When discussing technology costs, businesses often focus primarily on direct costs. These are the costs that hit the income statement where everyone pays attention at the monthly review. Indirect technology costs, on the other hand, are equally as important but do not receive as much attention as they should. These indirect costs can rise exponentially when a business fails to recognize the long-term impact they have on overall results.
Indirect Technology Costs
Indirect costs do not show up on a financial statement, but if you look closer you will see these hidden costs in things like lost productivity, culture & employee engagement, and client experience. Something that should be simple and straight forward as hardware procurement is a good example to illustrate.
Take laptops, for example. When you hire a new team member, you must provide them with the proper equipment necessary to do their job. This often includes a laptop and monitors. When there is no consistency and standardization, the planning around this procurement of equipment becomes a project on its own. Where is the best deal? What is the budget? Companies scramble last minute to procure any laptop they can get a hold of for the new hire. This creates high-cost variability. The time spent “figuring it out” is where all the hidden indirect technology costs can be found.
This also creates negative long-term support implications for supporting different laptop types and brands. Plus, the new team member can recognize the scramble to get the equipment set-up for them. Many times, it may be days later before they have the equipment and software they need to complete their work! Overall, this lack of planning and standardization leads to a rise in indirect technology costs throughout the procurement process. It also effects long-term complexity in supporting different brands and models.
Impact with Supply Chain Disruption
This equipment example just became even more complex with the many supply chain disruptions over the past year. This is adding to the increase of indirect technology cost issues outlined above. These shortages are preventing major hardware vendors from meeting demand. Delivery projections can be as long as 6-8 months! This creates a huge problem for those companies scrambling to get their new hires equipment at the last minute.
Without planning, standardization, and proper inventory management, that new hire may have to wait 6-8 months for equipment. Their productivity will suffer during that time. Even if you can cobble together some older equipment, there is still productivity loss. Plus, handing new team members old, poorly performing laptops impacts their workplace experience. What message does that send about the expectations for their own performance? So, while you may have to pay more for equipment in the near future with rising demands and supply shortages, the real technology costs are the hidden costs no one is paying attention to.
Addressing The Hidden Technology Costs
The supply chain will continue to be impacted for at least another 6-12 months. This should be all the urgency you need to act now and change how critical equipment is provided to your team. You must plan ahead in order to address and overcome these technology costs. Here’s a couple way to prepare:
Expect Inventory Carrying Costs
Yes, this is another direct technology cost you will have to accept. It is important to realize that the impact to indirect costs will pay off with increased productivity and employee experience. Consider your growth projection and how that will affect your hiring strategy. Based on the hiring plan for the next 6 months, plan for the required inventory now. Inventory management will be key to riding out the uncertainty of the supply chain. The technology costs this inventory incurs will be minor compared to the bigger impact of not being able to procure critical technology hardware right when you need it.
Standardize Your Equipment
Rather than buying assorted brands and models of equipment, buy equipment that is the same brand and model. Determine what roles should get what type of equipment. Negotiate a price based on what you will purchase that year, and work to get greater discounts when you are buying for the next several months vs just for next week. Purchase all this equipment in advance so you have it on hand and are ready for the next new hire or machine upgrade. Doing this work upfront really streamlines the process for equipment upgrades and new hires, and that means greater efficiency, increased productivity, and an all-around better experience for everyone involved.
Although technology costs are indeed on the rise, preparation will help to cushion some of the blow. If you are a company that does not currently have standardization and planning in place around hardware, consider rethinking your strategy to get ahead of this. Businesses that fail to focus on indirect technology costs just as much as direct costs will miss the opportunity to create a positive long-term impact on business results.