Thursday, February 29, 2024

What’s Your Technology Center of Gravity?

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We 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 let’s 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 don’t have all that much confidence in technology’s 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 don’t know what the hell they’re 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. It’s 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.

There are also a bunch of companies that violate well-established deployment and support best practices like standardization and performance-based contracting. These companies inevitably over-spend on technology which, in turn, requires them to tighten their technology belts (which is damn near impossible because they’ve already violated too many acquisition best practices).

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 company’s 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 it’s 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 you’ll know if technology is about the reduction of cost or the generation of profit. If it’s 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 technology’s a profit center, then recognize that you’re in a good place and try to have some real fun when you go to work.

But what if you’re 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.

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