Managing IT with an Eye on the Bottom Line

The world of Information Technology and Finance might seem unrelated. It’s shocking how many IT managers feel they are. Most IT managers feel that their primary responsibility is keeping the company technology focused and seeing to the needs of the users. While this is an important role, taking your eyes off the big picture is doing everyone, especially you, a disservice.

Anyone, with even a basic understanding of Finance, realizes that IT falls into the dreaded OPEX category on the P&L sheet. This means that every dollar spent on your tools, staff and inventory comes directly at the expense of the business profits. Unless you work for a company that makes money providing IT services, then the fact is, you’re an expense to your employer.

That being said, every company has administrative tasks that need to be taken care of. These tasks and expenses are not a negative thing in and of themselves. However, to fully serve your company you need to understand your role in the bigger picture and how your team and management can affect the bottom line.

There are three things you need to be aware of when managing IT with an eye on the bottom line:

1: Be Innovative. IT gets its worth by making sure, that those who make the company revenue, do it faster and cheaper. Your front line employees are where the revenue battle is won or lost. No longer do consumers have patience with those trying to sell them a good or service. Technology has made the world a very small place. While instant gratification is still a significant draw away from the click and mortar market place, customers will not long forgive inefficiencies or technical difficulties. The role of support staff in an organization is to lighten the burden from these front line employees.

Whenever a sale is made there is a certain amount of administration overhead created. Orders must be created. Contracts must be drawn. Payment terms agreed upon. Receipts must be issued and accounting tasks must be completed. Without these functions even a mountain of sales may not enable a company to thrive. Relieving these tasks from the front line employees allows your employees to focus on what they do best: selling your goods and services, creating those goods and services and supporting those customers.

When a new technology comes across your desk, some new toy or widget, it’s tempting to want to see it implemented. Because, let’s face it, it’s cool to be the guy with the toys. But when you’re managing with an eye on the bottom line the first question you must ask yourself of any new technology is, “Will this allow my front line employees to sell more? Faster? Easier? Cheaper?” If the answer to that simple question is yes, then by all means now is the time to explore that new option.

Every product you sell has a cost associated with it. In finance terms the revenue you earn on a sale is offset by its cost. The difference is the gross margin. The higher the gross margin the more money you potentially make on every sale. There are two simple ways to increase this margin. You can increase your revenue, by increasing your price, limiting discounts or lowering your cost of production. Increasing your prices runs the risk of losing customers, revenue and market share. So it falls to you, as an IT manager, to find a ways to reduce the cost by making the front line employees more efficient.

2: Be lean. Not to go into too much detail here, we’ve already covered the broader points of gross margin and how it impacts your company’s profitability. But cost, revenue and gross margin are not the end of the process when it comes to your bottom line. Say for example your company sold 10,000 units of whatever product they make or provide. For the ease of example let’s say they’re coffee cups. In the last month your company has sold 10,000 coffee cups for $5.00 each. This brings you $50,000 in revenue.

However, those coffee cups weren’t free. Let’s say for example, it cost you $2.00 per coffee cup to produce them, ship them, put them online and in stores, sell them door to door or however you get your product to market. This is your Cost.

As we explained before, your gross margin is your Revenue minus your Cost ($5.00-$2.00=$3.00 per cup) this is your Cost of Goods Sold (COGS). So if all you had to worry about was your Revenue and COGS you would have cleared $30,000 in profit. However… you don’t. This is where the dreaded OPEX (Operating Expenses) comes into play. From that $30,000 you now have to pay for the things that didn’t help you make the revenue. Things like Office Space for non-front line employees, non-sales travel related costs, Accounting, HR and yes, IT.

Now I hope it is evident why being lean is one of your primary responsibilities as an IT manager with an eye on the bottom line. Every dollar the company spends on your services is one dollar closer to becoming non-profitable. There are some groups like sales where every dollar you spend is likely to be returned to you and then some in return. IT, sadly, is not the case.

It’s important you look at every purchase, every expense and every employee and ask is this something that serves the business directly? Sure, a new Senior Vice President may prefer an Apple Mac-Book to the Windows PC you have for him. As a manager it is understandable to want to accommodate Senior Leadership. But, before you go out and be the hero returning with a brand new Mac in the box. You need to consider the costs.

-Do I have an agreement with a vendor for discounted costs for equipment because I buy in bulk? Will I get the same deal on other hardware or Operating System choices?

-Does the cost of the asset match up with the cost of our standard equipment?

-Will the asset require additional costs to integrate it into our current system?

-Do I have anyone on staff who can support a non-standard device?

-Will it take more time and effort to support it?

3: Be customer focused. It is critical as a manager of any department to know your role. But you must know your role not only in how it fits in with your peers and the organizational chart, you must understand why your department is there. Once you boil away all of the politics, what is the role of every IT organization within a company?

You likely don’t make the company you work for any direct revenue. Your role is to make sure that those individuals that do make the company revenue have the tools they need to provide the goods and services you offer to your customers.

Make sure that whatever you do, you don’t lose sight of those you truly serve. If a front line employee has an issue that’s causing them difficulty in making a sale, fix it. If a sales guy can’t submit an order on your website, solve it. If a telephone in a call center is not able to transfer, resolve the issue. It may not be as sexy, challenging or rewarding as the project you’ve got in mind. But once you realize your true role in making sure the company you work for is as profitable as it can be, the more likely you are to be working in this industry for a long time.