Do You Need I.T.?

Pete Berman is always thinking about upgrades. Recently he’s made investments in six computer workstations, several Blackberries and even a major server upgrade. But the CEO of Goshen, N.Y-based The Ruby Group, isn’t a technology-obsessed ‘gear-head,’ but rather a cost-conscious business owner intent on using  technology to improve his business. Before making any of his recent purchases, Berman carefully considered the costs, and paid strict attention to the return on investment (ROI) he could expect.

“Cost considerations play a role,” Berman says. “If we can use technology to leverage our skills and gain more productivity, then we can be free to work on more income-producing tasks. The biggest benchmark we evaluate is efficiency.”

At the Ruby Group technology has played a significant role in streamlining time consuming processes. “Our new Blackberries have allowed our guys to be more productive because they have all of their contacts with them and can schedule on the fly,” Berman says. “Switching to our servers was a huge step because we no longer e-mail documents back and forth. In addition, we can find every document we need now electronically . . . We even put our blueprints on the server now.”

For Berman, IT investment has clearly paid off, but for other businesses, “to buy or not to buy” remains a perplexing puzzle. In fact, more than one-third of small and medium-sized businesses say their biggest IT challenge is keeping budgets under control when it comes to hardware, software and service-related purchases, according to the Oakbrook Terrace, Ill.-based Computer Technology Industry Association (CompTIA). (See chart.)

In order to hold the line when it comes to your I.T investments, it’s worth considering the following information:

Recognize the warning signs
“If you’re tracking inventory on a cumbersome spreadsheet that’s taking too much time — and keeping you away from revenue-producing work — you need to look for a new system,” says Bob Stein, IT consultant for the Small Business Development Center at the University of Pittsburgh. In other words, take a good look at your processes and workflow. If your staff spends an inordinate amount of time on manual processes that your competition has automated, it may be time to look for workflow or project management software. “Good software systems create efficiencies and improve the flow of information within your company, so that is the ultimate goal,” Stein says.

Similarly, if your hardware system lacks the bandwidth to handle what you are throwing at it, consider replacing it with a newer version. “Hardware should be seamless — and invisible — meaning you shouldn’t notice it because everything is working smoothly,” Stein says.

Do the Math
The question of whether to invest in tech can boil down to the numbers. A small shop with five employees, for example, should expect to pay about $1,600 a month for ongoing tech support, including phone and Internet, according to eLinkSystems, a Frisco, Texas-based IT firm that consults with small-to medium-sized businesses. A company with 25 to 30 employees should expect to pay $6,000 a month. “Many small business owners make the mistake of viewing information technology as an expense, instead of an investment,” says Blake York, president of eLinkSystems. “They look solely at price. They ignore the computer lifespan rule, which is generally two years for laptops, three years for desktops and five years for servers — max. Any business owner who is going to succeed in today’s economy must keep up to date with technology.”

Avoid “scope creep”
Even if you decide to move forward with a technology upgrade, you need to be careful about “scope creep.” Also known as the ‘upsell,’ scope creep happens when unnecessary features keep getting added to your menu of technology upgrades under the guise of a “must-have” item. You need to keep such temptations in check by asking yourself whether the product or solution is really going to add quantifiable value to your business. If so, what is a realistic projection of that value? “If you are not careful, scope creep could turn a $20,000 project into a $50,000 project easily,” Stein says.

Get cost comparisons
Some contract shop owners figure that all technology is priced the same. But that’s not the case with third-party vendors, especially when it comes to the work needed to integrate a piece of software or install a major upgrade, for example. “You should always get a second or third quote,” Stein says. “Small businesses are always surprised when vendor proposals are so vastly different for the same work.”

Measure Your ROI
Measurement is the crucial step where you figure out whether you’re getting the expected ROI. There is no standard formula to apply, but you may want to consider various, measurable ‘impact points’ on your business, such as the change in traffic to the company Web site and the number of Web site visits that translate into customer leads. You can also take a look at internal processes to assess the impact of your upgrades. For example, are ongoing projects getting completed more quickly? Are accounts receivables coming in more promptly? All of these factors can be compared from a pre- and post-tech purchase to help you assess whether you’ve recouped—or even exceeded—what you spent on upgrading your I.T infrastructure. “The best IT project purchases provide immediate ROI to small businesses by providing efficiencies that weren’t there before,” Stein says. “Good software reduces labor costs and provides sufficient information to make good business decisions, and good hardware runs seamlessly in the background, providing the infrastructure to make it all happen.”