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Understanding the 10 Fundamentals of Any Business - Page 1

Oct 25, 2007
By

Eric Feldman






The role of IT has transformed from business supporter to business enabler to full-fledged business partner. This is reflected in ITIL v3, which places priority on managing IT services according to business needs. With this increased emphasis on alignment and communication between IT and the business, it is more important than ever that technically-proficient IT practitioners also understand the disciplines that make up the 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, it’s not enough to just know technology. You must also know business.

Accounting


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

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.

Corporate Finance

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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 investment—including the source of funds—and the potential return in terms of added value to the company (known as return on equity) or increased profitability (known as return on capital).

International Business

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.

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Tags: IT management, infrastructure, IT Leadership, project costs,
 

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