Once up a time in the world of IT, relatively simple IRR or NPV analysis gauged the financial wisdom of investing in automating a previously manual process. After initial automation, IT complexity (and cost) increased continually, giving rise to more sophisticated financial models to evaluate the cost and benefit sides of upgrades, replacement, or new initiatives. While financial modeling helps guide IT spending, it depends on quantifying qualitative elements – a difficult task because:
- Benefits of enhancement and replacement projects like productivity or improved customer service depend on combinations of technology, organizational and market factors.
- Costs are subject to scope creep, in-stream technology substitution, effort underestimation, vendor dependencies, and inability to account for the human elements of management and technical execution.
Details of IT financial modeling or specific approaches aside, the move to cloud and mobile radically alters the framework for costs and benefits. 15 years ago, my colleague Brian Giese used the acronym SECRET to guide IT salespeople in helping their prospects map features to what were, at the time, 6 fundamental cost/benefits of IT replacement/upgrade initiatives: Security, Expandability, Cost of Ownership, Reliability, Ease of Use and Throughput. Now, with current cloud infrastructure and modern apps, expandability, reliability, and throughput are table stakes. The bar for ease of use is set higher – great software is engaging. More than ever, security is critical, and its necessary – but not sufficient – to establish trust with users (a key to successful long-term outcomes). Cost as always is important, the cost of failure or inaction can be so high it takes precedence over traditional cost measures.
So with cloud/mobile there’s a new SECRET:
The new SECRET of cloud and mobile: Security, Engagement, Cost, Relevance, Ecosystem, Trust – impacts costs and benefits. The cost side was once focused on irreversible and inelastic CAPEX; now it’s is increasingly about elastic OPEX with modifiable product subscriptions and/or development decisions. Further, in a world of technology-based business disrupters, the cost of inaction (or failed/long delayed implementations) is far harder to quantify and potentially overarching. Cloud/mobile means competitive necessities often obviate prior, well-considered, investment decisions.
Measuring benefits has always been a challenge; outside of cost deflation they’re usually “soft costs.” Typically staff with domain knowledge (eg, managers) will work with an IT vendor or a consultant to estimate revenue increase, risk avoidance, etc. For example, tying a productivity increase to a labor cost benefit, or using a surrogate metric (eg, estimated increases in customer satisfaction are used to develop a quantified estimate for decreased cancellations resulting in a quantified revenue benefit).
In the coming weeks we’ll explore each of the new SECRET vectors in more detail, including how they can be used to grade business impact, product robustness, and customer reaction to analyze application/product opportunities.