Are We Arguing Over Money, Again?

 
 
By Faisal Hoque  |  Posted 2008-06-23
 
 
 

We can have logical, orderly, scholarly thoughts about business technology, but when we use the word “investment,” we can get the flying monkeys in our heads. This isn’t unusual. It’s probably true, for example, that the whole personal financial advice industry is driven by intelligent, normally rational people who can’t make decisions on their own about their own money.

When we start thinking in terms of “investing” in technology, we stick financial hooks in everything and yank and pull our decisions accordingly. We think of this quarter’s numbers, instead of next year’s customers. We think of meeting our budget, instead of meeting our competitors in the marketplace. We are torn between the organization’s incentives to cut to the bone and its desperate need for the technology backbone we know is available.

Of course, companies have always demonstrated an ability to act boldly when their backs are against the wall. When their existence is threatened, they do what is necessary to survive, and damn the next quarter’s numbers. But can they do it year in and year out, through market gyrations and economic cycles?

They can, if they understand that there is no steady state today, that survivors are engaged non-stop in innovating, renewing and perfecting. This demands, among other things, a different time perspective. At General Electric, Jeffrey Immelt has worked to change the company’s time frame; executives, for example, can expect to stay longer in assignments to build up their expertise. And when it comes to investing, he told Harvard Business Review:

“I have the…broadest time horizon in the company. So looking at the evolution of the hybrid locomotive, we’re talking about tens of millions of dollars. For the program manager, it’s huge, the most massive thing he’s ever managed. For John Dineen, who runs the rail business, it’s pretty big. For me, you know, it’s OK. We can do it. The program manager wants it to get done tomorrow. John Dineen says, ‘Jeez, I may be in this job four, five years.’ But I’ll probably be here much longer. I’ll see the hybrid locomotive─I absolutely know that. So I can bring to bear the right risk-taking and time horizon trade-offs.”

At GE and every company, each activity must eventually be judged by dollars–it either earns them or saves them, and it does so to a greater or lesser extent than other activities. It is the interim, between the “go” decision and the financial judgment, that matters. It’s the inclusion of intangible measures.

Intangibles are more qualitative and, thus, more subjective than tangible measures. Tangibles include operating costs, income, assets, liabilities, profit margins, returns on assets and other measures that lend themselves to being expressed as financial ratios. Intangibles, on the other hand, may include strategic fit, goal alignment, opportunity costs, customer connectivity, competitive threat, return horizons, business impact, process optimization, intellectual capital, skills and innovation.

There are three problems with only relying on tangible measures. First, there is a cultural proclivity to “work the numbers” to make them say what people want them to say. Second, tangible measures are largely reactive, while intangible measures lend themselves to forward-looking views, since they often drive the tangibles. (Intangible measures often contribute directly to productivity, profitability and return on investment, for example.) 

Finally, many of the benefits that follow from technology deployment are hard to define in the direct, financial terms that tangible measures require. For example, a company may notice that after installing a sales-force-automation platform, its revenue increased over previous quarters. But this says nothing about how much of the increase is due to the software and how much is the result of other factors such as a growing market or a new compensation structure for the sales team.

What business technology is, meaning its life as a capital or physical asset, warrants evaluation with a tangible set of measures. But the majority of what technology actually does falls more into the sphere of the intangible.

A good balance of tangible and intangible measures allows technology portfolio managers to anticipate the potential value of technology investments by providing:

· Visibility into around-the-bend risks and causal relationships;

· Safeguards against slippery-slope conclusions;

· Counterweights to overinflated promises and expectations; and

· Flexible accommodation for rapidly changing environmental influences.

By formulating a more holistic picture of the potential value that both resides within and can be generated by business technology, executives can offer their organizations more realistic valuations of investment returns.


FAISAL HOQUE is the Chairman and CEO of BTM Corporation. He is the author of The Alignment Effect, Winning the 3-Legged Race, Six Billion Minds, and Sustained Innovation. BTM innovates new business models and enhances financial performance by converging business and technology with its unique products and intellectual property. © 2008 Faisal Hoque