Does Your Organization Invest In IT?

Sure, most every organization spends money on IT -- that much is obvious.

I want to know if your organization invests in IT much the same way an investor would think about it.

Why?  Because I believe that the answer to that simple question will tell me much about what kind of IT organization you are, what you expect from vendors like EMC, and -- ultimately -- what kind of IT organization you'll eventually be.

Spending vs. Investing

Spending is generally about stuff I want now. 

I need something, I go buy it.  Naturally, I always try to get the best stuff for the lowest price possible.  I tend to consume whatever I spend on, and then go do it again.

Investing is generally about my future. 

It's usually not about stuff I need right now.  I forgo current needs, and put bets down in the hope that -- over time -- there's a payoff that I couldn't achieve any other way.

Once in a while, I can sometimes combine the two and spend money on things that not only meet present needs, but have some good payoff down the line.  But I have to be very clear on how much of my decision is really spending for now, vs. investing in some future outcome.

How Do Investors Think About Things?

Smart investors are adept at assessing future rewards and associated risks.  They attempt to reduce their overall risks by spreading their bets around in different kinds of investments with different characteristics.

Not every bet pays off, but many do.  And if enough bets pay off, these investors are generally seen as successful.

To make it fun, if you're an investor, there are lots of people playing the exact same game.  If you make your living investing other people's money, you have to make better decisions than your competitors, leading to a better rate of return.

How Do You Think About IT?

If you think about IT as spending, your ultimate (and very short term goal) is to pay as little as possible for your immediate needs.  Your time horizon for evaluating payback tends to be comparatively short.

By "needs", I mean hardware, software -- and people.  You establish minimum requirements for each, and then go shopping around for the very best deal.  You "win" when you can get something of value for a price less than you expected.

If you think about IT as investing, your goal is to create unique value in the future.  Sure, you don't want to overpay for assets (hardware, software, people, etc.) but you tend to measure their potential value at some point in the future, and less in the present.

Most importantly, you'll forgo a measure of immediate satisfaction in hopes for an even bigger payoff down the road.

When it comes to people, you'll try and get the very best, and then continually invest in their skills and leadership abilities.  You'll treat them well -- and pay them well -- because you're expecting good things from them in the future.

When it comes to working with vendors, you'll try and invest in the very best, with the hopes that -- by doing so -- you'll be able to do more interesting and valuable things with them in the future.

Not all of your bets will pay off.  But, if enough of them do, you might be in a far better position through an "invest smart" strategy.

Not Every Organization Should Invest in IT

Given this framework, it's fair to say that there are many, many organizations that get by just fine with undifferentiated IT capabilities.  Although they need certain IT services, there's nothing about their business model that suggest that they ought to invest in unique and/or special capabilities.

These are the organizations that tend to outsource, or use a preponderance of external contractors, for example.  Before too long, I think they'll be using a preponderance of external cloud-like IT services, simply because that's the cheapest way to deliver what's needed.

The future of these IT organizations are clear: a pronounced focus on external vendor and provider management.  And very little internal IT capabilities, if any.

Some Organizations Should Invest in IT

Conversely, I meet many organizations that should -- and do -- invest in differentiated IT capabilities. 

It's clear from looking at their business models -- at least, from the outside -- that there are ample opportunities to deliver proportionally outsized rewards for their shareholders through a coordinated IT investment pattern.

In some cases, you can actually point at the specific capabilities that they'll likely need to get good at, and what types of external vendors and internal skills they'll need to work with to achieve those results. 

The future of these IT organization are very clear as well: a pronounced focus on delivering unique and differentiate capabilities that can't easily be found elsewhere, and a strong link between these IT capabilities and the overall business model.

Most Organizations Are A Mix Of Both

In larger organizations, IT portfolios can be fairly broad.  So, generally speaking, you'll find a mix of areas where IT should spend (vs. invest) and invest (vs. spend).  But, what does that picture look like?

Several years ago, I was fortunate enough to have a senior level IT exec take me through his portfolio in some detail, and clearly identify three areas:

1.  Places where IT spend was a necessary evil. 

It had to be done -- and done well -- but there was no unique advantage to be gained by being the best at it.  For these categories, he was open to cost reduction, outsourcing, external service providers -- you name it.

2.  Places where an IT investment strategy made sense.

These were the areas where the business could get unique value by being better than what was generally available.  He was looking to make a series of investments in these capabilities as a result -- with a payoff horizon that wasn't measured in 90 days :-)

3.  Places where the game plan was still an open debate.

In a few areas, there wasn't a consistent view as to whether IT should look at it as an expense to be minimized, or an area to be invested in.  Fair enough -- the world is an imprecise place, and things can change quickly.

How This View Can Help A Vendor Like EMC

Now, armed with this view, think about how effective I was in coaching the EMC team on how to best approach this particular customer.

Here are the places where it's all about saving money.  Don't talk about whiz-bang capabilities unless it supports that outcome.  Take cost out, take it out quickly, and take it out as risk-free as possible.

Here are the places where it's all about building muscle for the future.  No one's going to overspend, but you need to show what your solution can do now, and how it positions them for an area they'd like to get far better at.

And here are the places where it's still an open debate.  You're free to weigh in with your opinions, but realize that there's no consensus that has formed yet.

So, if we circle back to something prosaic like -- say -- storage, you can see where this might help us.  Ditto for virtualization, security, compliance, decision support, knowledge worker support, etc.

We still had to go out and earn the business, but we had a clear understanding of whether or not this customer wanted to minimize spend on IT, invest in the future, or a combination of both.  And, as a result, we did a far better job in positioning our value in a way that didn't waste anyone's time.

Going Forward

As the industry matures, and we see more an more IT being delivered as either internal or external services (e.g. private clouds et. al.), more and more IT organization will reach a "moment of truth" around these topics.

For me personally, the "spend vs. invest" decision changed dramatically as I got older and had to start thinking about things like college educations, retirement, et. al.  Sitting down with a financial planner a while back was my "moment of truth" :-)

Is your goal to spend less on IT?  Invest in capabilities that make us better in some way?  Or some combination of both?

And, unless you can get a clear view to answering that question, I think it's going to be rough sledding for the next few years. 

Comments

[Martin G]

I think one interesting thing is the way in investing in one thing could open other opportunities which you never realised.

For example, when the company I work for decided to build an HD broadcast capability what we didn't realise is that it would allow us to do something even more revolutionary and build a 3D broadcast capability with minimal incremental investment.

I suspect we might see similar things with people building flexible IT infrastructures, change will speed-up and we might see people doing some really special stuff. Or we might just see even more of the same...

[Chuck Hollis]

Good point -- sometimes investing in generic capabilities leads to opportunities that weren't obvious at the outset.

[Rick Parker]

I agree investing in generic (and scalable as budget allows) is a good idea because trying to predict future products and services does not usually work well but having a flexible scalable infrstructure gives you the
best odds to support whatever comes up.

On a 2nd note on Cloud computing about 10 years ago Business Process Reengineering was the buzz based on the book Reengineering the Corporation and in the paperback edition in a note to the reader the authors state a concern that the misuse and abuse of the term Reengineering would prevent the changes from occuring but thats exactly what happened, fear of change, confusion, and the status quo has basically killed BPR. I would hate for that to happen to Cloud computing. FYI, BPR is just as useful today as it was back then

[binary option]

Good point, not all businesses invest in IT, they just spend. Investing in a binary option for example, earned money for me. There should be returns when a business invests in anything, particularly IT.

-Al