IT Strategy: Justified expense

Next time you’re chatting with a stakeholder in your business about a
potential IT outlay, use the phrase ‘technology-related business growth’ to
shoot down in flames any suggestions that an IT project should be looked upon as
a cost rather than an investment.

While blatantly a phrase invented on the hoof by yours truly, something needs
to be done about how we can successfully measure the true value of technology to
the success or otherwise of the business.

Traditionally, measurement devices such as return on investment and total
cost of ownership studies have been viewed as important to assess the viability
of a capital expenditure – particularly an information technology one.

But, as a survey in this month’s issue, carried out among readers and in
association with Computer Sciences Corporation, shows, these traditional
measures have become almost obsolete.

The research shows that although finance directors now realise that IT should
be intrinsically tied in with company strategy, many are still not clear on how
to measure its true value to the organisation. And this is where technology
related business growth (or TRBG for short) can help.

When asked why their company does not actively try to measure the potential
return on investment of a technology outlay, one finance director had this to
say: “It doesn’t measure anything but money. A project that returns nonfinancial
benefits as well as monetary benefits can be more valuable.” Another said: “The
project may turn out to deliver greater return not only for the organisation and
its clients but there could be external factors, which benefit the wider
community. These environmental benefits could be lost with a restriction to
return on investment.”

There are two conclusions that can be drawn from these comments – and the
many more from the survey like them. First, it seems as though business and
technology is finally beginning to see eye-to-eye; and second, how, exactly, can
technology expenditure be justified?

Consider a substantial investment in a new converged network, which will
allow your company to send phone calls, video and data over the same network to
every desktop in the business. (If you haven’t already been told that such a
system is key to your company’s future survival by your IT director, there is no
doubt that you soon will be, by the way.)

There are some very obvious economic and business reasons for signing off
such an investment. The money saved by routing phone calls over your corporate
network can be huge; and converging data and communications on the same network
can allow you to present your sales force with immediate access to a customer’s
records, while fielding a sales call, are just two.

Mobile technology, which would allow your staff to occasionally work from
home, or your sales force to work on the hoof, could also benefit your company
in more than one way. True, they could become more productive, leading to
greater revenues, but the increased flexibility could also improve the goodwill
of staff to such an extent that they put in an extra 10% of phone calls; they
could recommend the company to friends; stay with the company longer, or react
in any one of an endless list of immeasurable ways. (No one said this was going
to be easy.)

It is the intangible benefits of such outlays that are often far more
valuable to the business than the actual cost savings. The goodwill generated by
a more personal sales call made possible by the investment in a converged
network is almost impossible to measure. But if there is evidence of customer
gains achieved due to word-of-mouth recommendations, then this is likely to be
linked to the initial technology outlay.

A proportion of the investment for both the converged network and the mobile
technology should be given a TRBG score, however far away from the
intended benefit of the initial technology the actual
benefits might be.

It is a fact illustrated well by another finance director who kindly
responded to our survey: “There has been a shift [away from return on investment
as a measure of IT project success] because the overall business may transcend
pure financial reviews. While it is important to have a measure to evaluate
projects this is not the only element to be included in project evaluation. It
is equally important to evaluate the effect on personnel and, probably more
importantly, customers. Any project which does not consider the impact on
customer satisfaction will not succeed and it is very difficult to quantify the
results of this.”

However unrealistic it may be to try and introduce a new technology
accounting standard into the business world through the pages of a magazine, it
is well worth revisiting some past IT investments to try and re-evaluate some of
their benefits. It could provide an illuminating experience and might convince
you, or the chief executive, that technology permeates every aspect of the
business.