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Handling IT Questions in an Uncertain Economy

By Karen Maguire, CPA, CFE, CFS
May 2, 2016
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Management accountants must think strategically when evaluating which tech investments should be prioritized.

 

Ever since Intel cofounder Gordon E. Moore wrote a paper in 1965 estimating that the density of transistors in an integrated circuit at which cost was minimized would double every two years, Silicon Valley has used Moore’s Law as a guideline for innovation, resulting in a self-fulfilling prophecy.

 

Embedded in this approach is planned obsolescence, and a companion to Moore’s Law is Wirth’s Law. Also referred to as “the great Moore’s Law compensator,” it suggests that any performance improvements in hardware are offset by corresponding increases in the size and complexity of software. In other words, as hardware becomes faster and more efficient, the software will become bigger and require more resources, sapping that added efficiency. These opposing views of technological innovation add complexity to a decision process that is already intricate. When it comes to information technology (IT) investment, we need to balance adaptation, cost, and minimizing risk.

 

In an uncertain economy, making decisions about technology upgrades can have long-lasting effects. If a firm decides to suspend all IT spending, it risks an ever-decreasing quality of service, and it may be unprepared for the economic recovery when it arrives. Findings from the Bureau of Labor Statistics (BLS) reveal the difference IT adaptation can make in a single state. Whereas San Francisco and San Jose employment levels are 31% and 44% above those of pre-Great Recession employment levels from 2008, their southern neighbor San Diego has employment levels at 76% of 2008 employment. Los Angeles employment recovered to 2008 levels, but hasn’t grown beyond that. In its detailed analysis, the BLS found that the recovery in the northern regions can be attributed to the success of the IT industry in Northern California. The IT industry will recover faster than other industries, and so will you if you keep current with your IT needs—not the latest and greatest, but changes that meet your decision-making and client-service needs.

 

That said, implementation of cost-cutting measures may also impact the workforce. In the Q4 2015 Global Economic Conditions Survey, IMA® (Institute of Management Accountants) and ACCA (Association of Chartered Certified Accountants) found that half of the respondents reported workforce cuts or recruitment freezes in place. In addition, 40% of respondents reported cutting back on investment plans.

 

The International Monetary Fund confirms that technology completes tasks previously performed by humans. For example, when we need supplies, we can go to a website of our choice, have our purchase recorded, utilize secure online payment, and have the shipment assembled, the package tracked and sent, and the supplies delivered to our front door without ever having to communicate with another person. Technology has created a modern redux of the Industrial Revolution. Though the global economy emerges transformed, no revolution succeeds without casualties.

 

WORKING WITH TECHNOLOGY

 

Employees who performed well before this revolution may find themselves unprepared for the new economy, and they may become obsolete. When automation was implemented in the Detroit auto industry, for example, auto workers were replaced by robotic assembly, a development that gutted the workforce. The Brookings Institute refers to this as the “labor gap.”

 

If a firm wants to increase automation, the next decision to fill the labor gap is the classic make vs. buy decision. A firm needs to decide whether to hire a new set of skilled workers or train and upskill its current employees. The Society for Human Resource Management recommends training your existing workforce if you want to minimize both cost and time. Technology itself is helping to upskill workers. The Association for Talent Development found that technology-based learning increased from 38% in 2014 to 41% in 2015.

 

When evaluating which tech investments should be prioritized in unfavorable conditions, allbusiness.com recommends that corners shouldn’t be cut in security systems in particular. This includes emergency planning, data security, and backup storage. If you choose to extend the useful life of your existing systems, warranties should be kept current and extended if necessary.

 

Next, consider budget-friendly IT upgrades for client-service needs. Adam Toporek, author of Be Your Customer’s Hero: Real-World Tips and Techniques for the Service Front Lines, recommends six low-cost, customer-friendly IT upgrades: installing software updates, monitoring your antivirus and anti-spyware programs, making small memory or graphics upgrades, testing your Internet service speed, utilizing the cloud, and confirming that your existing employees are trained in current technology.

 

PROCESSING COST SAVINGS

 

The December 2015 Metric of the Month from CFO.com, provided by the nonprofit American Productivity and Quality Center (APQC), reported that almost half (49%) of APQC member finance teams’ time is spent on transaction processing—regardless of firm size. At the same time, member finance executives surveyed wanted their teams to focus on strategic initiatives.

 

An investment in IT that presents significant cost savings is in payables and receivables. The average processing cost for the member firms that had automated their payables and receivables processes was $4 per invoice. Overall, more than 60% of invoices received by members’ firms were via paper. For the firms that conducted all-paper processing, the average processing cost per invoice was $23. With respect to processing time, fully automated systems processed an invoice in 3.7 days on average. For firms with no automation, the processing time averaged 14.3 days per invoice.

 

By automating payables and receivables processes, the finance team’s focus can be shifted to strategic initiatives. Training to upskill the existing team will in turn lead to increased productivity, more efficient risk assessment, and more effective company growth strategies.

 

THE TECH TAKEAWAY

 

What can we learn from this research? Keep security secure, opt out of unused technological bells and whistles, extend the useful lives of technology tools, automate where possible, keep eyes open for employee transition opportunities, and maintain customer service. You and your company will be ready for the economic upturn rather than building in your own obsolescence.

 

Karen Maguire, CPA, CFE, CFS, Ph.D., is a professor of accounting at Coastal Carolina University and a member of IMA’s Lowcountry Chapter. She can be reached at kmaguire@coastal.edu.
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