BlogDriving Business Strategy with IT Cost Optimization Part 4: IT Financial Management

Driving Business Strategy with IT Cost Optimization Part 4: IT Financial Management

July 12, 2018, Expense Management

In this edition of our blog series on IT cost optimization, I’ll be discussing the third principle from Gartner’s recent white paper on “IT Cost Optimization Principles,”

IT Financial Management must equal in importance to all other IT responsibilities.

IT professionals are subject matter experts (SMEs) in technology. They understand the variables involved with technical systems. They have a unique way of thinking, reflected in their communication and working styles, developed to solve technical problems. But what do IT professionals do when old styles of working no longer suit new methods of business?

Simply solving technical problems is no longer enough. Modern IT leaders must practice effective capacity management: the ability to ensure that all technology and human resources are right-sized to meet business requirements in a cost-effective manner.

To achieve this, IT professionals must develop a deep understanding of what, why, how, where and when their clients leverage technology to achieve their business objectives. They must learn everything they can about their clients’ needs in order to meet or exceed their clients’ business requirements. They need to expand beyond traditional IT roles, and they need to work with others to do so.

IT and Finance Must Come Together

Effective capacity management is no simple task. On the technical side, it requires responsibilities such as ensuring reliable access to network services and sufficient capacity to execute any and all types of computation. And all while providing intuitive user experiences that streamline operations, whenever and wherever clients conduct business.

In its mission to achieve this, the conventional culture of IT has been to regard finance as a necessary evil and administrative hurdle that must be overcome or even circumvented entirely. IT has too often regarded finance as the enemy.

However, IT and finance must operate as complementary forces to make a business successful. Finance is the language of business. To support the modern digital workforce, IT leaders need to be well-versed in how the lifecycle of procuring, delivering, supporting and retiring IT services affects the core variables of running and growing a business. This includes understanding metrics such as:

  • Gross Margins and Operating Margins
  • Earnings Before Interest, Depreciation, Taxes, and Amortization (EBIDTA)
  • Cash Flow
  • Profit and Earnings Per Share (EPS)

IT must partner with a finance SME who possesses the business acumen to effectively communicate investments to stakeholders. This partnership between IT and finance should be able to evaluate the success of technology investments and operational decisions by using common financial measurements, such as:

  • Return on Investment Capital (ROIC)
  • Net Present Value (NPV)
  • Weighted Average Cost of Capital (WACC)
  • Critical client success metrics like Net Promoter Score (NPS) and
  • Ease of Doing Business (DB index)

IT does not exist in a vacuum. Technology decisions are made in a larger business context and must be effectively communicated to other business stakeholders in a language they understand.

Collaboration is the Key to Success

Since technology is constantly on the brink of obsolescence, it’s highly unlikely to find individuals who are well-versed in both the newest technology solutions and also possess the necessary skills to perform the financial modeling and operational benchmarks required. IT professionals don’t need to be finance experts and vice-versa.

However, a successful collaboration is underpinned by a strong understanding and appreciation of each expert’s contribution and a personal grasp of the client’s business requirements.

Successful collaborations help improve operational efficiencies for organizations and can open new opportunities for IT and finance professionals as individuals. As time goes on, IT professionals will find it more challenging to progress their careers without mastering fundamental business skills and maintaining productive collaborations with finance SMEs. Meanwhile, finance SMEs will also discover many new opportunities to progress their careers outside the conventional domain of corporate finance.

When IT and finance work together, the result is an integrated whole that is greater than the sum of its individual parts.

If you haven’t already, make sure to read parts one, two, and three of this series. Stay tuned as we continue the discussion next week in part 5 of our series on IT cost optimization.