While technology investments are often categorized as capital investments for the balance sheet, the considerations that go into this type of spend – particularly for new technology – can be very different than other capital expenditures, according to a report from the MAPI Foundation.
"When decisions are being made on the purchase and implementation of technologies that are new to a company and often new to the world, the purpose of investment is often different," says Cliff Waldman, author of "Productivity Dynamics: Decision Criteria for New Technology Investment."
While sales growth is always a core goal, investment in new technology often requires a different mindset about how that growth will occur. It may not be additive, according to Waldman. Instead it's about process transformation.
"Potential users might see the benefits as changing the productivity of capital," he writes.
Investment in new technology, such as the internet of things or enhanced automation, requires a change in how we think about the return on investment. Because there are more unknowns – and thus, more risks – there may need to be some flexibility in assessing ROI.
But the potential paybacks of investing, even with the unknowns, are immense.
Distribution has already embraced some limited element of IoT, for example, with internet-connected vending machines that can send usage and inventory reports. The goal of these units was to become more embedded with customers throughout their operations.
But imagine being able to take that to the next level, particularly around MRO products, by knowing when your customers are heading for a catastrophic breakdown that will result in extended downtime – and helping them avoid that breakdown. You might not be selling more to your customers, but you're building their reliance on and trust in you to keep them operating, which can be more valuable than a one-off sale in the long run. (Read more in IoT Poised to Alter Supply Chain.)
Sales may be the easiest measure of ROI, but it's not always the best. And with new technology, it might not be the right measure at all to determine when to invest.
