The motto "spend more to save more" may apply to couponing or retail discounts, but it's not quite as relevant when investing in IT upgrades to improve the bottom line.
Organizations with top digital performance cut technology, labor, outsourcing and overhead costs across general and administrative functions by 29%, even though they spend 3% more on technology than their peers, according to research from the Hackett Group.
Realizing cost savings from tech investments relies on close communication with other stakeholders and tying the investments closely to business outcomes. IT leadership can look beyond cost savings, instead focusing on business effectiveness, to grasp the full potential of the new technologies.
Businesses reaping cost-savings benefits from IT investments "always start with quick return opportunities to create a self-funding approach to the investment," Rick Pastore, senior research director and IT advisor at the Hackett Group, told CIO Dive. The savings trickle in over time and require upfront costs.
Businesses that realized cost-savings from IT investments "started with some seed money, but everything that they put in place realized efficiency savings," Pastore said. Those savings and returns can be reinvested to boost the financial upside.
Alternatively, businesses can start by identifying manual handoffs in end-to-end processes that could be automated. "Streamline the process around those handoffs — you're going to get not only savings but you're going to get improvements in quality," Pastore said.
But the process of investments in technology leading to cost-savings over time isn't always linear. Not every technology gain will directly affect the budget.
"The relationship between tech spending in the aggregate and cost savings is loose, to say the least," Andrew Bartels, VP and principal analyst at Forrester, said. "It's getting harder to find evidence that technology investment leads to productivity improvements."
It varies by industry; in insurance, for example, RPA does streamline claims process, increase productivity and lead to cost savings, Bartels said. In other industries, a gain in productivity may require spending twice as much on tech.
Investing in effective, not just cost efficient, technology
Generating cost savings from technology requires buy-in from stakeholders across the business, and an IT leadership team privy to the importance of effective, not just money-saving, investments.
"The reinvestment of savings has got to be arranged in advance as a pact with the C-suite, because if the company is in trouble, then any efficiencies that are gained are going to be funneled back to help the company's bottom line," Pastore said.
An agreement with the C-suite could, for example, dictate reinvesting half of every dollar saved in modernization costs into further IT initiatives. Over time, the case for making these investments will get easier because value has been proven, according to Pastore.
Having a clearly defined business outcome tied to the investments helps, Pastore said. The concrete connection between an investment and how it will benefit the business makes it easier to sell to other stakeholders.
IT leadership also has to navigate theoretical versus actual gains, Bartels said. Just because automation can take over 20 jobs, doesn't mean a company will lay off those staff whether for optics, growth or other reasons. Those people may stay on the payroll and be redeployed to other staff, minimizing cost savings but increasing quality, efficiency or productivity.
Ultimately, there's an opportunity to invest in effectiveness through technology.
"What we've been suggesting to clients is the importance of looking beyond just efficiency gains, cost savings gains, and looking instead at the various ways technology can enable your employees to make the right decisions at the right point in time that's going to lead to better business outcomes," Bartels said.
By focusing on effectiveness, the technology investments without a simple cost-cutting equation take shape as valuable endeavors, too. Spending more on security won't directly reduce overhead costs, but it will reduce the likelihood of attack. Fewer attacks improve business reputation and avoid the cost of clean up down the line.
"If you're only looking at cost, then you're missing at least two-thirds of the potential," Bartels said "You're not looking at revenue impacts, you're not looking at the balance sheet impacts."
