Technology is transforming business. But what does it really cost?
This is a question decision-makers in business have been asking for many years now. But in the current fragile economic climate, it takes on renewed urgency.
At the heart of the question is the classic risk-reward dilemma that shapes the majority of strategic planning in business. On the one hand, there’s little debate anymore about the benefits of technology. From faster, more efficient, more agile operations to smarter data-led decision making, digital tech has already pushed back the horizons of what we understand to be possible in commerce and industry. And there’s plenty of scope to push them further still.
The issue is, digital transformation doesn’t just happen. New technology comes at a price, and it takes further investment of resources (including people’s time and energy) to embed it into the day-to-day operations and culture of a business in a way that makes it effective.
Over the past decade or so, companies around the world have spent trillions investing in things like cloud-based IT infrastructure, web-based service platforms, mobile, data analytics, AI, cybersecurity… the list goes on. And if forecasts are to be believed, rather than showing any signs of slowing down, the level of spending is still accelerating.
According to the IDC, by 2025 global spend on digital technology will reach $2.8 trillion a year, double the figure in 2020. But in the context of a global economic slowdown and the fallout from a pandemic, it’s reasonable to ask – where will all this money come from? And at what point does it become prudent to slow down the pace of transformation in order to manage costs better?
The problem is that once you start, it isn’t easy to ‘slow down’ digital transformation. It has a tendency to snowball. And if you’re not careful, so do the costs. Yes, you can try to hold off on major new implementation projects for a while. But those systems you already have up and running, the cost obligations don’t end with product launch.
According to Forrester, software maintenance can cost up to three times as much as development. It’s a long term commitment. And then there is the whole continuous improvement argument, that digital transformation is by definition a process of constant evolution and change. If you rest on your laurels too long, you fall behind the competition, miss the latest innovations and fall short of your customers’ expectations.
So to understand the ‘true costs’ of technology, perhaps the first thing required is a shift in perspective. Digital transformation is not something that can be easily ringfenced into time and cost-limited projects with fixed budgets that are easy to work with on a balance sheet. To get the rewards out of technology (and they are considerable), it takes a long-term commitment. In terms of managing the financial side, tech investment is these days best treated as core on-going operational costs.
Taking that approach also gives you a better opportunity to find efficiencies in your digital spend. It’s thought that businesses waste up to 37% of their software budgets alone. Key culprits are a lack of joined-up thinking, trying to implement new technologies in operational silos, and insufficient processes for measuring success in the long term.
So in conclusion, yes, technology costs. Enacting positive change in your business, through technology or otherwise, costs. But given that technology/digitisation has become so central to how businesses operate, it’s difficult to see how ‘slowing down’ investments is viable or sensible. What is achievable is controlling costs through more coherent planning and a continuous search for efficiencies. Which is something that technology can definitely help you with.