It wasn’t too long ago that IT spend as a percent of revenue was the time-honored metric of choice among finance executives determined to keep their firm’s IT spending within the light of day. In fact, many finance chiefs arguably still rely on the metric to provide a quick snapshot of their firm’s appetite for IT. However, ever since the downturn, growing numbers of finance leaders from both large and small enterprises have sought to retire the metric as their IT organizations embraced cloud technologies and hatched new IT initiatives designed to open up new revenue streams, according to Steve Hall, an IT advisor and consultant who recently advanced the argument for the long-toothed metric’s retirement during a phone interview.
It’s time for finance leaders to reevaluate the significant impact on the value gained from technology as businesses everywhere transform through technology and digital initiatives, explains Hall, who is an ardent disciple of Technology Business Management, or TBM — a quickly expanding financial discipline that Hall helps companies adopt as they seek to migrate to more value-creating IT strategies.
“If you think about what’s happening on the digital side of the business where it’s all about being closer to the customer, customer centricity, and deep insights into customer relationships, it’s the IT organization that is driving this. IT is really becoming the company’s engineering organization, so what companies are essentially saying is that IT is part of their product development as they become more of a digital company,” says Hall, who heads up the Emerging Technologies practice for Information Services Group (ISG), a technology insights, market intelligence, and advisory services company based in Stamford, CT.
“How does a bank provide mobile banking capabilities? How does an airline serve mobile users? It really begins with their IT organization, and the IT investment should no longer be measured as a percent of revenue, but in terms of how these investments drive new revenues,” explains Hall, who believes that the TBM discipline can now empower organizations to have a deeper understanding of IT costs, allowing them to more effectively benchmark current IT investments and determine future IT spend.
“TBM can help CFOs to answer the question, What’s the impact on my labor if 40 percent of my labor in this space can now be automated?” says Hall. For those finance leaders who may not yet be prepared to take the leap into a high-calorie TBM discipline, Hall adds, adopting some readily accessible metrics such as IT spend as a percentage of SG&A or IT spend per employee can help to move an organization closer to a TBM mind-set.
“From there, it’s about measuring new revenue streams and answering the question, What revenue is being driven by these technologies?” notes Hall, who routinely uses examples of IT spending that address customer needs and wants.
“What you find is that a lot of the IT-based metrics are moving to the customer experience, so, for instance, if a bank rolls out a new mobile capability that increases customer satisfaction and retention, its impact on revenue must now be measured,” explains Hall, who adds that the adoption of a TBM discipline often triggers a cultural transformation within organizations that makes the maximization of returns on IT spending a common pursuit for all professionals across the enterprise.