Smart IT investments: Plan, produce and prosper

Regardless of what they cost, all IT investments must add maximum business value to the company.

When CP Kelco, a manufacturer that grew from a few hundred employees to more than 1,700 within the past three years, needed to update its desktop and laptop PCs, it didn't buy all the hardware at once. Instead, the Wilmington, Del.-based company mapped out a three-year plan for the purchase.

"This is a big expense for a company of our size, but we had to do it because we had all kinds of old hardware," said Joyce Young, vice president of IT at CP Kelco. "So we did an analysis first of whether we should lease or buy. Then we mapped out a three-year time frame for refreshing all our desktop and laptop PCs."

CP Kelco's need to update old hardware is a common issue faced by all companies, but an especially troublesome one from an expense perspective -- for smaller firms. For small and mid-sized companies, all IT investments, including hardware, software, services and personnel, should be made with an eye to adding maximum business value to the company.

Draft a three-year plan. It's an obvious piece of advice, but too many small companies don't always make plans, or they fail to map out their business and IT strategies beyond one year. Young noted that having a three-plan was critical to CP Kelco's ability to understand and predict future needs and available funds.

Bill Johnston, president of Orlando, Fla.-based consulting firm Alinean, stressed that you can't evaluate an IT investment unless you've got a clear map of your business goals and the IT resources required to support them. "IT investments have to achieve business value, and it can't do that unless you know your business focus and goals," he said.

It's also a good idea to break down investments into two categories: infrastructure and strategic/tactical purchases. Infrastructure investments involve things like basic desktop applications, e-mail, network operations and other "utility" types of IT expenditures. Strategic investments move the company toward some competitive, strategic business goal, such as supply chain management or e-commerce.

Alinean breaks the categories down further, as the nuts and bolts infrastructure; the relationship building blocks of Internet and enterprise software; knowledge capital management solutions (analytics, business intelligence, enterprise portals); and "information warfare" technologies still in development, which enable proactive control of information for competitive advantage.

Whatever your categories, assign percentages to each so you establish some restraints and guideposts for spending. "I'd establish a percentage of each category that I allow myself to spend," said Bruce Barnes, president of consulting firm Bold Vision LLC, in Dublin, Ohio. He noted that the percentages may be based on how you're currently spending your IT dollars or on averages for other firms in your industry.

Solve a business problem, don't just buy technology. "For instance, if you're buying e-mail -- which everyone has to have these days -- that doesn't mean you have to go out and spend $40,000 to implement the infrastructure for your own e-mail system," said John Riganati, an independent IT consultant, based in Park City, Utah, who has worked with small companies. "One answer to the business problem of e-mail could be to outsource it, rather then buy the technology to do it yourself."

Johnston agreed. "I'd advise companies not to focus on technology but to ask themselves two questions: 'What is the business goal and business problem we're trying to solve?' and 'What do we need to know to be effective in the execution of that goal?' When you have those answered, you can begin to find technology to support those goals at the lowest cost."

Evaluate the impact on productivity. "You can put some solutions in place that actually hurt productivity," Riganati noted. "If you give somebody a solution that is difficult to learn, or that slows them down, they'll just find ways to work around it." He suggested flow-charting the steps that go into a process so you can more easily determine if a particular application will cut down on those steps or potentially increase them.

Create milestones. Johnston recommended breaking down all projects into smaller projects, with the easiest, most useful ones first. That way, you achieve incremental value and can more easily change or even cancel the rest of the project without losing the value already created. For instance, if you plan to implement a CRM system, the first milestone might be to consolidate all customer data onto one database. "You always want the ability to re-allocate your dollars if it's not working," he said.

Simplify and consolidate. At CP Kelco, the emphasis these days is on simplification and standardization to cut down both on maintenance and support costs. "We're going to standardize on one network operating system and one desktop operating system," Young said.

That type of consolidation can be carried into bigger investments, such as enterprise applications and server hardware, Riganati said. "Look at decreasing complexity by consolidating the number of devices you have to take care of, or actually utilizing all that hardware you bought five years ago. If you're dealing with one large machine instead of 10 smaller ones, your complexity and costs go down."

Conduct a post project review. Barnes urged firms to make time for a post-project evaluation. Too few companies do, he said, pointing to research done for the CIO Habitat Project by Thornton May that finds only 2% of a project's time is dedicated to post-project review, despite the fact that the survey respondents felt 38% would be ideal. A bit more focus on hindsight can help prevent future mistakes. "Take the time to ask, 'What are the lessons here?'" Barnes said.

Sue Hildreth is a contributing writer and editor based in Waltham, Mass. She can be reached at Sue Hildreth@comcast.net.

This was first published in November 2004

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