Tuesday, October 24, 2017

How to Cost Justify Replacing a ‘Free’ Legacy Technology

Keith Unterschute, Mainstay

Anytime you have a seemingly “free” legacy technology environment where operating costs are low and few capital investments are planned, it can be extremely hard to cost justify moving to a new technology that at a minimum will require substantial capital costs.

The fact is, when you compare the cash flows of the old and new environments, the ROI for the new one rarely pencils out to satisfy your average fiscally focused CFO. Significant spending compared to little spending just doesn’t make sense to these check-writing executives.

However, I’ve found that by following a two-pronged strategy, you can often overcome this seemingly insurmountable barrier.

Prong #1: Leverage the Time Value of Money

The first strategy assumes that something has to change. The company simply can’t operate forever an unsupportable technology. Usually, IT approaches end-of-life (EOL) and end-of-service (EOS) technologies by chipping away at the problem through gradual replacement over time. This piecemeal approach eventually gets you there, but since the transition is drawn out, it often leaves a lot of savings and value on the table. Quantifying those gains can help accelerate a larger investment.

Take voice systems. Typically, even with EOL or EOS PBX systems, companies won’t want to invest in more PBX systems to replace them. Modern Unified Communications (UC) technologies are the best alternative, but fiscally conservative companies might prefer to replace its old systems in a gradual, ad hoc fashion.

In reality, though, a rapidly deployed UC platform can deliver operating benefits faster than stretching out investments over a longer period of time, and ultimately result in higher ROI. The reason is simple. Companies that invest in a comprehensive solution start to realize operating savings from the new technology almost immediately. The time value of money works in favor of the fast-deployment approach and yields more total value over the same time period.

All of this adds up to a compelling argument for a rapidly deployed replacement of the company’s entire legacy voice platform, versus a drawn-out ad hoc replacement strategy.

Prong #2: Build a Strategic Business Case

The second prong of this strategy is just as powerful: Build a convincing business case for the value of the new technology. It’s true that many CFOs will characterize these non-monetary value propositions as “soft benefits,” which means they’re difficult to measure and not assured. However, many CEOs will view them favorably, especially when they align with the company’s overarching business objectives.

When communicating the value of technology investments to business leaders, it’s important to stay clear of technical jargon. Be sure to tie your messages to the company’s strategic objectives, and use a business language that C-level execs understand.

Articulating use cases can be a big help. This is where you describe in detail how things are done today and how they would be done in the future. The best use cases examine areas of the business that are critical for generating revenue and describe a critical process that’s needed to enable a successful outcome.

This strategy directly addresses the concerns of the CFO – that is, it focuses on the real cash value of the new investment. And it also addresses the CEO’s top priority: achieving the company’s business objectives in the most efficient way possible.

Even if your business case only shows a break even -- or even less than break even – financial result, it can still be approved if your proposed investment effectively advances the company’s strategic business goals.

The Five Habits of Highly Effective IT Organizations

L. Venkatraman, VP - Value Engineering and CIO Services, Mainstay

If you work in an IT organization, here's a real-world story you will be all too familiar with. A large hi-tech consumer goods company with over 40,000 employees and 100 global locations rolled out an enterprise-wide upgrade to Windows 10. Despite facing a super-tight budget and an impossible deadline, the IT team came through. The rollout achieved almost 100% user adoption, with IT going above and beyond to maintain great service levels.

Success story? No doubt about it -- if you talked to the IT folks.

But then the IT team sat down with the COO. As the VP of IT went through slide after slide of impressive metrics on budget, timelines, and adoption, the COO stopped him in his tracks with a single question:

"Why the hell does this matter to our company?"

Talk about a rude awakening. But the question was spot on: IT was not adequately communicating the "so-what" of IT initiatives in a language that business people could understand. Not only on this project, but across the board.

This is a real missed opportunity for IT. Why? Because in the age of IoT, where new technologies like telematic and sensor data, AI, big data, and robotic automation are transforming businesses, IT has never been in a better position to add tremendous new value to the enterprise. For the first time, IT organizations can become true strategic enablers for their company -- if only they can effectively quantify and communicate the business value they can generate for the rest of the organization.

A survey in the latest Gartner CIO Agenda report1 shows that IT-business alignment and budgeting issues are the top barriers to IT becoming a “resilient” organization. The Pulse of the Profession report2 by the Project Management Institute backed up these findings: 37% of the respondents said they lacked clearly defined objectives to measure progress; another 37% suffered from poor communication; and 9% had insufficient funding. The report suggested that because of these shortcomings, 28% of strategic IT initiatives were deemed outright failures.

Why can’t IT overcome these barriers?

In our experience working with CIOs, IT organizations that learn to become strategic enablers practice the following five habits:

1.      Prepare a formal business case before launching your IT initiative. This means clearly forecasting business outcomes, such as increasing revenue, decreasing cost, improving productivity, creating competitive differentiation, and enhancing customer satisfaction
2.      Communicate how those outcomes will be delivered, and what features will drive them. Developing realistic use cases, highlighting specific business processes, and clearly describing how features will improve them – all these things will lend credibility to your claim of adding business value.
3.      After the project, measure and report the actual value delivered. In our experience, we find that while a majority of IT organizations prepare formal business cases for their IT investments, very few of them track and report the value from those investments in a quantifiable manner that highlights the business impact of the project.
4.      Communicate, communicate, communicate. Use all the modern methods of communication (and some traditional ones) to get your message across, including in-person meetings, emails, posters, intranet sites, social media, QBRs, and more.
5.      Keep it brief and use a lot of visuals. Research by HubSpot3 indicates that when people only listen to information, they retain only 10% of it three days later. But when that same information is presented visually, retention jumps to 65%. Remember to keep your visuals simple. Too much information can become a distraction.

Sure, there are some IT organizations out there that leverage a few of these techniques. But it’s hard for most organizations to make a habit out of doing all of them well. They need to learn to turn all five habits into a repeatable practice backed by set processes, frameworks, templates, tools and guidelines.

So how do you make these five habits stick? How can you create a program for business value communication that consistently makes your business leaders go “Ah-ha!”?

Put another way, how should the VP of IT have responded to the skeptical COO’s pointed question about the Windows 10 upgrade?

If you work for an IT organization, I’m sure you have some great ideas, and I’d like to hear from you.

In my next blog, I'll outline some of the things leading CIOs are doing to instill these habits across their teams.

Stay tuned.

1 http://www.gartner.com/imagesrv/cio/pdf/Gartner_CIO_Agenda_2017.pdf
2 https://www.pmi.org/-/media/pmi/documents/public/pdf/learning/thought-leadership/pulse/pulse-of-the-profession-2017.pdf

3 https://blog.hubspot.com/marketing/power-of-visual-communication-infographic