Saving Money With IT

(Note: This is a reprint from our June 2008 Newsletter)

When it comes to saving money with IT there are two major schools of thought. The first says “Save money by spending less on IT”. The second says “Save Money by spending on IT to make something else cheaper”. There is something to take from each point of view but in the long term, for most organisations, only one approach will work.

One of the main reasons businesses spend on IT because it saves us money on something more expensive. Normally this is labour.

Technology makes us more efficient – it has a cost, but at the end of the production cycle the cost of producing a unit of “output”, whether that be a cubic metre of concrete, a printed circuit board, or insurance policy, is less than it was before we “invested” in IT. Often it is necessary to make a lot of units of output before the technology investment is paid. We sometimes call this concept “Return on Investment” – a point where the cost of investing in technology is recouped through the savings on the units of output.

As we go about our work it often surprises us how people see the value proposition of IT. Even though everyone knows the old business axiom “time is money” we do see people making business decisions more from an employee perspective rather than a business operator. What do we mean?

An employee typically works to the understanding that they have a relatively fixed amount of income. Within this constraint the only income maximisation strategy they have is to minimise expenses. Because they don't pay for their time they may see sacrificing their own time to save money as a reasonable trade off (and it is within the constraints of their model).

A business operator is going to look at the problem differently. For starters they don't accept that their income is fixed. If they can produce more units of output, then theoretically they can generate more income. Secondly they are going to put a realistic cost against labour. They are only going to be interested in sacrificing time to save money if the time being sacrificed costs less than the money being saved.

Now – we know that most business operators understand that in theory. How do we apply it to practice?

Here are five suggestions:

Invest to Save Time

In terms of technology a lot of the general tools your business might need to help it save time are already there. Spreadsheets and word processors are old hat, emails been with us for some time, Instant Messaging and Video Conferencing are becoming commonplace. What we are seeing emerge much more strongly now is business specific applications, and improvements to business specific applications.

Consider how your business works and look at how automation might improve it. As we said – much of the general purpose stuff is now done, but there is no doubt that there is now a lot of activity in the SME space with business examining and improving their own business specific practices through investing in IT.

Be Careful of Investing In Gimmicks

t is very easy to confuse investing for efficiency with investing in gimmicks. For example, when you move 1,000,000 pieces of cargo each day having a PDA with each driver so that items can be checked out as they are delivered is an obvious labour saving and accuracy improving device. When you have three waiters using PDAs to take coffee orders it's a really marginal proposition – yes you save the walk back to the kitchen, but unlike scanning a barcode (for the courier driver) taping in a coffee order takes a few clicks, and exceptions are a nightmare.

There's nothing wrong with gimmicks, but recognise them for what they are – marketing tools not business efficiency improvements.

Understand How You Will Realise Your Return On Investment

Whether it is by saving someone half an hour of wasted time every day with a new computer system, or allowing your business to serve twice as many customers with the same amount of staff have a sense of how you are going to realise a return on investment when you spend on technology.

Having this sense of when you break even will also help you sort the chaff from the wheat with respect to gimmicks. If you can't construct a model where the investment pays for itself in 3 years or less chances are you aren't looking at a good efficiency improvement.

Get Some Advice

Speak to some technical people you can trust before you make a purchasing decision about a complex business specific IT system.

How will the proposed system integrate with your other software? What will be the ongoing cost of owning and maintaining the system? How does the vendor's maintenance cycle fit in with your other software vendors? What is the reputation of the software outside what their sales people have told you? All of these are questions which you should seek some trusted technical input on before making a decision.

Stay On Target

Make a decision and stick with it long enough to give it a chance to work. New systems take time to bed in, for people to adjust their habits and for the system to boost productivity. Often you wont see a benefit in the first six months. However you should see a benefit within 18 months.

Don't chop and change too soon – stick to your guns and give your decision a chance to shine through.