Tech Investments


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Tech Investments

Tech Investments

As federal stimulus dollars for investment in renewable energy begin to dry up, will the private sector rush in to fill the void?

Maybe not.

Venture capital investments in what the industry calls “clean tech” companies fell to $1.1 billion in the second quarter this year, a 44 percent decline from the second quarter of 2010, according to an analysis by the firm Ernst & Young. The number of deals involving clean-tech firms dropped 12 percent during the same period, according to a new analysis by the center-left think tank Third Way.

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Justifying Technology Investments: Making a winning business case to senior executives | Part 1 of 5

10/25/2011 Guest Contributor: Richard D. Janezic, TBG Security, VP Sales, Marketing & Business Development

Getting senior executives to approve new investments in technology can be a challenge.

Sometimes, circumstances are in your favor.  Raheem Morris, head coach of the NFL® Tampa Bay Buccaneers, met with Buccaneers co-chairman Bryan Glazer and with a 2 minute conversation, he justified and won approval to spend $100,000 for 100 Apple iPads® to replace traditional paper based playbooks.  Convenience, reducing paper reproduction costs (some playbooks exceed 700 pages), immediacy of updates, remote wiping capability and security were among the justification reasons.

But justifying new, complex, high cost business and technical initiatives to your senior executives is likely to require more detail and justification.  The request, evaluation and approval process from your senior executive team for sophisticated new software applications, large hardware upgrades, or operational streamlining is probably something more formal and substantial than an informal 2 minute chat with your chairman.

Most organizations have a structured, rigorous justification process to evaluate if, when, and on which initiatives they will make financial commitments to approve capital for new investments.

What to expect from this 5-part blog series

This article is the first in a series to help you not only understand how to build a better business case, that is, one that has a high probability of winning approval, but will also provide insights for effectively managing and communicating with your executive team on projects that have been approved and are “in flight”.

The focus of Part 1 will highlight the concepts of how senior executives consider, evaluate and approve requests for capital
expenditures.  Part 2 will focus on the business case; Part 3 will examine aspects of technology economics and finance.  In Part 4, we will look at how to construct the business case, and finally, Part 5 will help you put it all together into a winning project.

Part 1: Concepts to consider before you begin

Let’s start with several key concepts which are essential to understand as you reflect on how to compose your request for capital.

Note 1: Your organization may use a different term than “request for capital” but whatever your firm’s specific term, you are asking for approval to spend money.

Note 2: This article is not a complete and exhaustive list of everything to include, rather, it addresses some of the critical concepts that you will want to consider.

Note 3: While this document is intended to help you understand how to justify new technology investments, this architecture holds true for nearly any capital investment, not just technology oriented projects.

First, business executives spend money on what they believe will help them more effectively make money.  Businesses exist to capture and serve clients.  They serve clients with things like products and/or services.  The efficiency and effectiveness with which they accomplish serving clients can (and should) result in profit, which measures how well the organization served its clients AND managed its costs.  Business executives invest – spend capital – on things that help them better serve clients AND/OR manage costs.  The concept of investing, not just spending capital sounds simple – and it is – but it is also a fundamental concept.

Technical professionals often find it challenging to convey to executives (perhaps a controller, or even your CFO or CEO, depending on the size of the capital request) of the rationale and wisdom in the language of finance, a language that uses terms and concepts which many technical professionals are not well versed.  Most senior executives have a much deeper understanding of finance than of technology, and they will place more emphasis on the strength and logic of the financial merits of a request than of the technological merits.  Questions that senior executives may ask themselves when considering your request include:

1. Does this request make financial sense for us to do?

2. How will it help improve the business?

3. Does it help us enough to fund it?

Second, most organizations are built and staffed to “run” the business, and they find “changing” the business to be difficult.  The process of change, that is “doing different”, is not without its risks.  There are a wealth of statistics, stories and sites that speak to the ratios of successes to failures for new initiatives (failures outnumber successes).  Spending for IT across industry segments averages ~80% continuing operations and ~20% for new initiatives – Gartner® uses “run and grow” vs. “transform” to describe this.

For most organizations, inertia and momentum favor continuing operating under current conditions: team members know the current processes, terminology, methods and practices to keep things running “as is”, and; current limitations, suppliers, training, and other factors are known, and comfortable, even if they are sub optimal.  Change – and successfully managing change – can be an elusive, unpredictable and painfully expensive journey.  Questions that senior executives may ask themselves when considering your request include:

1. Are we ready to make this project work?

2. Do we have the required skills to succeed?

3. How does this support our strategy?

4. Can we tolerate the distractions?

Third, how good is your team’s “innovation batting average?”  When you have attempted changing and improving an existing activity or process in the past, how successful was it?  Innovation is doing something new that is a better, faster, more effective, or more productive way of performing important and necessary actions and functions in your organization.  Innovation is critical to every organization to remain competitive.  For example, the Apple iPhone®, introduced in 2007, now accounts for ~50% of Apple revenues, or about $12B.

Similar to baseball, your innovation batting average refers to your success rate (projects that deliver the cost savings or value that you said it would within the time and cost you said it would require) when you try something new (innovation).  If you, or the team of which you are a member, ask for money, but do not often deliver value, or cost savings, or whatever was promised your innovation project would provide, your innovation batting average may suggest to the approval team that you or your team are not a good bet for the company to SPEND money, as your request is more likely to not help the company MAKE more money.  We can refer to this aspect as risk, innovation batting average, or any number of terms, but the concept is similar: with what degree of certainty or likelihood will your request help the company be more successful?  Questions that senior executives may ask themselves when considering your request include:

1. How accurate and true have prior requests and business cases been with the actual result?”

2. If/When they have failed in the past, what were the reasons, and how effectively have they learned and fixed the problems, such that this time will be different and better?”

3. If successful, how substantially will this project help us?”

Fourth, your request for capital will be one of many submitted for consideration.  The size of your organization may be such that your controller (or comptroller), or CFO may be considering dozens if not hundreds of requests.  Make it easier for them to decide, by answering these questions upfront:

1. Should they approve your request?

2. Why should they approve yours, as compared with any of the other requests?

3. Are your request and justification clear, compelling, credible and superior to other requests?

The quality with which you help your non-technical finance team understand what you want (amount of money), why you want it (for your software project, or other technical initiative), and why it is wise for your company to give you money (again, it is to help the company make more money) will help improve your approval chances.  Questions that senior executives may ask themselves when considering your request include:

1. Of the priorities we have at this time, is this the right project to select now?

2. If we approve this project, which other one will we then have to deny or defer?

Part 2

Stay tuned for the second part of this 5-part series where I will examine how to visualize the financial and economic aspects of technology projects and investments from a senior-level executive vantage point.

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Richard Janezic is VP Sales, Marketing and Business Development for Boston-based TBG Security.  Rick has worked with and for organizations from startup stage to Fortune® 500 enterprises, and has held senior leadership roles in general management, sales, marketing and technology.  His focus is on helping organizations improve competitiveness through business and technology change and transformation.  You can follow his 5-part blog series “Justifying Technology Investments” here.  Rick is also on Facebook, LinkedIn and Twitter.