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Take a hint from VCs (who reject business plans that include capital spending for IT) and focus on the product, not the plumbing.
Susan Cramm, CFO.com | US
September 15, 2011
At a recent conference I attended, one of the speakers observed that venture capitalists (VCs) are rejecting any and all business plans that include capital spending for IT. Their rationale is all about focus and flexibility. "Pay as you go" IT (enabled through cloud services such as software-as-a-service, platform-as-a-service, and infrastructure-as-a-service) free management to focus on the product, not the plumbing. For start-ups, it's all about faster time to market and the ability to quickly accommodate changes in demand.
Of course, in this day and age, it's not just start-ups that need to be nimble. Apple's famous supply chain, for example, is all about ensuring focus and flexibility by letting others manage the component production and hold the fixed assets long after Apple has shifted its focus elsewhere.
From the outside, your company probably doesn't look like a start-up. But maybe it should take a hint from the VCs and start acting like one. For example, there's little reason to make big capital bets on products, markets, channels, or projects in times (like these) where demand is highly variable and the likelihood for any initiative's success is anybody's guess. Unfortunately, in most companies financial incentives work counter to focus and flexibility. In many cases capex is easier to obtain than opex (ongoing operating expenditures, for things like cloud services). This is rooted in the marketplace fixation on earnings per share and our very human tendency to assume that the future will look a lot like the past.
The only way to counter these forces is to make capex difficult to obtain. This will force (excuse me, incent) those requesting IT-related funding to fully explore the various ways to:
• Leverage existing assets. If your shop's server utilization or ERP adoption is low, you should regard this as an opportunity to fully exploit what's already been purchased.
• Realize benefits. Initiatives should deliver increases in revenue (or decreases in opex) sufficient to (at least) offset anticipated increases in opex. This requires the development of a benefits realization plan and a predefined "kill switch" if, in fact, the projected benefits don't materialize.
• Replace depreciation with opex. The way to do this is by timing opex increases to coincide with decreases in asset deprecation.
• Self-fund initiatives. This requires the commitment to decrease opex through productivity savings in areas unrelated to the proposed initiatives.
None of these strategies are new, but they assume a greater importance in an uncertain era where what's got us here isn't going to get us there, and your organization's ability to experiment, execute, and scale is the name of the game.
Susan Cramm is an executive coach and president of Valuedance, an executive coaching and leadership development firm specializing in information technology. She is a former CIO and CFO and author of the book, The 8 Things We Hate About IT: How to Move Beyond the Frustrations to Form a New Partnership with IT (Harvard Press). Susan can be reached at www.valuedance.com.