To stay competitive in our digital world, small and medium-sized businesses need to be equipped with and proficient in the latest technologies. Yet, unlike large companies, most SMBs lack the resources to staff an IT department. Along with lack of oversight, outdated software or hardware, inadequate cybersecurity, or one bad tech investment could seal the demise of a small enterprise.

In his new book, “Tech Debt 2.0®: How to Future Proof Your Small Business and Improve Your Tech Bottom Line”, senior global business and technology executive Michael C. Fillios offers expert insights and practical strategies to help small business leaders managing evolving technology to their advantage and avoid racking up debt that could put their company in peril.     

Fillios recent sat down with Young Upstarts to share his insights about the role of technology-related debt to the future viability of small and medium-sized businesses.

Here is some of our conversation:

Most of us are familiar with the term technical debt. What exactly do you mean by “Tech Debt 2.0”?

In the software industry, the term “technical debt,” also known as design debt or code debt, is widely used as a catchall to cover everything from bugs to legacy code to missing documentation. That definition is nearly 30 years old, and hadn’t evolved with the pace of technology changes, from mainframe computers to the Internet to the cloud, and much more.

In “Tech Debt 2.0®”, we offer an expanded definition that is more inclusive and contemporary with current technology, and shows the impact technical debt can have on an organization if it is not actively managed. My team and I felt it was important to revisit this definition, and in particular, with an emphasis on small to medium-sized businesses. For SMBs, tech debt is a potential existential threat that could impact their future viability and very survival.

Tech Debt 2.0 is any liability incurred in the development, acquisition, use, and retirement of technology — i.e. hardware and software systems, or the skills set needed to support them. And it’s something every business leader needs to be aware of.

How do small and medium-sized companies routinely accumulate tech debt, and often without realizing it? What are some common warning signs?

There are three types of tech debt: unplanned, creeping, and intentional. The first two can accrue undetected. Unplanned tech debt occurs because of an unplanned event, often caused by bad development practices, poor technique or poor communication of requirements. Creeping tech debt is caused by obsolescence of systems or equipment. Systems age because of improvements in upgrades or new products. Equipment ages over time or is obsoleted by new models with improved speed or functionality.

Right now, chances are tech debt is accruing in your business—and it is not showing up in your monthly variance reports or other accounting controls that your organization depends on for recognizing financial its well-being or warning signs of trouble. It is also likely that someone in your organization, without explicit or implicit authority or oversight, has taken action or made decisions that have added to the technical debt of your enterprise.

As it relates to symptoms, firstly, I would say a likely sign is that your underlying business could be underperforming, whether financially, servicing customers, or not being able to grow or expand. More specifically, tech debt can be detected internally before it escalates if leadership is paying attention to some of the early warning signs, such as:

• The majority of IT investments are focused on keeping the lights on vs. helping to achieve business objectives.
• Project are consistently delivered late and over budget.
• Data is hard to access, its quality is poor, and it doesn’t drive decision-making.
• Inability to attract and retain IT talent.

Rather than leave it up to leadership to connect these dots, my team and I wanted to develop a more intelligent way to uncover these underlying root causes. Therefore, we created the Tech Debt 2.0 Diagnostic to help organizations understand and measure their TD score.

We’re all familiar with high-profile cyberattacks on major business and government organizations. Why should small business leaders take cyber risks seriously? What are some simple ways to reduce them?

The reason cyber advisory is critical for every SMB is 60% of all targeted attacks are towards small to medium-sized organizations. And of those data breaches that are successful, 90% impact small to medium-sized companies. What explains the higher success rate? Research shows 82% of small to medium-sized businesses are not adequately protected from cyberattacks. And the data shows that most small business owners don’t have a plan for response if they’re hit. That’s a problem, because cyberattacks can range from the mildly annoying to the deeply destructive.

Here are a few ways SMBs can reduce cyber vulnerabilities:

– Outsource security monitoring and management to a dedicated resource or cloud provider with necessary resources.

– Establish, communicate, and enforce security policies governing passwords, policies, procedures, especially around physical access, network access, email policies, data security.

– Keep all systems and equipment patched and up to date on security upgrades, and discard equipment or systems that are no longer supported.

You mentioned intentional tech debt. When can tech debt be beneficial to a growing business?

Tech debt can be beneficial when it is deliberatively incurred with a specific goal in mind, such as speed to market for competitive advantage or release of prototypes to clarify customer requirements. It is essential that intentional tech debt incorporate a plan for remediation at some time in the future and that the organization has rationalized the consequences of performing that remediation.

In addition, tech debt can play a critical role if a business is in the process of being bought or sold. This can be a double-edged sword depending on whether you are buying or selling a company.  For an investor or PE firm looking to purchase a company, it is very typical to review the amount of financial debt that you will be purchasing as part of the transaction. Tech debt is similar to financial debt, but you aren’t necessarily paying back someone other than yourself.

Conversely, if you are selling a company, and have managed your tech debt such that your liability or debt rating is low, this could create an advantage for you in negotiating a potential premium, as you have built tech equity rather than accrued debt.

How can small businesses stay up to speed on evolving technology and compete with large companies with IT staffs and state-of-the-art resources?

Staying on top of tech debt is especially difficult for SMBs that might not have the technology departments, CIOs, and CTOs of larger organizations. However, independent, experienced firms and individuals with no interest in promoting any one solution are poised to provide their expertise to help SMBs differentiate real technology advances from technology-of-the day solutions. They provide not only fractional services as traditional consultants but also often as virtual CIOs or CTOs, available on-demand to fill these roles for SMBs and help manage technology investment and technology strategies for the future.

Another path open to SMBs dealing with tech debt is collaboration. There can be substantial value in a collective approach to addressing shared issues. Collaboration opportunities come in a variety of forms and have different advantages. Vendor user groups, Chambers of Commerce, Roundtable Programs, and others, foster collaboration among similar organizations and peers sharing a particular technology, brand, or product, and in some cases, provide technology agnostic advice from peers.

For leaders of small and medium-sized businesses, it is crucial to both invest in consultants and seek out collaborators in successfully managing and leveraging tech debt 2.0.

[This article was originally published on youngupstarts.com.]

Whether it’s the cool craft brew pub on the corner or the hottest new app, it’s clear that Americans love the excitement, risk, and reward of creating the next big thing in a small package. What also is clear: the US economy loves small and medium-sized businesses because their innovations propel economic resilience, allow us to compete more successfully overseas, and create opportunities for diverse and inclusive business ownership. While many assume huge multinational corporations motor the marketplace, the truth is local SMBs do.

Until very recently, SMBs comprised 99.9 percent of businesses and 47.5 percent of private sector employment in the US. Sadly, SMBs have taken a tremendous hit in 2020, with the COVID-19 outbreak presenting unexpected obstacles to their success and survival. How SMB owners and C-suite leaders have deployed technology is turning out to be a major factor in how, or if, their company will survive those challenges.

Like large companies, SMBs have become dependent on technologies to support critical functions such as marketing, sales, manufacturing, and customer experience, in addition to traditional back office. Those SMBs that have managed their technology with oversight and efficiency are realizing opportunities for competitive advantage. Of those that haven’t, many are struggling to overcome the effects of technical debt—specifically, what I call “Tech Debt 2.0®.”

The concept of technical debt has been around for nearly three decades. Howard G. “Ward” Cunningham, a programmer known for developing the first wiki, is credited with coining the term. “Shipping first-time code is like going into debt,” according to Cunningham. “Every minute spent on not-quite-right code counts as interest on that debt.” In other words, a little debt speeds development, as long as it is paid back promptly with a rewrite. This description makes the trade-off clear: Speedier development time and the ability to rush to market is leveraged against future work to improve and support the first version’s imperfections. The “interest” is a stand-in for future development costs, increased support headaches, and potential hits on credibility.

In my book Tech Debt 2.0®, I compare the concept of technical debt to financial debt. One way in which the analogy doesn’t work quite as neatly is that financial debt is typically owed to someone else, usually a bank, credit union, or rich uncle. Tech Debt 2.0, however, is something your small business owes to itself.

Similar to the original definition, Tech Debt 2.0 refers to an imperfection in the state of technology that a business should rectify in the near future, causing interest to accrue that is either financial or non-financial in nature. But, the definition is not simply limited to software development—because the problem isn’t simple at all.

For example, Tech Debt 2.0 can be attributed to the version of software and operating systems, the level of security capabilities employed on systems, the age of networking equipment in the data center, or the compatibility of existing solutions with new, cutting edge technologies. If you know where to look, the effects of Tech Debt 2.0 can also be found in data quality, business processes, and even among IT talent. The effects can be compared to accrued interest and directly impact, or irrevocably threaten, the bottom line.

Tech Debt 2.0 can translate into excessive costs for businesses, whether from rectifying security breaches, recouping lost revenue, or increasing expenditures. It also comes with a significant non-financial price tag. Tech Debt 2.0 can drive down employee morale, inhibit the recruitment and retention of good talent, and negatively affect the merger and acquisition process. And, it can have disastrous effects on a company’s reputation.

SMBs may not recognize IT as the key strategic asset it is, and, therefore, may wind up underutilizing IT for competitive advantage. Another distinct challenge for SMBs is their ability to minimize the impact of Tech Debt 2.0. The challenges of proactively managing their company’s technology investments are aggravated as SMB leaders confront the challenges of COVID-19.

The first step for leaders is getting a firm grasp of tech debt, the intersection of technology and economics, and how to recognize the different types: unplanned, creeping, and intentional. With an understanding of tech debt, SMB leaders can then take steps to avoid it, eliminate, or use it to their advantage. In Tech Debt 2.0®, I offer SMB leaders a tool to measure their company’s tech debt to help guide the future direction of their business.

Every SMB leader has an opportunity to positively impact their organization during this time of crisis and throughout the uncertainty ahead. Following are offensive and defensive actions you can take today:

On Offense:

• Do a health check of your project portfolio and reprioritize backlog.
• Refocus IT governance to accelerate decision-making and maintain alignment.
• Develop an “acute” action plan with intent and purpose for the next 30, 60, 90, and 180 days.
• Prioritize actions that focus on revenue preservation and customer experience.

On Defense:

• Diagnose your tech debt and plan to address root causes.
• Conduct a business impact analysis to prioritize your cyber risks.
• Review and revise essential “pandemic” security policies and practices.
• Engage your team and external partners to identify cost-saving opportunities.
• Protect core operations and monitor critical infrastructure services of internal users.

Above all, stay healthy and stay positive—for the sake of your family as well as your business.

[This article was originally published on ceoworld.biz.]

Does your small or mid-size business have the endurance and discipline to create long-lasting value for your customers and stakeholders? Are your technology investments solely focused on cost reduction and efficiency? Do any of the following statements resonate with you?

• IT initiatives and the business are often misaligned because what the business values is not well defined or communicated.
• Decisions are made without a shared perspective of value.
• IT is perceived as a deep cost center that does not deliver value.
• The budgeting process is difficult because finance executives have a limited understanding of information technology and use a different vocabulary.
• Common “quick-win” cost-cutting initiatives do not satisfy the organization’s financial objectives.
• Cost-optimization projects often have unanticipated consequences that offset potential cost savings and result in business dissatisfaction.

A constant cycle in large and small companies, no matter the economic environment, has business leaders demanding IT departments to do more with less. Leaders of small-enterprise IT departments feel constantly constrained and pressured to reduce cost. Care must be taken for without informed discipline, cuts to the budget may create bigger shockwaves than the business is ready or willing to handle.

In our previous blog post introducing the IT Fitness Program, we proposed that leaders master the management of technology versus a focus on the technology itself when seeking leverage for strategic advantage. To assist SMB’s we recommended establishing an IT fitness program aligned with your business objectives. Whether your goal is to build muscle, become leaner or agile, you will use a combination of strategies (think – diet, nutrition, exercise) to achieve your objectives.

As with physical fitness, when it comes to IT financial management, you should avoid those trendy cost-cutting programs that may come with some serious side effects that could put your business at risk. Rather, adopt a more balanced and thoughtful approach that builds the endurance needed to thrive in today’s competitive environment. The conversation should start with “What are the goals you are trying to accomplish?” to help you align your financial management strategy for IT and to increase the chance of achieving those goals versus meeting short-term objectives.

You Can’t Shrink to Greatness

“Cost control is a necessary part of effective IT governance. It can help IT position itself well with an organization’s executive management”. Info Tech Research Group Director of Small Enterprise Research, states that in cases where cost containment is an enterprise-wide initiative, every department will likely need to pitch in, and it’s important for IT to play its part. Treat cost-cutting measures as an opportunity to create a more efficient and smarter department and demonstrate that throughout the enterprise.

Having led IT in large global Fortune 500 organizations as well as at smaller companies, one thing I know for sure is that “you can’t shrink yourself to greatness.” Historically, IT departments have been mandated to optimize resources and mitigate risks. Organizational priorities should drive IT priorities, but there is often misalignment. When CEO’s are asked about their priorities, they often cite “maximizing shareholder value” as a top goal. However, heads of IT typically state “improving operational efficiency” as their top priority. To exacerbate this disconnect, IT leaders can misestimate the size of their next IT budget, overestimating or underestimating, which can create issues of credibility in the budgeting process. My experience given this situation almost always leads to IT being asked to reduce their budget resulting in a focus exclusively on efficiency and cost “take outs” versus value creation.

The IT Fitness Program for the SMB

Our IT Fitness Program identifies nine sections that are based on the COBiT Framework and best practices research from Info-Tech Research Group. They are:

• Strategy and Governance
• Financial Management
• People and Resources
• Service Planning and Architecture
• Infrastructure and Operations
• Security and Risk
• Applications
• Data and Business Intelligence
• Portfolio and Project Management

Adopting the IT Management capabilities in this framework will enable your organization to reach the full potential of your IT investments. In this blog, we will cover Financial Management and explore several capabilities including Business Value, Cost and Budget Management, Vendor Management and Cost Optimization.

IT Financial Management

Business Value:

• Everything IT provides must have real business value. IT provides value by maintaining the benefit of existing services and functions it provides, eliminating services that no longer provide benefit, and by creating new value. This is true whether IT operates as a background utility, a broad enabler of business value closer to the user experience, or incorporating the entire chain of value from end to end.
• Therefore, it is critical to ensure a common understanding of what is valuable for the organization to drive growth and consistent strategic decision-making. Then, equip IT to evaluate, direct, and monitor investments to support the achievement of the organization’s values and business benefits. Finally, align IT spend with business value through an enhanced governance structure to achieve cost optimization and ensure IT provides a visible contribution to the creation and maintenance of value.
• With the above in mind, here are three steps to get your organization on the path to benefits realization:

1. Understand business value; ensure there is a common understanding of what is valuable for the organization to drive growth and consistent strategic decision making.
2. Incorporate benefits realization into governance; align IT spend with business value through an enhanced governance structure to achieve cost optimization
3. Ensure an accurate reference of value; IT provides a visible contribution to the creation and maintenance of value.

Cost and Budget Management:

• An IT budgeting process must contain adequate measures to capture and communicate the benefit of IT investments. This begins with the collection of data and ends with effectively presenting the benefits IT investments will have for the business. IT cost pressure is fueled by negative sentiment and IT can be perceived as a high cost that does not deliver value. Budgetary approval is difficult because finance executives have a limited understanding of IT and use a different vocabulary. Detailed budgets must be constructed in a way that clearly highlights benefits but avoids technical detail that is complex and confusing.
• Therefore it is important to build an IT Budget that demonstrates value delivery. However, according to a research survey conducted by Grant Thornton, only 40% of CFOs describe their current financial planning and analysis system as effective. 62% of CFOs claim their staffs were too busy with daily tasks to make the changes needed to keep their budgets up to date. Clearly, the IT budget process and subsequent maintenance extends beyond IT and can be widespread throughout the organization.

• With the above in mind, here are three steps to reduce IT Budgeting frustration in your organization:

1. Plan the budget with ample time for collaboration; for example, have preliminary talks with business units to understand their plans for the fiscal year.
2. Build the budget; for example start budgeting early, with a sound forecasting methodology.
3. Sell the budget and its benefits; for example presell ideas, making business stakeholders into advocates for the budget

Vendor Management

• As IT services and products continue to become outsourced, IT is becoming increasingly dependent on external vendors and a transaction-based approach becomes insufficient to guarantee continued value. Vendor management often focuses on procurement, which can reduce the value of the vendor to that of the transaction itself. When IT does not manage vendors properly, performance levels can drop and fail to deliver essential services – and IT is left accountable.
• IT often has so many vendors that it is impossible to provide the same level of attention to each vendor. Even if there are a few vendors that are clearly the most important, it’s not clear how to monitor relationships with the rest of IT’s vendors. According to a Deloitte Outsourcing Survey, more than 76% of organizations outsource core applications, services, and functions with the primary goal of reducing and controlling operating costs, yet less than 24% of organizations clearly define requirements of outsourced initiatives and have the tools and processes to adequately manage their vendor portfolios
• With the above in mind, here are three steps to get some order to your vendor management process:

1. Prioritize and classify your vendors with quantifiable, standardized rankings.
2. Focus on your strategic vendors first, then, year over year, work through every classification of vendor.
3. Standardize your processes for transitioning in new vendors, maintaining communications, monitoring performance and contingency plans for addressing vendor underperformance.

Cost Optimization:

• IT organizations are being asked to do more with less and just because your budget is being cut, doesn’t mean that the organization’s expectations of IT are any lower.  IT cost cuts are everyone’s cost cuts. When IT’s budget is slashed, everyone feels it and fiscally prudent IT leaders need to do their part, working collaboratively with the business to convey the full implications of IT cost cuts, to help mitigate risk and preserve IT’s fundamental capabilities. Operating with a cut budget is no time to just put your head down and soldier on. Broadcast the impact of your reduced spending.
• Whether it is just IT, or the entire organization, when the ax falls, it is critical to be able to absorb the blow. Proactively cutting costs and demonstrating continuous pursuit of efficiencies helps build a strong relationship with the CFO and increases the business’ confidence in IT. Cost optimization gives you an opportunity to realistically trim the fat and the flaws of the IT organization and increase efficiency and performance.  Don’t try to cut everything all at once or your actions may have unintended consequences for the business. Understand the magnitude and urgency of your cost-cutting mandate before taking action.
• With the above in mind, here are three steps to get some order to your cost management process:

1. Know your mandate; Don’t start identifying potential cuts before truly understanding the external and internal drivers that are dictating the urgency and magnitude of the mandate.
2. Build momentum with quick wins; Low-risk, quick-to-implement initiatives that enhance your reputation as a fiscally prudent IT leader – even if initial savings are small.
3. Identify initiatives that will save your organization money; Conduct a high-level brainstorming session, harnessing the collective knowledge of the IT leadership team.

We Can Help

Our comprehensive selection of IT Effectiveness Assessments combined with our Assess, Measure, and Improve approach, enables tailored improvement plans to be established and implemented.  Given the importance of IT Financial Management as part of the IT Fitness Program, we recommend the following assessments:

• CEO – CIO Alignment is designed to identify and close the gaps between your vision for IT and the business, and ensure alignment of goals and objectives.
• CIO Business Vision is designed to assess the level of satisfaction across core IT services, support and relationships with key stakeholders to identify and better understand areas in need of improvement.
• IT Management and Governance is designed to assess the importance and effectiveness of your core IT processes and to identify and better understand areas in need of improvement.

IT Ally™ has the experience and expertise to help small and medium-size businesses succeed in establishing and improving your IT Fitness Program. To get started, check out our IT Fitness Test to get a customized report or call us at 844-4ITALLY (844-448-2559) to continue this discussion and see how we can improve your IT fitness!

In our next blog, we will cover People and Resources and explore several capabilities including Human Resources Management, IT Organizational Design, Leadership Culture and Values and Knowledge Management.

[This article was originally published on itallyllc.com.]

A major challenge for businesses today is human resource management. In other words, actually acquiring and retaining employees with the technical skills and ability needed to transform an organization and prepare it for a digital future isn’t happening. This is particularly challenging for small to medium sized businesses at a time when unemployment is the lowest in decades.

CIOs in the greater Cincinnati area say the unemployment rate for technical skills is actually negative. McKinsey says, The first imperative in winning the war for technical talent is developing and retaining the team you have.” Beyond the traditional levers for human resource management, (competitive compensation, bonuses, coaching etc.) there are a range of other approaches to consider. Here are five that might be right for your business.

1. Rotate high performers. This builds depth in your IT team and provides staff the opportunity to learn new skills, enhance resumes and add value to their career and your business.
2. Train outside technology. Train technology staff on other aspects of your business. Invest in their knowledge and understanding of your customers, products, strategies, market position and operations.
3. Provide exposure to the company’s most senior leaders. An irreplaceable motivator for the right, high performing technology staff.
4. Support and foster technology passions. Encourage experimentation and innovation, make time for prototypes and proof-of-concept projects.
5. Facilitate outside exposure. Encourage participation in industry and functional groups (standard setting boards, user groups) let your staff feel connection to the larger technology community.

IT Ally™ can help you develop an active plan for technology talent retention.

[This article was originally published on itallyllc.com.]