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Expert Advice for Medium and Midsize Businesses

Your IT Investment Methodology May Be Flawed

Guest Author

By Toni Boger, Content Strategist, Content4Demand

Traditionally, medium and midsize companies planning information technology (IT) investments used a combination of rudimentary metrics mixed with a little guesswork. They looked at cost, conservative estimates of potential productivity improvement, and unfortunately, how much they could continue to use old systems without incurring excessive down time. They looked at the money previously allocated and, after a few calculations, made some tough decisions about where tech dollars would and would not be invested.

But, recent research has revealed that failure to invest in key productivity-related technologies could be costing companies more than they realize. The methodologies that organizations are using to measure the value of IT investments aren’t taking into consideration the opportunity cost of failing to adopt productivity-advancing technologies.

Here are five things medium and midsize organizations should consider when determining whether to invest in new technology:

1. Could my company become obsolete?

Obsolescence is one of the biggest risk factors for companies that don’t adopt cloud-based applications and infrastructure. And laggards don’t just risk having their information systems fall behind—their entire businesses could be at risk when competitors embrace technology and the productivity and competitive gains it can unleash. According to a recent research paper, “Intelligent Finance: How CFOs Can Lead the Coming Productivity Boom,” avoiding investment in cloud technology increases costs and decreases productivity. This combination of factors can create significant drag on companies that delay deployment of cloud-based technologies.

2. How will delaying investment affect productivity?

How big is this productivity gap? One study by the Organization for Economic Cooperation and Development (OECD) found that so-called “frontier” firms that invest in these technologies are up to five times more productive than industry peers. And that gap keeps widening as leading-edge firms continue to increase automation to save time and resources. The capabilities that cloud enables are so transformative that traditional piecemeal efforts—like adding on limited, siloed cloud components to legacy systems—is insufficient to keep up with competitors that are transforming their businesses and creating new business models through their technology upgrades.

3. What opportunities are we missing by foregoing investment?

One often-overlooked expense when remaining on legacy on-premise systems is opportunity cost. Beyond cloud services’ ability to improve productivity and reduce spending in some areas of IT—software, upgrades, equipment, etc.— cloud services can accelerate both the opportunities that new platforms offer and the obsolescence of legacy systems. If companies that lag in adopting cloud systems don’t have the advantages that cloud services deliver, they may not be able to adapt, seize new business or product development chances, or keep up with competitors who are more technologically advanced. Some companies may find margins squeezed or growth slowed. Failure to adapt to new technologies will create missed opportunities.

4. Should we hold off because of economic concerns?

Some firms are holding off on investment because of economic concerns. Nearly two-thirds of middle-market C-suite leaders and business owners expect a recession within 18 months, according to a report by accounting firm Grant Thornton. Subsequently, the risk-averse manager may feel that postponing the investment is a wise option.

However, the report also found that strategic investment in technology can provide important bulwarks against recession, and half of business leaders surveyed thought technology investment was a key priority in advance of a recession. More companies are implementing technology tools and big data capabilities than during the last downturn. The prevailing sentiment is that these tools would help them more effectively and efficiently monitor inventory, customer demand patterns, and other areas.

5. How will delaying cloud investment affect our competitive advantage?

Competitive firms will be forward-thinking instead of relying on back-of-the-napkin calculations on the worth of any cloud IT investment. Putting off investments and falling behind competitors could prove fatal to many organizations. Instead, companies need to look at the investment in terms of the best practices of their industries:

  • How fast is cloud adoption happening?
  • What capabilities or efficiencies will it unleash?
  • How can cloud services reduce down time, facilitate collaboration, and improve productivity?
  • How, specifically, will cloud services transform our business?

Medium and midsize businesses need to consider cloud services as a profit center rather than an equipment or infrastructure expenditure. By connecting improved output, fewer errors, greater agility and ability to compete, and a host of other business benefits, leaders have a greater suite of reasons why the investment in cloud technology is essential for growth rather than an expense to be managed and mitigated.

Learn more about the returns possible when cloud-based technology is accelerated in the MIT Technology Review report, “Don’t get left behind: The business risk and cost of technology obsolescence,” developed in collaboration with Oracle.

 

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