Technology investments are not just a matter of staying current—they are vital for survival and growth. According to The CFO Alliance 2024 Mid-Market CFO Sentiment Study, 49% of companies have significant technology upgrades on their plate in 2024. As a CFO, you hold the keys to determining which tech investments get greenlighted. But here’s the big question: How do you assess ROI from technology in a way that resonates with stakeholder needs and financial outcomes? In this article, we’ll explore various ways to benchmark technology ROI through the lens of a CFO.
Reducing Operational Costs: Processing, Storage, Labor, Carry Costs
Pure cost savings are often the quickest way to justify technology spending. Cloud migrations, for instance, are typically more scalable and cost-effective than maintaining on premises infrastructure. Pure cost tradeoff.
Automation tools can streamline repetitive tasks, reducing the sheer amount of manual labor required, leading to significant labor cost reductions. Inventory management systems can optimize stock levels, reducing excess inventory and freeing up working capital and reduce carrying costs. These are largely self-explanatory.
Unlocking New Revenue Opportunities
Technology can directly open the door to new revenue streams, allowing companies to launch enhanced products and/or premium services. A logistics company that integrates real-time tracking into its services, for instance, can offer premium packages with greater visibility, allowing them to charge higher rates. Similarly, a software company that adds additional capabilities may sell enhanced licensing due to enhanced functionality and innovation.
Reducing Error Rates and Rework Costs
Errors can be costly, both financially and reputationally. With technology-driven process controls and automated checks, you can cut down on errors and the need for manual data entry. This can have direct financial impacts on multiple fronts, from the cost of fulfillment to costs of rectifying mistakes (time, discounts, etc.).
Diversifying Skill Concentration
By moving critical skills from individuals into systems, companies can reduce the risks associated with employee turnover. This decentralization of skills minimizes “process risk wrapped in turnover risk” ensuring that operations continue smoothly even when key personnel leave the organization. A common example is implementing a CRM system to manage prospect and customer interactions. Instead of relying on one or two key salespeople, a CRM documents the history while being readily accessible, prospectively reducing the impact of losing a top performer.
Improving Data Integrity and Controls
Technology can boost data integrity and streamline internal controls. Automated data capture means less scrubbing and reconciliation, leading to faster decision-making and fewer errors. A company that moves from manual bookkeeping to accounting software with automated reconciliations may find that audits go a lot smoother, and at lesser cost.
Enhancing Compliance and Security
Technology can ensure compliance with regulations and strengthen data security. By implementing robust encryption and multi-factor authentication, companies can reduce the risk of data breaches and compliance violations, avoiding hefty costs and reputational damage.
Enabling Scale (without Proportional Costs)
Traditional processes often can’t handle exponential growth by merely adding more people. Technology investments can enable businesses to scale efficiently, handling 2x, 5x, or even 10x volumes without proportional increases in costs. An e-commerce company that adopts a modern warehouse management system can automate inventory tracking, order picking, and shipping, allowing it to handle increased volumes with the same workforce. This type of scalability is critical for companies poised for rapid growth.
Enhancing Customer Experience
Technology can also lead to improved customer experiences, allowing companies to charge premium prices or attract new customers. A restaurant that introduces a mobile app for online ordering and customer loyalty programs can enhance customer satisfaction, leading to higher sales and customer retention.
Strengthening Brand Reputation
Advanced technology can give your brand a boost, helping it stand out in a competitive market. A sustainable energy company that invests in technology to reduce its carbon footprint can enhance its reputation as a green brand, attracting more customers and investors.
Fostering Professional Development and Employee Retention
When technology automates routine tasks, employees have more time to focus on higher-value activities that require critical thinking. This shift can foster professional growth and lead to higher employee satisfaction, reducing turnover and saving costs associated with recruiting and training new hires. A company that adopts collaborative software tools fosters a culture of learning and innovation, leading to a more engaged workforce.
Takeaways
As a CFO, you’re responsible for ensuring that every technology investment counts. By examining ROI from multiple angles you can make informed decisions that align with your company’s strategic goals. The trick is to adopt a holistic approach, considering not just immediate cost savings but also broader benefits like reduced risk, scalability, and better customer experiences.
With a comprehensive understanding of how technology can drive value, you’ll be better equipped to guide your company toward tech investments that deliver a strong and sustainable ROI, setting the stage for long-term success.
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First Water Finance (FWF) is a finance solutions platform supporting finance leaders, business owners, and capital partners through FP&A, Corporate Finance, and Community. FWF has supported over 100 management teams and sponsors, concentrated in emerging and mid-market enterprises, professionalizing and accelerating the finance function in pursuit of growth, acquisition, and/or sale objectives.