The Thing and People Spectrum

Having worked with quite a few different organizations over the years, it’s getting more difficult to know how much to spend and on which technology toolset. As you begin to understand your technology investment’s relationship to profitability, it’s helpful to think about what drives profitability for your organization. Now that you’ve spent some time in step 1 gathering information about the tools and processes you currently employ, let’s spend some time putting those things into context.

The Tech Cost Formula

(People * Time
=Process)
+
Tool Costs

First, determine your product type. If it is a thing, you will invest more heavily around scaling the process through which that “thing” comes about. If your product is centered around the people in your organization, then the investment will tend towards the tools that scale those people.

Manufacturing

For certain types of businesses, like manufacturing for instance, the bulk of tech spend is on automating the manufacturing process. In this type of business, profitability comes from scaling the product. If you can pump out more widgets in less time, with fewer people, that’s the formula that will lead to success. Investment in things like websites, marketing automation, and high-end personal computers is typically at the bottom of the list.

PROFESSIONAL SERVICES

But for an engineering firm, this is almost the exact opposite. Designing something, like a dwelling or a machine that is part of a manufacturing process, is more about supplying the right people with the right tools. It’s the people that you need to scale, not necessarily the process. This means that you will be spending more on the hardware that people directly use and the software that runs on that hardware to help your engineers efficiently design. You might dump more into marketing to attract customers to the people that make up your product. In this scenario, you are selling something a bit more subjective, which requires more explanation and convincing content.

For a CPA firm, much of the technology investment is going to be in your line of business application, since the specialization of taxes, the constantly changing laws that come with it, and the overall complexity in the broad spectrum of your client base, requires a very specialized and capable set of software tools. The use of these software tools by knowledgeable and well trained (friendly) staff are the key to scaling your business and profitability.

Retail

For a coffee shop, or another small retail environment, much of the technology spend is going to be on your point of sale and infrastructure to service your clients. For example, wireless and internet speed are key ingredients, along with your drinks and eats, to a good customer experience while people visit your establishment. Marketing will be important, but more important is the hospitality that one receives when they enter your doors. The experience isn’t just about being able to order the favorite cup of coffee from a phone while on the way to your shop (which is essential), it’s also about the experience when they take that first step through the door. Is the coffee ready? Are they noticed when they walk in the door? Do they get an instant feeling of home comfort, as the smell, sights, and sounds welcome them in? And can they work on their blog, stream their training course, or search for jobs while sipping on that fresh cup of java?

Non-Profit organizations

For a non-profit focused on growing a network of organizations around a cause and then supporting their needs, the technology spend is going to be on mobile infrastructure. Reliable laptops, cellular service for internet, and hosting operations to provide the supporting services that your network requires to be successful. Your profitability comes from growing your network through replicating a set of tools and processes around a common or shared goal. Having people with the toolset and knowledge to teach and support your constituents is where success lies.

There are countless types of organizations with technology needs that span a spectrum book-ended by product and people. The trick is figuring out, at any given moment, where your organization falls within the spectrum and then making sure the investment in your technology toolset is aligned to drive the greatest profitability. Building a framework that ties the cost to profitability so you can quickly re-evaluate your investment on a regular basis is absolutely essential to maximizing your organization’s profitability.

Next Up…

Once you’ve taken some time to understand where your product sits on the spectrum between the things and the people, the next step is to try to understand if our technology investment is helping us maximize our potential profitability. This is going to be a bit tougher, but well worth the effort.

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When I went to my attic a couple of weeks ago to look for something my wife was sure was up there (and of course she was right, always is!!), I was astounded at the sheer quantity of shtuff that had accumulated over the years. It was as if an attic troll was secretly stashing bits of once useful items in piles as we slept peacefully every night. It took me over 20 minutes to find the thing I was looking for in space no wider than I am tall, and short enough to walk end to end in 7 steps.

Organizations can be like attics

I sometimes get the feeling this happens with organizations when it comes to operations. It’s as if over time we accumulate tasks, processes, and tools that just become part of what we do. Not really adding any value and cluttering up our ability to progress and grow as an organization. They are things that tend to get in the way and slow us down from accomplishing our goals. At times they are sufficient processes done in ways driven more by job security and less by a desire to help the organization grow and succeed. In other cases, they are just the wrong tool and process for the wrong job.

This is just a sliver of my actual attic. The white fake dear head is priceless.

Answer these questions

So, how do you begin to clean up the clutter?  Start with answering the following questions:

1. What processes and tools exist for these key components?:
   • Sales
   • Communication
   • File Sharing
   • Marketing
   • Finance
   • Customer Management
   • Reporting
2. Once you’ve made a complete inventory, ask: Do we use that tool or process?
3. Finally, look over the full list and ask: Should we use the tool or process?

Now that you’ve got a full list of the tools and processes, whether you use them, and whether you should use them, the next step is to determine what each of those tools or processes cost your organization, in real dollars. This can be a bit tricky, but here are some general rules of thumb that can help you:

1. Tool costs consist of three elements (Note: With a monthly subscription service, these are typically bundled into your fees):
   1. Infrastructure: usually a physical thing, like a switch, server, or device of some sort.
   2. Licensing: basically the ability to keep the latest and greatest version.
   3. Support and Maintenance: the ongoing setup, troubleshooting, and upkeep of the tool.
2. For processes, we’re talking mainly about time for people to do something. So when figuring the costs of a process, try to nail down the following elements:
   1. Total time it takes to complete the process.
      • For example, if 3 people each spend 15 minutes, the total time is 45 minutes.
   2. Cost of time?
      • Here’s where you need to figure out how much each of your team members cost per hour.

A quick word about people costs

People and Time are the key to profitability. If you think about it, profitability is a measure of efficiency. Since the most expensive aspect of any organization, hands down, is people, time is a significant cost factor. Knowing what your people cost you hourly, will be a key ingredient to understanding the success of your technology investments.

Next Up…

Step one, gathering necessary information to quantify the costs of technology has a really good start. Next, we talk through identifying what really drives your profitability as an organization. This will help us put these numbers into the right context.

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Non-Profits are For-Profits Too!

In working with a non-profit organization recently, we were discussing how the organization’s decision makers were focused on driving a larger portion of the revenue away from operational costs, towards the “program” side of the organization. This is a very appropriate strategy, particularly for non-profits. The more money dedicated to the mission of the organization, the more success can be claimed. This, after all, is what brings in more revenue to continuously advance the mission. People donating to a cause want to “see” their donations at work. If you can show that more money went to programs as an overall percentage of your outlays, the more people are willing to give to the cause. This in turn increases overall revenue. This is exactly how to think like a for-profit business and makes complete sense!

In the business world, it’s the same goal, it just goes by a different name. It’s about finding a balance between investing in the operational capabilities that keep your organization running productively and ensuring enough profitability for continued growth. It can be a tricky exercise. Whether the goal is shareholder value, increased personal revenue, or return for a cause that people are passionate about, the incentives at play are very much the same.

Cutting costs means profitability

It can be very frustrating to feel like the tools that help drive the success of the organization aren’t getting the right attention they need! As an operator, you have to figure out how to empathize with the decision makers’ focus on profitability.

We completely agree that profitability (no matter how you measure it) should be the essential goal. We also believe operations should be optimized as much as possible. Spend too much without getting maximum ROI and your valuable resources are wasted. Invest too little and you cannot keep up with the required productivity to achieve the goal in an extremely fast paced and competitive market. Both of these conditions can sink any organization, and do it quickly. As an operator, you have been tasked with cutting costs wherever you can. This is very important for point 1 above, do not waste your resources. But part of cutting costs isn’t just about reducing the dollars you are spending. It’s just as much about how an expenditure can increasing profitability.

Striking the balance requires focus

Since technology is one of those essential tools almost every organization has to have, how can you know if you are making the right level of investment, particularly when there is no apparent right or wrong answer? For many organizations under 200 or so employees, it can be tough to figure out the following three very important elements to investing properly in your technology toolset:

1. Quantify how much to spend and on what;
2. Tie the operational expenditures to profitability; and
3. Properly place technology in context as an essential tool to achieve the desired goal.

The organizations that do understand and master these three things do not stay at their current size very long. They learn how to leverage an effective toolset to drive productivity and increase their market share. They embrace technology to operate in new ways to market their services, managing their processes, and keep their people productive and successful.

The follow up post to this one is going to focus on number 1 above. Smaller organizations and their operators often have a hard time knowing where to start. Since this is a very important element to constantly be improving upon and constantly be evaluating your tool set and how it is driving efficiency and productivity. Getting started with the right tool set and knowing how much you should be investing is more of an art than a science. So we will discuss how to approach this. Stay tuned.

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