Penny wise

A client who provides Information Technology services to small and midi-sized clients was expressing frustration the other day. His company has a relationship with a business to support their employees’ technology needs. They were constantly delayed, however, by the network administrator’s buying process for new hardware. After all, how tough can it be? The company gets the specifications from the technology vendor; so much RAM, or this many ports, and the in-house IT guy goes online to search for the best deals.

Technology is one of those areas where we’ve come to accept commodity pricing as a fact of life. Most of us are aware of Moore’s law, that processing capabilities will double every nine months. Many small business owners also know that the trailing edge of current technology is adequate for our basic business needs. Why not save a hundred dollars just for investing an hour or two of an employee’s time?

Let’s say the netowrk administrator in question makes $60,000 a year, with normal benefits. Total cost to the employer is around $80,0000 annually. Subtract paid time off for vacation, sick leave and holidays and that employee works about 1,920 hours, for a real cost of $41.67 an hour. If he spends 2 hours to save $100, the net benefit to the company is less than 20 bucks.

If you add in the cost of another employee who is currently unproductive while working without a computer, or who is calling on the internal IT person for regular fixes, the savings goes negative in an eye blink. If that person uses even 30 minutes extra of outside technician’s time, the negative costs far outstrip any potential savings.

Ironically, the IT vendor also offers commodity pricing on hardware. Like most such companies, they make between 10% and 15% margin on basic computers, routers, firewalls and the like. For that amount the technician also gets a product he is familiar with, saving substantial time when he integrates it into the client’s system.

We trust our tech vendors with our two most important assets; our data and our employees’ productivity. They have more access to our proprietary information than our CPA, and are the key vendor whose errors could bring our employees to a shuddering halt. Why don’t we trust them to provide a low-margin commodity that they are most qualified to deliver?

Because we can. Because we started out buying our own technology when support companies were scarce, and we had to do it for ourselves. Because we all know that competitive pricing is out there. I just looked at my Sunday advertising supplements. Dell, Best Buy, Office Max, Staples and Office Depot have deals on computers. In a few weeks, when graduation gifts get hotter, Wal Mart, Target and Sears will jump in.

Here’s a news flash. None of those companies make only 15% margins. You wouldn’t trust them to make your employees more productive, or to keep your financial information secure. When was the last time you boasted about the price you paid for an employee’s new PC? Nobody cares, because it isn’t enough to make a difference.

Maybe it’s time we figured out that saving a hundred bucks on a piece of hardware isn’t a brilliant business decision.

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