I watched Geoffrey Moore at something a few months ago, stole this concept from him, and made it way more intelligent as applied to our happy little lives in the world of IT. I fully credit him for the concept, and fully credit me for making it relevant.
In the world of IT, specifically the world of IT operations and infrastructure, our entire industry is predicated upon you or some vendor finding a way to save you money. It could be direct cap-ex savings, op-ex savings, “time” savings, etc. – but it always comes down to saving that IT guy money. And saving money is good.
But, when I save you money, you reap a 1X the money I save you multiple – or return to the organization. Money you save is just that – money you save. It goes right to the bottom line of your organization – and that’s a good thing – but it’s not an important thing in the overall scheme of things.
Here’s what I mean – let’s say you are buying $2,000,000 dollars (or euros, since they are now the same, which must irritate my European friends) worth of kit – and somehow through your genius you are able to save $1,000,000 – that is fantastic! You essentially drop an extra $1,000,000 to the corporate bottom line, and should be rightfully praised. That $1,000,000 in savings might be relevant next year also – because perhaps you are so smart you not only saved $1,000,000 in capital expenditures this year, but the stuff you bought instead saved another million in operating expenses next year! You should now have a little job security! In my example, you brought $2,000,000 directly to the bottom line of the company over two years – no small feat. The VALUE of that $2M to the organization is $2M. A 1X Multiple.
I’d take $2M any day of the week, so why am I sounding negative? Because if you are saving $2M for the company, the company is most likely a multi-billion dollar enterprise, and while the $2M is good – it’s not going to cause significant material value to be created for the organization on the whole. It’s not going to move the stock price. It’s not going to “create” incremental value – it’s simply going to drop a 1X cash multiplier to the bottom line. Again – it’s GOOD – it just is not overly material in the overall corporate value structure.
That, in short, is why it has always been hard for IT infrastructure and operations to truly matter in the eyes of stockholders and investors (and by default senior executives) – in most corporations.
Companies are valued based on MULTIPLIERS – investments are made with value multiples. When I invest $1, I want a return greater than $1. Holds true for stockholders, and companies themselves.
Thus, a 1X multiplier is not considered sexy. It doesn’t truly affect the bottom line. Sorry, just calling it like it is.
However, where things start to get sexy is when we do things that change our OPERATING MODEL. If IT invests $1 (or saves $1M, same thing) into something which fundamentally alters the OPERATING model of the company (and IT – or some other business unit), the return on that investment will be at least 10X, and often much greater. That makes CFOs pay attention.
Better yet, change the BUSINESS MODEL and you are talking about 100X+ multipliers of value.
Amazon used IT to change retail’s operating model. It got well over 100X in valuation back on every dollar spent/invested into that world. You could argue it also altered the entire industry’s business model, and as such either reaped directly or completely destroyed others' valuation multiples.
Look at UBER. A stupid ass app that lets me watch my phone instead of guessing where the cab is completely revolutionized how a 100 year old taxi/limo industry operates. They got about a billion X multiple. One stupid app. Billions in value. I’m not judging right or wrong, I’m reporting facts.
No IT guy at Uber is talking to their boss about the $450,000 they saved by not buying their next CLARiiON or NetApp box. Well, they might be, but no one at Uber management cares.
So in short – you save money, you give the company a 1X multiple on that money and you get a pat on the head. You invest to change your operating model and you get a 10X+ multiple on that investment, and you get a pat on the head from a much bigger boss. You change the business model of your own company or disrupt that of the competition and you get 100X+ multiple and the CEO invites you onto the corporate jet to discuss your next strategy role.
Stop focusing only on the quick dollar savings in front of you. Focus on moving up the valuation multiplier stack. How can the money you save or spend be used by IT to change the operating model for the company? That can have serious impact to the bottom line – for you and the company.