Isn’t IT just another cost center in my business?
Not necessarily.
I’m frequently asked this by business owners because it’s all too common a misconception. When one thinks about information technology, it’s easy to just see IT as an organizational black box where money goes in and problems seem to emerge. The unfortunate reality is that this is, in many cases, an accurate description of IT as it related to budgets. The fortunate truth is that with careful planning, your IT department can ultimately prove to be less of a cost center and more of an investment center.
If you think about all of the reasons why any individual makes financial investments, the answer is usually centered on the return. This can also be a driving force into the decision making process of the investment.
But how can IT possibly be an investment? It doesn’t bring the organization any revenue. It just costs us money!
Actually, it does bring revenue. The important thing for a business leader is to understand that information technology is as much an important a part of their business as sales, marketing, human resources, and manufacturing are. It is one of the essential foundational layers to the enterprise, be it small or large in size.
Essentially, the technology decisions which get made define many of the operational parameters by which other departments can flourish or flounder.
For example, any sales force should have a CRM system for managing leads, opportunities, clients, etc. But which CRM solution is to be used? What are the business needs? How does that tool support the goals of the business? Software is a tool and the right tool must be used for the job at hand. Nobody would use a socket wrench to pound a nail. Improperly selected software tools can be a severe detriment to the success of the sales force. Besides lost revenue, a poorly operating sales team diminishes the company’s overall value just as much as a shoddily cobbled together software implementation.
So how does IT add value, exactly?
Successful IT strategy encompasses more than just servers. It also requires intense focus on both short- and long-term business goals. Good questions to ask would be: What components to the enterprise require which resource and how can we most effectively deliver service to those components? Who are our internal clients and external clients? What are their expectations?
A solidly developed and realized technology strategy which can address all of these questions enables the business to grow, and growth adds real dollar value both in terms of revenue gain and shareholder value.
This is easily recognized, for example, when executing a business exit strategy. One of the primary things to consider if the ultimate goal for your business is to be acquired is how to build that value to its maximum potential.
It should be clear that whoever would court a company for potential acquisition would be looking at every component of its target: financials, infrastructure, personnel, logistics, and clientele. They’ll look for both synergies and overlaps. Their goal is to get something from their target for nothing. If there’s an opportunity for them to shave a few million off of their offer price, they are duly bound to exploit it. After all, they are looking to build their value as well, for the same reasons their target is.
I’ve been through acquisitions and I know, first hand, the meaningful impact that a solid IT team can have on building value. My decisions and sound investments led to the department and infrastructure running lean, being highly efficient and effective, and line accountable to revenue.
After this experience, when discussing the acquisition with a senior leader of the parent company, we discussed what made us such a worthy target. Obviously, our core business was their chief interest. But when due diligence began, their team of personnel responsible for performing the process quickly reported back to decision makers regarding the quality of our technology landscape and roadmap. I was told that we were far and beyond other acquisitons and, in many ways, our technology decisions outpaced their own. This really sweetened the deal for them and resulted in that value being realized by a seven-figure increase in their final cash offer.
Even if your goal is not to be acquired, sound investments in technology will reap future rewards. As your business grows, you may have the opportunity to bring larger customers on-board who are forced to abide by Federal compliancy regulations. Cogent strategies up-front will dramatically reduce future stress, reduce operating costs, and keep your IT team running at its peak for years to come.
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This entry was posted on Wednesday, June 18th, 2008 at 12:09 pm and is filed under Executive Briefs, Virtual CIO. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
