Are Your Investments in Technology Paying You Back?
At present, there seems to be a great deal of focus on the advancing state of disruptive technologies and the financial impact inherent in logistics companies’ real time connectivity to their customers. When I think about my own experiences over a 30+ year career as a professional in an information technology role, and my last decade at the CIO level within the transportation sector, I’ve come to the conclusion that advancing technology and ensuing customer demand creates a true challenge today that didn’t exist a decade ago. Various internal & external influences are contributing to a condition of “all budgets are IT budgets” for logistics companies today and I want to share some ideas that should assist a business owner in determining the optimal IT investments within their organizations that ensure ROI.
Disruptive Technologies & Capital Expenditures
As a business owner of a logistics company, it is imperative to determine current trends in technology that identify the main drivers of change in the transportation sector. The industry is facing multiple, rapidly advancing technological forces that have combined to potentially cause a disruptive impact on the ability of a logistics company to achieve desired business outcomes and alignment with financial and strategic corporate initiatives. For the purpose of this discussion we’ll focus on two disruptive technologies advancing rapidly and severely impacting finances and strategic direction for the transportation verticals:
Disruptive Technologies and IT Spend
First, some meaningful statistics; according to Gartner, the average spend for an IT Department in all industries for 2013 was 3.5% of the total corporate budget. In 2008 that number was 4.1% so the data suggests that the cost of IT spend as a percentage of revenue has declined by almost 17% over the last six years.
Gartner further indicated that the average IT spending for the transportation sector was only 2.6% of the total budget, 35% less than the average spend for all industries. Technology is a critical component of the performance view for both your company and your customers’; that factor alone should be reason enough to evaluate the company’s current technology solutions.
Now also consider that over the same six year period the demand for a logistics enterprise to gather, analyze, process, manipulate and communicate information more rapidly became a necessity to compete. The pervasive need for real time visibility and communication has caused rising investments in the area of IT connectivity solutions and devices to interface with customers, vendors and partners. Remember, historically, IT budgets have been declining; therefore, business owners must invest in systems that enable competitive relevancy but invest accurately to avoid costly mistakes of investing in short term solutions that are not sustainable for the long run. The demand for real-time information will only increase in the future.
Bells & Whistles
The ability for a company to invest in the right areas can be confusing for the uninitiated since the technology solutions themselves require costs to implement and maintain. According to Gartner, on average, nearly 66% of the IT budget accounts for keeping the systems operating. The remaining portion, a mere 34%, is spent on business growth and transformation projects. Aside from a standardized cost as a percent of revenue measurement, another productive method that could be utilized to determine return on technology investments is to incorporate the “RGT Model” as highlighted in Steven Bell’s book Run Grow Transform: Integrating Business with Lean IT. (You can purchase the book here or listen to a podcast about it here)
In Bell’s model the investment dollars spent would be measured by the dollars generated through customer acquisition, efficiency gains in business process improvement or the holistic value of transformative efforts to the organization. Ultimately, the true ROI is measured by the ability to flow the value outside of the organization to realize customer conversion and revenue gains. So, as you allocate your spend of this precious 34%, avoid the ‘bells and whistles’ that look good, but provide no real ROI to the organization or your customers.
Get a Second Opinion
Since technology budgets are declining and technology advancements are ongoing it is imperative for business leaders of logistics companies to first take stock of their current IT landscape. Only then is the business leader truly prepared to articulate metrics that determine when to spend, how much to spend and the value associated with investments that produce the right mix of software, hardware, services, staffing, licenses and third party solutions.
Determining ROI for systems investments can be challenging; an IT professional can assist in evaluating and upgrading systems platforms that provide economic value and the best long term solutions for the enterprise. There is no substitute for experience and expertise. When it comes to evaluating technology solutions, leave no stone unturned and expect measurable results in cost efficiency, customer acquisition or transformative projects as potential outcomes for consultant services.