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
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’
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
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,
9. What is the total cost of ownership (TCO) of your major spending
categories (hardware, enterprise software, security, communications,
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
10. How do you measure return on your technology investments
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.