It is no secret that Information Technology (IT) has been, and will continue to be, fundamental to the operation and success of almost every business.
A study by IBM, a technology and consulting corporation, looked at the global IT infrastructure of 750 companies and found that 70% of the questioned IT executives believed that IT infrastructure optimises a company’s revenue and profit, and is a source of competitive advantage1. Similarly, a 2011 Bain & Company survey of senior managers in over 350 companies found that 70% of respondents agreed that IT spending was highly relevant to their organisation’s future growth2.
Since businesses clearly recognise the importance of IT, it is not surprising that most companies have a dedicated IT budget. A 2014 Epson study found that 83% of surveyed EU5 businesses in the retail, financial services and other corporate sectors have an assigned IT budget for updating and implementing IT infrastructure3. And IT budgets are likely to grow; Gartner Worldwide IT Spending Forecast predicts that worldwide IT spending will increase 3.9% in 2015 and exceed an incredible $4.3 trillion in 20184. Steve Carter, principal analyst in management consulting firm KPMG’s CIO advisory team, says that the annual budget spend on IT is as much as 10% of the total operating costs in some industries5. These figures confirm that businesses are increasingly willing to spend money on their IT infrastructure.
However, Bain & Company calculated the imbalance between IT supply and business demand and concluded that, on average, companies spend 20% more on IT than they need to6. When a company’s IT budget is not being spent strategically, it can significantly impact business revenue, profits, employee efficiency and competitiveness. So the question is how can IT managers and companies ensure that the IT budget is spent on the most cost-efficient and effective IT infrastructure?
1. Align business strategies and IT infrastructure
According to the aforementioned Bain & Company study, 80% of the surveyed business executives believe that the IT in their company is not aligned to the most important business strategies7. Business executives often complain that IT spends a lot of money on non-essential projects or accounts because they do not understand the business goals.
This sentiment is supported by the findings in Epson’s study in which 76% of businesses cited a ‘lack of suitable IT to support the business’ as being a major issue impacting the business function8.
In 2010, Diamond, a management and technology consultancy, analysed all board members of the Fortune 500 companies and found that only 0.87% of all board members had a professional background as a CIO (Chief Information Officer)9. Furthermore, a CIO magazine survey of 250 IT leaders showed that most IT experts feel that they are not being heard with 40% of the respondents agreeing that board members “don’t really care about IT” and 57% believing that directors rely heavily on what they read in the press to evaluate IT strategy10.
Clearly, businesses could do more to involve their IT team in strategic decisions so that they can adequately judge whether the IT resources serve the business needs.
2. Invest in long-term time and cost efficiencies
As a business grows, the IT infrastructure becomes more complex and is increasingly pressurised by the demands of a growing workforce. IT spending needs to be managed so that the business isn’t compromised by investment into short-term solutions that do not offer longer term strategic advantage. Unfortunately, according to Epson’s research, this is often not the case, with less than a quarter of current IT budget being spent strategically. Further, this is recognised as having significant implications, with 69% of businesses admitting that it compromises their ability to be competitive and efficient (71%)11.
One of the most used technologies within the workplace is printing, and according to the Epson study, the cost of consumables needed for printing is also one of the main IT frustrations for IT managers. Further, managing the on-going maintenance of printers is also a source of frustration for 31% of respondents, with an estimated 13.6 minutes per employee being lost each day due to IT failure and maintenance; 28.8% of which is due to printing technologies12.
Businesses are therefore advised to invest in cost-effective printers that require little user intervention. Epson’s WorkForce Pro RIPS (Replaceable Ink Pack System) printers, for example, have an ink supply system that can print up to 75,000 pages without the need for consumables replacement. This type of inkjet printer drastically reduces the time spent ordering, managing and replacing consumables leaving the IT department, and the wider workforce, free to focus on other tasks.
Furthermore, WorkForce Pro RIPS printers also cut costs by preventing supplies expiring, getting lost or being stolen and use up to 80% less power than comparable lasers.
IT costs can also be managed by the right software and accounting tools. At Epson, we understand the need to cut costs on consumables and have developed free EasyMP software, which is compatible with our projectors. EasyMP allows administrators to remotely switch projectors on and off across the network, which can help control power consumption and preserve lamp life. It also alerts the administrator when the lamps need to be replaced which makes it easy for the IT department to anticipate when new lamps have to be ordered. Another way to save money on projectors is by choosing projectors with extended-life lamps. The latest Epson projectors feature an eco-mode, auto-lamp dimming and a sleep timer function, all designed to help reduce electricity bills, while 3LCD technology makes projectors 25% more energy efficient.
3. Invest at the right time
A study by the management consulting firm McKinsey & Company argues that business should prioritise getting the timing of IT investments right in order to see significant ROI results13. Similarly, according to an Epson study into business efficiency, 85% of businesses consider fast implementation of new technology to be a key competitive advantage. Despite this, only a third are prepared to invest ahead of the competition, preferring first to see what competitors do (51%), a fact that can be explained in part by the 47% that admit ‘fear of failure prevents [them] from implementing new technology’14.
4. Choose strategically between outsourced and in-house IT functions
While IT budgets are growing, companies are spending less on outsourcing IT functions. A recent Computer Economics study showed that the average spending on outsourcing accounts for 10.2% of the IT expenditures in 2014, down slightly from 10.6 % in 2013 and a significant decline from 2012 when outsourcing accounted for 11.9% of the IT expenses15. This decline can probably be explained by the economic recovery, which means businesses are more likely to hire in-house expertise and are starting to focus on overdue system improvements16. This is in part because for technologies that are critical to the business function it is often more cost-efficient and less risky to hire or train in-house IT experts rather than outsourcing.
That said, handing over certain IT functions to external parties is a good way of allowing in-house resources to focus on technologies that are more critical to business strategy17. Outsourcing print management and maintenance is just one example of boosting efficiency and cutting down on costs. Epson’s Print Management service, for example, provides cost-effective printing at a predictable cost, and removes the requirement for printer maintenance from the in-house team. By paying a fixed cost per page and enjoying the benefit of scaled prices, businesses can significantly save on printing costs. Another example of a relatively simple but resource demanding service is the customer help desk, which requires sufficient office space, employee availability and language capabilities. It is often more cost-effective to outsource these services, especially for small to mid-size companies or if 24/7 availability is expected.
If businesses want to increase their efficiency and competitiveness, IT spending needs to be aligned to business strategy and focus on longer-term strategic improvements rather than short term fixes. Involving more IT experts in business planning and giving them control over the IT budget would be one way to facilitate this.
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Sources:
1 IBM Institute for Business Value, 2014
2 Bain & Company, 2011
3 Epson, 2014
4 Gartner, 2014
5 Teamquest, 2013
6 Bain & Company, 2011
7 Bain & Company, 2011
8 Epson, 2014
9 Diamond Management & Technology Consultants, 2009
10 CIO, 2012
11 Epson, 2014
12 Epson, 2014
13 McKinsey & Company, 2003
14 Epson, 2014
15 Computer Economics, 2014
16 Computer Economics, 2014
17 InformationWeek, 2009
