Thursday 23 May 2013

Why organisations spend on IT

Unless investments in IT are providing business value, they will not be justified. Understanding this is vital for salespeople - unless wasting time chasing unqualified opportunities is the goal. 

Why do organisations spend money on IT?




Spend on IT will link to one or more of the four “Business Imperatives”. Initiatives which support one or more of these provide increased business VALUE to the organisation. VALUE is defined as activity or investment which directly supports the goals of the organisation.

Strategic Value is gained from two Business Imperatives - to increase revenue and to reduce costs.

Reduce Costs

The costs associated with IT include not only the capital purchase of new equipment, but also the ongoing costs through its lifetime. The operational costs can be up to three or four times the purchase cost. Total Cost of Ownership, or TCO, is a term often used to describe this. TCO is becoming a little dated as a term because IT ownership is in fact optional. Enabled primarily by virtualisation technologies, software and hardware are becoming decoupled and increased mobility means organisations do not need to own infrastructure - they can simply pay for "services" to be provided - for some or all of their needs. Total Cost of Operations may be a more fitting meaning for TCO.

Increase Revenue

Commercial organisations are typically goaled to drive profitability. Simply put, Revenue minus Costs equals Profit. The way to achieve this is to provide the best possible levels of service for customers so they buy more products and or services. For public sector organisations, the focus on service provision is in fact the primary goal. Better service provision should drive improved funding which is used to cover the organisation's costs. The end result is similar to commercial organisations - but the focus is on service provision rather than profit.

Organisations also need to drive Operational Value. The two Business Imperatives here are to increase agility and to reduce risk.

Increase Agility

Organisations need to respond ever more quickly to market demands. New applications must be rolled out in shorter time frames, test and development cycles must be slashed and the costs associated with new projects need to be curbed. In summary, as IT evolves, it must become more agile - in line with the business itself.

Reduce Risk

As businesses grow, become more globalised with 24/7 operations and become more regulated - whether by internal or industry governance - so the pressures to avoid business risk mounts. With IT so central to business operations, so Risk Management has become a critical operational imperative. Legal compliance, information management, business continuity, backup and disaster recovery are all initiatives which fall under this category and provide necessary value to the organisation.

Unless an IT purchase supports at least one of the Business Imperatives and VALUE is increased, it will not be justified. Conversely, if you can demonstrate how an investment in a particular technology supports one or more business imperatives, this will strengthen your case to get budget approved.


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