Purchasing technology is almost always painful, difficult, exciting, and interesting.
Depending on whom you talk to and when, technology is either the best investment ever made or the worse expense ever incurred.
The technology paradox is usually based on how much money was made or lost compared to the value received from the investment.
Here are three principles to help you come out on top of the technology paradox by maximizing your technology investments and minimizing your technology nightmares:
•Accept the idea that technology will lose asset value in the first year.
The Faranda maxim to explain this concept is simple: Technology will never make you any money, it will only cost you money. From an asset accounting point of view, this is a true statement. If you buy an emerging technology for $100,000 you can usually calculate that within one year it will only be worth $40,000 based on the market price.
This occurs because once the emerging technology is released, competitors produce their own versions of it and drive the price down. Also, the original producer recreates new versions of this same technology and releases them into the market, further driving down the price of the original. Thus, you will have an actual loss of value in your asset of $60,000.
•Don’t buy an emerging technology unless you can gain competitive advantage.
Gaining competitive advantage means that your technology investment will dramatically increase your sales and profits by giving you and edge over your competitors.
This technology may enable you to earn $120,000 in additional revenue by providing your firm with something your competitors do not have and may not be able to duplicate for several months. In this case technology equals speed equals revenue. The technology forces the market to come to thou. A $60,000 loss in asset value on the books means nothing to the gain of $120,000, in revenue. The asset value loss is only an investment cost in this case – and you still have the asset working for you. Your technology may also give competitive advantage to your customers over their competitors. This provides investment by bonding your customers to you. In either case, the technology has been a revenue-enhancing investment and not an expense. It has brought in additional revenue you could not have generated without it.
Competitive advantage may also mean that the technology will dramatically reduce your operating costs and build up the bottom line. Or, it may reduce the service time to your customers and build up customer satisfaction. Or, it may reduce the development time and build up new product and service market advantages.
•Upgrade your technology or buy someone else’s new, but not emerging technology.
Most studies show that we seldom use our own technology very well. Often companies tap only 50 to 60 percent of the capacity of their technology. Thus, there are two main choices.
First, hire a consultant to show you how to use all of the capacity of your own technology or how to upgrade your exciting technology to gain market advantages.
Second, buy new technology from a firm who is buying emerging technology. “new” technology is defined as one step below emerging technology. Thus, for far less money you gain a far higher level of technology to help you gain market advantage. In this case, you do not need to get as much revenue gain to cover your investment as your investment is much lower. Also, once a new technology investment is made, it tends to depreciate much slower in the second and third years, which increases your ROI on this investment.
Purchasing technology is almost always painful, difficult, and fraught with danger. It is always exciting, interesting, and fraught with potential. This is the technology paradox. Buy technology correctly and you will increasese your boom line.