Sunday, September 26, 2021

10 Questions You Should be Able to Answer

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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