As technology continues to reshape and disrupt all industries, companies must invest in information technology. However, many of these investments fail to deliver the promised value or outcome.
There is no direct link between investment in technology and an increase in profits, but there is a correlation between profitable growth and technology investments that are focused on targeting particular areas or capabilities. With the right implementation and continued use, investment in technology is a reliable way to get the most out of your business.
Defining Intelligent Investment
To make an intelligent IT investment there needs to be:
- Alignment of spending with business goals
- The ability to implement and execute IT plans
- An assessment of the potential benefits and risks for a plan of action
- An ongoing defined model to ensure continued derived value from the investment
Businesses often go into IT investments and changes, such as implementing Enterprise Resource Planning (ERP) or Customer Relationship Management (CRM) software, expecting that it will solve all of their problems. A system wide ‘fix-all’ more often than not fails to fix anything, as poor issue identification, targeting, implementation, and management change the nature of the problem without fixing it.
Large or growing businesses without a CIO or technology partner often get distracted or are sold on the idea that new technologies are a necessary and intelligent investment. But there is a large disconnect between investments, successful implementation, and the value derived from such investments.
Succesful IT Investment
Business who see a better ROI on their IT investments invest in technology that enhances their unique capabilities that separate them from the competition in the marketplace. This requires IT managers to look beyond ‘foundational’ IT investments and instead focus on opportunities that will set them apart.
For example, PWC suggested in their report that industrial enterprises that focus on operational excellence should invest in technology such as an Enterprise Resource Planning system to track inventory and shipments and collect data so they can remove inefficiencies and reduce costs.
Businesses that get value from their IT investments understand their spending by targeting the capabilities needed to put themselves in a winning position in the market as well as the benefits, costs and the total value they are likely to see.
Those who fail to investigate or understand the necessary details are at risk of undertaking projects that will cost them lots of time and money before they eventually fail to make the investment worthwhile.
When developing a technology strategy to improve productivity, increase profits, or reduce risk, IT management teams and executives should consider several key questions.
- How much of your IT investment budget is aimed at building unique capabilities instead of ‘foundational’ activities?
- Does your business have the necessary processes in place to effectively implement and drive the investment?
- Does your team have the right skills & experience to operate at the desired end-state?
- Have you identified the potential benefits, risks, and value of the specific technology investments?
According to the Harvard Business Review, one in six IT projects has an average cost overrun of 200%. This implies that, as a business investor, you must understand and monitor the financial metrics of your project including:
- Net Present Value
- Return on Investment
- Internal Rate of Return
- Payback Period
There are, of course, intangible benefits of improved IT within a business such as increased quality, timeliness, and user satisfaction which often drives a positive return on investment.
Ultimately, an intelligent IT investment isn’t the amount of money that you throw at a project but the forethought to consider how it aligns with your business goals and making sure you have the people in place to get the most value out of it.
Need help determining what will be an intelligent IT investment for your business? Apply for our IT Strategy Workshop now.