Understanding the 10 Fundamentals of Any Business
The following overview will not immediately qualify anyone for an MBA. But it provides some initial insight into 10 aspects of business that are essential for IT practitioners to understand. So whether you aspire to be CIO, create the newest internet startup, take the lead in developing an enterprise application, or just get a leg up in your career, its not enough to just know technology. You must also know business.
Accounting is the process of collecting, classifying, interpreting, and reporting performance data, usually financial in nature. An accountant utilizes tools such as a balance sheet, income statement, and a cash flow statement to report and analyze the result of business activities. These are commonly known as financial statements.
Accounting, however, is not limited to the world of financial data. IT practitioners also may use similar processes to better understand their computing environments. For example, several operating systems have an accounting function that collects usage data. Similar functionality exists in local- and wide-area network management tools. This IT accounting data is useful for auditing, trend analysis, capacity planning, chargeback, and cost allocation.
Economics focuses on the study of supply and demand and the allocation of resources. A basic understanding of economic theory can be a useful tool in managing your IT organization. For example, can you accurately predict demand for your support desk? This may be vital to proper staffing levels, which if set too high may exceed your budget, or if too low, affect customer satisfaction.
If you run your IT shop as a profit center, here is a tip that may help you set the appropriate pricing levels. What is the switching cost of your customers? In other words, how easily can a customer change to a competing product or service without disrupting their business? If the switching cost is high, prices can often be raised to a certain point without fear of losing the customer, at least in theory.
Although IT practitioners may not be concerned with financial issues on a day-to-day basis, understanding financial concepts may be crucial to their role and career. Finance is generally concerned with the management of money. Often called both an art and a science, finance looks at an investment or capital expenditure and then determines the potential return or profit using a variety of techniques.
Within your IT organization, you may have performed financial tasks perhaps more often than you realize. Have you ever proposed a new technology project or the replacement of a legacy system? You probably had to include some sort of analysis as to why that money should be spent.
The IT practitioner may think of a project in qualitative terms such as reducing support costs or increasing capability. A financial manager, however, will look at the project quantitatively by analyzing the cost of making the investmentincluding the source of fundsand the potential return in terms of added value to the company (known as return on equity) or increased profitability (known as return on capital).
Most corporate IT organizations today operate globally and/or work with partners from around with world. Large IT shops, in particular, routinely work with offshore developers, international customers and team members in multiple time zones.
Even if your organization is local in scope, knowledge of international business is essential. Your business may have a contact center that operates in another country. It may use contract labor from a developing market. And your company is almost certainly looking to export goods overseas.The study of international business is a cross-functional discipline involving other topics such as economics, marketing, finance, and organization behavior. Cultural issues, for example, must be analyzed when marketing a product to another country. Financial issues such as cost of capital and currency exchange rates also affect decisions involving international IT investments.
Management Information Systems
The discipline of management information systems (MIS) is the study of the application of people, process, and technology to solve business problems. Many mistake this term with information systems (or IS) itself, which is specifically concerned with the processing of data and is generally associated with computer science. From this perspective, IS may be considered a component of MIS.
This traditional definition of MIS is often represented with systems that go by other namesincluding decision support systems, business intelligence systems and knowledge management systems. In addition, IT service management is often considered to be related to MIS.
You may be using a variety of skills and methods to plan and implement one of these management systemsincluding business process analysis, enterprise architecture, systems integration, database administration and application development.
One definition of this discipline is the science of making decisions using mathematics or statistical analysis. The key point is to rely upon a systematic approach of using logic or reason, rather than a seat-of-the-pants method to make business decisions.
One can readily see how this may or may not work in practice. If you are a support representative helping diagnose an incident of a failed customers system, you will probably rely upon your experience and intuition rather than a formula in a spreadsheet. Clearly, not all technical issues can be explained using a mathematical formula.
On the other hand, having skills in management science topics such as optimization or forecasting may be important for the IT practitioner. There are many technical decisions that are best served by objective logic, especially when large sums of investment capital are at stake. When choosing the appropriate mainframe or SAN capacity, or determining how much bandwidth to contract for in a WAN circuit, it probably best not to rely on a gut feeling alone.
Many people think of marketing as synonymous with advertising or brand management. In reality, it is a multi-disciplinary craft that involves many aspects of a business. For example, there is a marketing framework called the marketing mix that includes upwards of seven activity sets to help define products and services.
Understanding these seven Ps of marketing can be invaluable in enabling your IT organization to become a strategic partner in your enterprise.
This science is an outgrowth of improved manufacturing techniques. The primary concern is the improvement of process efficiency and effectiveness. You are probably familiar with terms such as business process reengineering, supply chain management, and lean manufacturing. All of these concepts are related to operations management. The quality control mantra of plan, do, check, actpopularly known as the Deming Circle after W. Edwards Demingis also a common operations management concept.
IT organizations depend as much on process as they do raw technology. Unfortunately, these processes often develop on an ad-hoc or unstructured way, and therefore are not nearly as efficient or reliable as they could be.
Consider, for example, an IT request process with six levels of approval, each of which requires that a confirmation be sent back to the requesting user. One obvious way to make this process more efficient would be to reduce the number of approval levels. This may result, however, in reduced effectiveness since it might allow someone to request a non-standard deliverable that could potentially increase support costs. An alternative approach might be to simply reduce the number of confirmations. This would increase the efficiency of the process with little or no affect on its effectiveness.
Organizational behavior is the study of human dynamics in an organization. This is particularly important to understand as technology is designed, built, and used throughout the world. A key concept to know is cross-cultural diversity, the study of how people from different cultures interact.
IT practitioners bring not only diverse skills and experience, but different cultural, religious, and social norms. Many IT organizations are global and we must welcome a diverse group of team members.
Statistics is an area of applied mathematics that interprets quantitative data and uses probability theory to estimate outcomes. Statistics can be a particularly powerful tool for IT practitioners. Thats because IT organizations constantly use and generate quantitative data metrics to understand the effectiveness of processes and systems.
For example, service desk teams use measurements such as response times, first call resolution rates, and abandoned call rates to measure the effectiveness of their services and to establish service level agreements with business customers.
IT organizations can deliver additional value by calculating the probability that a call will be answered within a certain amount of time or that a call might be abandoned at different times of the day. This information could help managers better project appropriate staffing levelsenabling them to achieve higher customer satisfaction during peak times and avoid over-staffing during slow times. Such projections also can be used to define appropriate service level agreements.
It is worthwhile to note that these ten functional business descriptions are often interconnected or dependent upon one another. Finance and accounting are obviously related, as are statistics and management science. Other associations may not be as intuitively obvious. For example, marketing and organization behavior are related functions, especially if cultural issues are considered when deciding how to develop a new customer base.
The IT practitioners role is similarly interconnected and dependent on these various business areas. By better understanding themand conscientiously applying them to the business of ITIT practitioners can both elevate the performance of the IT organization and have substantial affect on the bottom-line performance of the business as a whole.
Eric Feldman is a senior architect in the Global Business Services Optimization Practice at CA.