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.


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