Contributed Column

All About IT

by Eric Hart, NPI

Technology investment strategies for business success

It has never been more important for Vermont businesses to make the right technology investment decisions. They currently spend an estimated 2 percent to 5 percent of their revenue on technology purchases, amounting to hundreds of millions of dollars each year.

Studies show there is a strong correlation between profitable growth and well-aligned technology, especially when the investments focus on differentiating the business in the marketplace. Unfortunately, technology spending can sometimes be derailed by competing agendas, poor communications, and long wish lists. How can these important business investments move beyond the technical necessities needed to just “keep the lights on” and tackle improvements that solve the bigger problems businesses face today?

Deloitte’s Global CIO Survey reports that 57 percent of technology budgets are used to support fundamental business operations, while only 26 percent of the spending focuses on needed business changes. A mere 16 percent supports innovations that will power the business into a successful future. In a world where IT has become a critical component of business operations, technology is a key differentiator and an enabler of success. So how should a small business determine where to direct its scarce resources to get the greatest “bang for the buck”?

Successful businesses optimize value by adopting a portfolio approach to technology investments using a strategy similar to a stock portfolio. Some high-risk investments may deliver outstanding but risky results, while more conservative investments are likely to lag behind but give consistent results. Smart executives measure the performance of technology investments in terms of value, risk, and reward. A venture capital mind-set on some of the investments will boost value and produce a bigger impact.

Focus investments on specific business goals like revenue growth, such as investing in improving customer market share. Another goal might be to better serve existing customers to increase their spend. The former strategy lends itself to investment in better marketing and customer targeting technology; the latter requires customer relationship management and service support systems. Always verify that technology investments are closely aligned so they support your strategic goals.

Prioritizing technology investments is a bit like making sausage: It’s not a simple process. There can be conflicting opportunities and constraints to balance. If too much is allocated to maintaining existing systems, new projects and innovations might languish. This can ultimately impact competitiveness and long-term revenue. A spending balance across innovation, growth, productivity, and maintenance coupled with a mix of targeted investments based on business objectives, time constraints, and risks will yield an excellent outcome.

Smart leaders follow a multi-year strategic technology investment plan that allows for growth, change, and improvement. It’s easier to identify technologies that help specific initiatives when there is an overarching vision to provide clarity.

Some key questions to consider:

• Are there opportunities for growth or significant improvements in certain functional areas?

• How do leaders in your industry use new technologies to create a competitive advantage?

• Does it make sense to invest time, money, and staff to one large project versus several small, but less impactful, changes?

• Are there new business risks requiring technology investments that can’t be ignored?

• Which investments will grow revenue, improve profits, or reduce risks the most?

As technology becomes more pervasive, long-term investments make the difference between a thriving or static business. The key is to reach management consensus with a realistic view of the benefits, costs, and impacts for each technology decision. Writing a big check is not enough. Technology investments must also be strategic — yet focused on the most important competitive initiatives — so they deliver the expected impact on the bottom line. •

Eric Hart is CEO of NPI Technology Management located in South Burlington www.npi.net.

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