*Technology Strategy Formulation for Global Corporations DOI: http://dx.doi.org/10.5772/intechopen.109338*

The typical financial parameters such as Return on Inventor (ROI), Net Present Value (NPV), Discounted Cash flow and Payback period are the metrics used for evaluating projects in most of the organizations. Strassmann [8] advocates the use of ROI to make decisions on IT investments adding that economic criteria are important. The decision makers should way the best and worst case scenarios. The investment in technology projects is approved only if it means certain level of returns. Many businesses today would like to be asset light, that mean they may not want data center on their balance sheet. Such companies may prefer to host their software on the cloud or another data center. Even in such as meticulous calculations are done to understand impact of moving capital expenditure (capex) operational expenditure (opex) in the long run and short run. Today many other inputs need to be taken into account well beyond financial metrics, some such examples, amongst others, may be compliance requirements, nice to have technology and threat mitigation.

Smith et al. [9] bring out importance of business value creation through technology strategy, further specifying that the business and technology strategy need to complement each other to generate value. **Figure 2** picturizes examples of value of technology as may be considered by different people in different context. The decision makers may have different considerations of value generated by technology. Efficiency and time saving are the most common values. One also needs to distinguish between 'nice to have' and 'essential to have'. For instance, \$200 smart phones for the sales people traveling in the field may fall in the category of 'essential to have' however, smartphones of \$600 may be termed 'nice to have'.

One may think of WhatsApp acquisition by Facebook in 2014 as the one beyond pure financial considerations, as more and more people started using WhatsApp. Skype acquisition by Microsoft in 2011 was not making much of money then. EMC by Dell and 2016, Autonomy by HP in 2011 all showcase high profile acquisitions. While one

**Figure 2.** *Value of technology.*

may argue that these were decisions at the enterprise level having significant business considerations, one cannot dispute the fact that all acquired companies had special technology that was valued by acquiring company. WhatsApp and Skype were clear examples of new ways a communicating, to the extent that Mark Addreessen in his famous paper "Software is Eating the World" in 2011 classified Skype as telecom company. Silvius [10] discusses value of technology, also questions mindless applicability of ROI in every technology investment. In a way he brings out salient, even intangible, outcomes of technology. Brynjolfsson and Hitt [11] found in their study that benefits of information technology investments are difficult to measure and are often intangible. However, there is strong link between information technology and productivity gains.

It is important to also consider the technology portfolio management of company where acceptance/rejection/postponement of technology projects is done. Besides other metrics the financial metric of vale generated by technology carries high weight. Let us consider here simple examples of Finished Goods Inventory management and Accounts Receivables by a fast moving consumer products company. The computation shown here is oversimplified to give first level of understanding.

Scenario 1: An FMCG company operating within a national boundary has revenue of \$10 million, with COG (cost of Goods) at 60%. It generally maintains 30 days of finished goods (FG) inventory. An IT company offers to provide an IT solution that can reduce FG inventory by 15% at a cost of \$20 thousand per annum. Given inventory carrying cost of 20% should the solution be accepted?

**Table 1** shows computation of savings possible by reduction in finished goods inventory.

One needs to compute savings in cost on account of reduction in FG inventory. Carrying finished goods inventory entails costs such as bank interest, insurance, space, administration and obsolescence. The scenario given here indicates such inventory carrying cost to be 20%. The level of such cost varies based on the kind of products, the interest changes, location of warehouse etc. As an example obsolescence may be very high in perishable food items but low in metals.


#### **Table 1.**

*Scenario 1: Computation of savings.*


**Table 2.** *Scenario 2: Computation of savings.*

In the above computation adopting the solution at \$20 K gives no benefit to the company. Solution will not be accepted.

Scenario 2: Consider a company with a turnover of a \$120 million selling products in a single country, with a 45 day accounts receivables. An IT solutions provider offers a service that would bring down the accounts receivables to 30 days. Given the cost of financing the receivables at 10% what is acceptable cost per year of IT service?

**Table 2** shows computation of savings in this scenario.

Accounts receivables show outstanding amounts to be received from customers. Generally, the selling company extends credit to the customers. In this scenario the company's AR is equivalent to 45-days sales. As the receivables are financed by bank loan it is in the interest of the selling company to minimize it as much as possible. Bringing down AR from 45 to 30 days saves \$300 thousand for company, as seen in **Table 2**. In this case company will accept an IT service if it costs less than \$300 thousand per year.
