track technology trends and creatively apply technology to customer service, product personalization and supply chain planning and management, among other activities that touch customers and markets. These companies invest in their technology profit centers in much the same way smart companies invest in excellent sales and marketing organizations.
So if the truth really be told, is your technology organization a cost center or a profit center? Maybe its just confused, or, put more politely, a hybrid. When sales are off and customers are angry, does anyone call technology to the rescue? (We know what happens when the networks crash.) Does your CIO report to the CFO or the CEO? Do the technology professionals at the company sit at the big table with the big dogs, or are they too busy retrieving data and chasing worms to get any serious attention?
Check out the spending trends and then check out the attitude your company has about the role technology should play. Then youll know if technology is about the reduction of cost or the generation of profit. If its all about cost reduction, then try to get the infrastructure as efficient as possible for as little money as possible and learn how to manage chronic budget pain. But if technologys a profit center, then recognize that youre in a good place and try to have some real fun when you go to work.
But what if youre not sure? What if your company sometimes treats technology like a profit center and sometimes like a cost center? It turns out that you are in good company: lots of companies have schizophrenic technology organizations, and like golf shots we fail to commit to, you are probably not terrific at technology cost management or technology-driven profitable growth.
So what to do? Tee up a real discussion about the role that technology should play and design a playbook that favors one or the other perspective. Things go better when we know who we really are.