How to Allocate Your IT Dollars Wisely

IT budgeting used to be fairly simple for mid-sized businesses. Replace or upgrade aging technology only when absolutely required (usually every three to five years, depending on the type of hardware or software). Try to adjust anything that isn’t working as it should, or that your users are complaining about. Set aside enough money for basic operation and maintenance of your environment. And mostly, if it ain’t broke, don’t fix it.

Those times are now gone. Today, technology—and by extension, IT—is increasingly seen as a competitive differentiator for mid-sized businesses. There’s a great deal of pressure on mid-sized business owners to spend less on things that simply maintain the status quo, like operations and maintenance, and more on things that will spur innovation to stay competitive with their large business counterparts.

A Changing Equation

One consulting firm found that 57% of mid-sized business IT budgets today go towards “keeping the lights on”—that is, maintaining basic IT operations—down from 63% back in 2011. According to the survey, the average SMB IT budget today breaks down like this:

 

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What does this tell us? That mid-sized businesses are still spending the majority of their money on things that won’t improve their bottom line. Sure, it’s better today than in 2011. But it’s far from a perfect situation. According to one recent survey, mid-sized business owners are split exactly fifty-fifty on which is more risky: investing in technology too quickly and not receiving a sufficient return on investment (ROI); or not investing in new technology and falling behind competitors.

Despite the fears that these numbers reveal, technology investments are still the top priority for mid-sized businesses. Indeed, the survey reveals that a surprising 72% of mid-sized business owners say new technologies offer a larger ROI than hiring new employees.

Getting the Most Bang For Your “Innovation” and “Business Opportunity” Bucks

So what are SMBs spending that 33% of “innovation” and “business opportunity” budget dollars on? Here’s a roundup of the kind of forward-looking technology investments that mid-sized businesses are making.

  • Security: Network security topped the list of IT investments in the past two years. Given how many data breaches have been in the news, it’s not surprising that businesses want to protect their—and their customers’—data. Their fears are absolutely legitimate. According to a recent McAfee survey, 60% of all cybercrime is now directed at SMBs. So what category does security fall into? Probably “innovation,” as newer and better protections become available to keep businesses safe. 
  • Mobile: A study by the SMB Group indicated that 59% of SMBs view mobile solutions and services as “critical” to their business. This category includes everything from giving employees mobile devices like laptops, smartphones, and tablets, to giving mobile users access to enterprise applications while away from the office, to offering customers mobile apps to make purchases, get support, or otherwise interact with the business when on the go. Mobile solutions account for a growing share of SMB technology budgets, with median spending on mobile solutions as a percentage of total technology spend rising year-over-year, according to the study. These investments can be counted toward new business opportunities, as they open up new sales and delivery channels as well as making employees more efficient.
  • CRM and business intelligence tools: SMBs are also investing in technologies that can improve worker efficiency and productivity, and help serve their customers better. This means CRM, business intelligence, and analytics technologies. A study by IBM and MIT Sloan found that organizations driven by business intelligence outperform their industry peers by 2.2 times. This type of investment easily falls into the innovation category, as the technology is used to automate formerly manual tasks and streamline operations.

What About the 57% of the Budget for “Business As Usual”?

That’s still a significant chunk of dollars. Gartner calls this division between maintaining the IT status quo and investing in innovation as “bimodal IT.” Running a bimodal IT operation—as most mid-sized companies are beginning to do—calls for a careful balancing and unlocking of value from a limited budget.

One way of doing this is to shrink the proportion of the budget that goes toward operations and maintenance by contracting for a managed services firm to take the humdrum aspects of IT off your hands. Let someone else manage the servers and the network and the software so you can focus on investments that actually push your business forward. That’s how you get a truly balanced budget.

That’s why so many SMBs are turning to cloud-based managed services, since these routine IT chores can be better and less expensively taken care of by a managed service provider. Not only does this allow SMBs to use precious cash on more strategic innovation and business opportunity initiatives, it results in a more predictable IT spend every month.

Keep Things in Proportion

As you begin thinking of your IT budget for next year, first consider the proportion of funds you want to spend on keeping the lights on versus innovation and business expansion. See how managed services might enable you to invest in such strategic initiatives as mobile, security, and business intelligence with your discretionary funds—initiatives that actually grow your business’ bottom line rather than simply maintain the status quo.

 

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