Are you running on empty? How much should you spend on IT?

How much should we spend on IT?
You probably get asked this question at least once a month. We do. And our answer is: “How much should you spend on petrol?”
This might seem evasive, but it brings the question of IT spend into the spotlight. Let’s carry on with the petrol analogy, I’m sure you can see the parallels for IT spend:

• Is your car central to your doing business? (What IT intensity does our business have?)
• Are you cruising or going uphill? (Is the business playing catch-up or is it defending its market position?)
• Are you racing? (How fast do we need IT to operate – a mining company has different IT priorities to say a telecommunications company.)
• Are you going off-road? (Are we going to try some un-trodden path using IT?)
• Is this a passenger or freight vehicle? (Are we a service or product based company?)
• Petrol or diesel? Or hybrid? (What’s our legacy, and what cost efficiencies are we chasing?)
• Are we on the open road or in start-stop traffic? (How clear and predictable is the business strategy? Can we plan for stable strategies or do they change every three months?)
• What about our tyres – right pressures, tread? (What about the state of our operating systems – old and creaking, in need of refresh, up to the minute technologies?)
• Does the engine fit the load? (Have we underinvested in IT in the past?)
• What’s the weather like? (What’s the economic environment like – recession or growth?)
• Is the driver experienced or a rookie? (How well do we deliver IT? Will there be any surprises / accidents?)
• When is the last time the vehicle was serviced? Have the service intervals been maintained? (How effective is our operational IT? Are we playing maintenance catchup?)
• What’s the wind doing – headwind, tailwind crosswind? (What’s the IT posture in the company? A necessary evil, or a true contributor to business value?)

The analogy of petrol usage is a good one because the answer to how much you spend on IT is: “It depends.” Just like petrol usage. In what industry are you? How intensely does your business use IT? Are you growing, acquiring, or defending market share? What are your competitors doing? What is the posture of IT in the organisation? How’s your current IT engine doing? Where does your business want to go?
All these questions have an impact on the answer to “How much should we spend on IT?”
So unfortunately the answer has to be: “It depends.” And how you answer is probably more important than the answer itself. I think you can see that it you initiate the above discussion, you’ll get more than just an answer to the question – you’ll get to the real issues around how and why your company uses IT.

The next article in this series is IT Spend and the Three Bears

If you are having trouble getting your business to understand IT costs, contact us at gerhardtvw@cxo-advisor.co.za or see our budgeting and finance offering here.