How to Value IT—Five Suggestions to Start

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For many CFOs, IT is a costly pain in the you-know-what. Annoyance factors aside, it is important for the CFO to make a realistic assessment of the value of IT. This is particularly important both when considering a sale/acquisition or when strategizing and planning internally. In short: how do you treat IT, as a business asset or a liability?

“Today’s business environment makes IT a priority item… Not only is IT often among the largest capital and operational expenditure items, business owners must also find better ways of deriving value and leverage from IT assets,” writes PwC, a leading consulting firm.

Many investors “consider IT a necessary evil, but that now is changing. Maybe they are realizing IT might be an opportunity,” says Gerry Mendelbaum, Managing Partner, Camber Advisors, a private equity consulting firm focusing on mid-market. Of particular interest, notes Camber managing partner Mark Neibert, “should be how software supports business processes.” Check out their five suggestions below.

Understanding IT’s capabilities, of course, is important if the organization is intending to acquire a company. But it becomes even more important when management is considering the sale of a business unit. At that point it is crucial to understand how IT will be perceived as contributing to or detracting from the value of the asset, which can significantly affect the price you get.

How should your organization approach understanding the value IT? Mendelbaum and Neibert have five suggestions to get you started:

1) Spend money wisely—as CFO you probably already are doing that. IT, however, may be another story. Is IT guided by a roadmap or a strategy or something that channels its spending into areas important to the business? Tight business-IT alignment is hard to achieve but some measure of coordination would be valuable.

2) Don’t let inertia rule—technology changes rapidly yet many IT groups, especially in small and midsize organizations, are happy to cruise along doing what they have always done. IT may be surprised when suddenly they aren’t getting the same results as before. Technology changes and the business changes, while inertia, in this case, just drags you down.

3) Be aware of IT trends—to begin there is the commodity aspect of IT, driven by Moore’s Law, in which IT capabilities increasingly cost less than they did before. Other trends, like Software-as-a-Service (SaaS), are driving up the potential strategic value of IT by delivering the latest, most advanced software as a shared service.

4) Assess your IT staff—that’s where the biggest chunk of IT spend goes. When was the last time you met the IT staff? Are they passionate about IT, about the business, and about opportunities to advance business objectives using technology or are they struggling to simply keep the systems running as is?

5) Are there accepted processes—in large companies IT usually is directly tied to and governed by recognized processes. This is less so the case in smaller and midsize organizations where there may be no formal processes or only ad hoc processes and even these probably are not documented. Processes don’t have to entail much; process can start with nothing more than a list of priorities or a project work schedule.

There really is a sixth suggestion if, as CFO, you want to increase the business value of the IT asset. This is to encourage IT to play a strategic role in the business at some level. Not every IT group, however, is willing or capable of doing this.

By following the suggestions above the business will be better ready to leverage IT to whatever extent it can and you will have greater certainty, as PwC notes, that the IT systems supporting the business are fit for purpose and that the resources critical for continued business operations have been identified and secured.

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