Robert Dobrowsky Robert Dobrowsky
Partner

Am I Paying Too Much for IT?

June 1, 2013


This common question from upper management often is followed by another: “We continue to invest in more equipment and staff for information technology, so why doesn’t the performance and reliability of our systems improve?”

Determining how much to spend on IT and what return to expect from that investment is a common challenge. Metalformers must consider many factors when analyzing the benefit of IT expenses. As a starting point, most analysts and surveys will put IT spending for manufacturers somewhere between 1.7 and 2.6 percent of revenue when considered as an average spend over time. Costs generally run higher in years with significant equipment and application refreshes and lower in the years after these investments have been made.

The question of value proves more difficult to answer, and depends on the business’ expectations of IT. When we see this question raised, there often is a lack of alignment between the objectives of the business and the IT team’s understanding of those objectives.

Here we present some key strategies to consider when attempting to align IT’s daily operations with business objectives, with an emphasis on maximizing the value received from IT.

1) Establish performance expectations.

Develop a set of performance expectations jointly between key business stakeholders and IT. The business stakeholders should clearly define their expectations of IT, including priorities and metrics. IT staff should clearly understand that performance will be measured against those prioritized expectations and metrics. A lack of clarity with regards to priorities can result in IT spending time and effort on items that provide minimal value to the organization. These expectations can be simple (systems remain operating and accessible, for example) but they also should be measurable—maximum of only 2 hr. of planned downtime per week and no more than 4 hr. of unplanned downtime per year, for example.

2) Establish a detailed budget with IT.

Some businesses avoid crafting a detailed budget, in an effort to minimize IT spending. However, a clearly defined and managed IT budget actually maintains control over the amount spent and directs that spending to where it provides the greatest value. For example, allocating funds to upgrade a network from a low-cost consumer-grade solution to managed business-class hardware may seem counterintuitive. But, such an upgrade actually may reduce total cost of ownership in the long run, as the IT support burden can be less with a business-class solution. Another benefit of the IT budgeting process is a documented commitment to make long-term strategic IT investments.

3) Competitively quote and negotiate IT service agreements.

We often find that businesses of all sizes simply renew existing service agreements or permit them to automatically renew. Given the rapidly changing landscape of technology, most businesses can obtain better pricing and enhanced services by obtaining competitive quotes. In a competitive process, significant savings can be realized (as much as 50 percent) even when selecting the incumbent service provider. This strategy applies to telecommunications carriers, hosting providers, remote monitoring services and many other technology-related services. Missing this opportunity is like giving a money.

4) Establish infrastructure monitoring processes in IT.

Many businesses have infrastructure issues that they either are not aware of until they result in a failure, or that they accept as the status quo. Manufacturers fail to use infrastructure monitoring, which would typically reveal these issues, for any of several reasons, including limited investment in monitoring tools, lack of expertise to set up and understand the tools, lack of interest by IT staff and a lack of priority for these items by management. We have conducted assessments that have revealed issues that include failed data backups, equipment with failed power supplies or hard drives, and expensive high-capacity network connections not being used. Many businesses can equip themselves with reliable monitoring tools for less than $10,000. They then can use these tools to monitor potential issues and to report on IT health to management. Management should use this as a key IT performance metric.

5) Maintain PC and server patches.

Most IT support experts, security experts and IT publications agree that not keeping software updated with the latest patches is one of the leading causes of system failures and security breaches. The cost of mitigation for a single incident, when considering staff time and the cost of outside experts, easily can justify the minimal effort and expenditure required to keep system patches up to date. Therefore, make patch status a key metric for measuring IT-staff performance.

6) Migrate commodity services to the cloud.

Many applications and services now are offered as cloud-based services. Many of these services, such as e-mail, data backups and remote monitoring, have matured to where reliability is not a concern. Cloud service providers serving large client bases typically have the subject matter expertise to maintain high-quality services. Additionally, manufacturers can negotiate contractual protections in the form of uptime guarantees and penalties/compensation for outages. This is why many organizations have moved to cloud-based services for commodity services such as e-mail, data backup, disaster recovery, fax services, network and security monitoring, interactive web meetings and customer file sharing. The migration of some applications and IT functions to the cloud may significantly alter the size and composition of the IT department, so metalformers should evaluate this carefully during the due-diligence process. MF

The author thanks Karl Zager, a consulting manager with Plante Moran specializing in talent and organizational development, for preparing this article. Zager has been responsible for planning and implementing IT transitions for U.S. and Chinese companies acquiring business units from Fortune 100 companies.
Industry-Related Terms: E-Mail, Form, Hardware, Point, Run
View Glossary of Metalforming Terms

Technologies: Management

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