Home > Articles > Software Development & Management

  • Print
  • + Share This
Like this article? We recommend

Like this article? We recommend

Technology as a Cost Center

Clearly, both of the situations just described are interesting dilemmas with no easy answers. But how do these situations arise? By understanding how technology is managed within an organization, we can gain considerable insight into how to handle these two very real scenarios.

Let's look back 100 years at another industry that was as on-the-rise then as digital technology is now. We'll start with a growing railroad company with row after row of clerks checking, logging, signing, and reading the sea of paperwork that an intercontinental railroad system generated daily. As the years passed, typewriters, stenographic machines, and calculators were added incrementally, replacing paper, pencils, clips, ink, blotters, and erasers. Although these were all items vital to the railroad's business, they were simply tools to allow the railroad to carry out its business of moving people from one place to another. Or is it possible that they were as much a part of the business as the trains themselves? An owner, an office manager, and an accountant would most likely give you three different answers to this question.

An accountant thinks a pen or a typewriter may be essential for someone to implement a specific task, but these tools certainly don't transfer Mr. Jones from point A to point B. These items can't be inventoried because they're not seen as contributing directly to the bottom line in terms of sales or deliverables. In fact, they seemingly don't add revenue in any way. Therefore, in simple accounting terms, they must be expenses. Expenses are paid for out-of-pocket and therefore decrease total net profit. From an accountant's point of view, companies should not want to spend money on these items unless absolutely necessary. And, once purchased, the items must be kept long enough to at least recoup any extra expense through tax incentives and depreciation. These items are costs, and as any good businessperson will tell you, controlling costs is essential to any hope of survivability and growth for the business.

But let's look at the scenario from the perspective of a typical railroad employee, the secretary of a rail yard manager at the central hub. His job is to keep track of destination timetables and schedules, monthly payroll, rail yard expenses, and most importantly, reports to and from corporate headquarters. To save expenses, the secretary must do all the work in pen and ink. There is no typewriter, telephone, or direct connection to a telegraph service.

Our secretary starts his day at 7:00 a.m. by opening the morning correspondence. Let's assume that an experienced secretary can open, read, and assess the content of a letter in three minutes. For 65 letters in a typical day, that's 195 minutes, or 3 hours and 15 minutes. It's now 10:15 a.m. The next task is to handle the 40 or so letters that need an immediate response in the form of reply letters, telegraphs, or cables. By hand, a good secretary can write and edit a letter and address and stuff an envelope for an average response in 10 minutes. Just for these typical 40 letters, that's nearly seven hours' worth of work. It's now 5:55 p.m. Responses due either that day or early the next day must be brought to the telegraph office, sent, and acknowledged. The trip to and from the telegraph office and the actual transmissions and replies take an hour. It's now 6:55 p.m. Also, there are messages that need to be delivered within the rail yard. The manager wants to talk to several engineers about their drinking while on duty. To round up these people takes another hour, and now it's 7:55 p.m. Since meticulous records of all the day's transactions must be kept, each letter must be organized and filed, adding even more time to the workday. Arriving home after 10:00 p.m., our secretary can eat his dinner, kiss his wife goodnight, and sleep until 6:00 a.m., when he must start a new day. This is a bit of an exaggeration, but a century ago, this was not an uncommon way to do business. If the workload became too much for one person, another could always be hired to improve efficiency. Labor was cheap compared to the cost of the then newly invented typewriter or the cost of telephone and telegraph service. Why spend $10 on telegraph when you could have your own messenger for less than $10 a month?

The main advantage to this type of business economics is not the cheap labor costs but something far more difficult to define: productivity. It has taken years and a rudimentary education for our example secretary to hone his skills to the point that he can carry out his daily duties in a little over 15 hours, not including time to eat or chat with a colleague or two. But say our secretary becomes ill for a day or a week. He could be replaced, but finding someone with such practiced skills would not be easy. A century ago, even transcontinental businesses recruited locally, and generally from people they knew. There would be only so many secretaries in an area, much less secretaries with the applicable skills. It was generally easier to start from scratch, promote the messenger boy just hired, and wait for him to come up to speed...in a year or two.

Although the simple office items I've discussed were very expensive in their day, what if they could enable the secretary to create and send his mail responses in half the time? The time spent traveling to the telegraph office and messaging about the yard could be eliminated. Our secretary could wrap up his day by 5:00 p.m., leaving another five hours for him to do other administrative tasks for which he previously had little time. (It has generally been accepted that technological advances may eliminate some human tasks, but this doesn't create more leisure time; it only allows people to do more with the same amount of time.)

Productivity doesn't show up on an income statement, balance sheet, or cash flow report. So, in the world of accounting, productivity does not exist. Traditionally, office technology (everything from paper clips to mainframes) within nontechnology based businesses has been viewed as pure cost. Money is spent with little or no direct return. In the case of computer technology, this principle more often than not is also applied to the people who maintain and support that technology. This cost was often bearable when technology primarily consisted of centralized mainframes from a single vendor. Although there could be an enormous initial expenditure (often in the millions), this expenditure would eventually be offset by simple capital depreciation. Buying a mainframe computer meant that the firm would own a million-dollar asset without having to pay appreciable taxes on it, a corporate accounting bonus.

However, during the 1980s, with the introduction of distributed client/server computing, operating costs skyrocketed while capital expenditures hardly moved, despite reliance on smaller, much cheaper PCs and workstations. Although PCs were less expensive unit for unit, businesses now had to replace their one or two mammoth mainframes with hundreds or even thousands, of individual systems scattered around the country or the world. In addition, private networks had to be set up and maintained to distribute all the data from location to location. And although businesses were becoming more and more empowered by these technologies, a senior executive dependent on his own PC for spreadsheets, reports, and electronic mail was constantly presented with exponentially increasing costs. These costs seemed to constantly gyrate, compared to the days when he received the same information on oversized "greenbar " paper.

The solution frequently implemented for the increase of technological assistants is to treat them as office expenses. And if office expenses get too high, the senior executive frequently mandates cutting them. No new typewriters this year! And if there are any purchases, manual typewriters instead of electronic!

In other cases, the solution is to send the work to an outside vendor that will do the work for a fixed monthly fee. The number of corporations relying on outsourcing began to rise in the late 1980s, and these firms continue to provide truly reliable solutions to such cost-escalation problems.

We're not talking about typewriters anymore. In fact, due to PC technology and software, typewriters are all but a thing of the past. But is a PC only a typewriter with memory, or is it something more? PCs are "intelligent" and can talk to other PCs, the mainframe, and outside vendors. By being able to network and be networked into new and existing information channels, business is obviously easier and more productive, hence the senior manager's reports and spreadsheets. This is what gives the PCs their value and justifies their expense. But if they justify their own expense, then why all the spiraling costs?! Why can't PCs simply replace these mainframes that are paid for but costly to maintain? Why can't the costly networks, which link all these PCs, workstations, and mainframes, be maintained by some other company devoted exclusively to such service? After all, businesses were never asked to run their own telephone systems. For a reasonable monthly rate, this service was always provided for them by an outside telephone service provider. Are computer networks that radically different from telephone networks?

From the senior manager's viewpoint, just what should she be paying for and what shouldn't she be paying for?

Part 2 of this article looks further into some managerial concepts behind what technologies we pay for and what kind simply pay for themselves.

  • + Share This
  • 🔖 Save To Your Account

InformIT Promotional Mailings & Special Offers

I would like to receive exclusive offers and hear about products from InformIT and its family of brands. I can unsubscribe at any time.

Overview


Pearson Education, Inc., 221 River Street, Hoboken, New Jersey 07030, (Pearson) presents this site to provide information about products and services that can be purchased through this site.

This privacy notice provides an overview of our commitment to privacy and describes how we collect, protect, use and share personal information collected through this site. Please note that other Pearson websites and online products and services have their own separate privacy policies.

Collection and Use of Information


To conduct business and deliver products and services, Pearson collects and uses personal information in several ways in connection with this site, including:

Questions and Inquiries

For inquiries and questions, we collect the inquiry or question, together with name, contact details (email address, phone number and mailing address) and any other additional information voluntarily submitted to us through a Contact Us form or an email. We use this information to address the inquiry and respond to the question.

Online Store

For orders and purchases placed through our online store on this site, we collect order details, name, institution name and address (if applicable), email address, phone number, shipping and billing addresses, credit/debit card information, shipping options and any instructions. We use this information to complete transactions, fulfill orders, communicate with individuals placing orders or visiting the online store, and for related purposes.

Surveys

Pearson may offer opportunities to provide feedback or participate in surveys, including surveys evaluating Pearson products, services or sites. Participation is voluntary. Pearson collects information requested in the survey questions and uses the information to evaluate, support, maintain and improve products, services or sites, develop new products and services, conduct educational research and for other purposes specified in the survey.

Contests and Drawings

Occasionally, we may sponsor a contest or drawing. Participation is optional. Pearson collects name, contact information and other information specified on the entry form for the contest or drawing to conduct the contest or drawing. Pearson may collect additional personal information from the winners of a contest or drawing in order to award the prize and for tax reporting purposes, as required by law.

Newsletters

If you have elected to receive email newsletters or promotional mailings and special offers but want to unsubscribe, simply email information@informit.com.

Service Announcements

On rare occasions it is necessary to send out a strictly service related announcement. For instance, if our service is temporarily suspended for maintenance we might send users an email. Generally, users may not opt-out of these communications, though they can deactivate their account information. However, these communications are not promotional in nature.

Customer Service

We communicate with users on a regular basis to provide requested services and in regard to issues relating to their account we reply via email or phone in accordance with the users' wishes when a user submits their information through our Contact Us form.

Other Collection and Use of Information


Application and System Logs

Pearson automatically collects log data to help ensure the delivery, availability and security of this site. Log data may include technical information about how a user or visitor connected to this site, such as browser type, type of computer/device, operating system, internet service provider and IP address. We use this information for support purposes and to monitor the health of the site, identify problems, improve service, detect unauthorized access and fraudulent activity, prevent and respond to security incidents and appropriately scale computing resources.

Web Analytics

Pearson may use third party web trend analytical services, including Google Analytics, to collect visitor information, such as IP addresses, browser types, referring pages, pages visited and time spent on a particular site. While these analytical services collect and report information on an anonymous basis, they may use cookies to gather web trend information. The information gathered may enable Pearson (but not the third party web trend services) to link information with application and system log data. Pearson uses this information for system administration and to identify problems, improve service, detect unauthorized access and fraudulent activity, prevent and respond to security incidents, appropriately scale computing resources and otherwise support and deliver this site and its services.

Cookies and Related Technologies

This site uses cookies and similar technologies to personalize content, measure traffic patterns, control security, track use and access of information on this site, and provide interest-based messages and advertising. Users can manage and block the use of cookies through their browser. Disabling or blocking certain cookies may limit the functionality of this site.

Do Not Track

This site currently does not respond to Do Not Track signals.

Security


Pearson uses appropriate physical, administrative and technical security measures to protect personal information from unauthorized access, use and disclosure.

Children


This site is not directed to children under the age of 13.

Marketing


Pearson may send or direct marketing communications to users, provided that

  • Pearson will not use personal information collected or processed as a K-12 school service provider for the purpose of directed or targeted advertising.
  • Such marketing is consistent with applicable law and Pearson's legal obligations.
  • Pearson will not knowingly direct or send marketing communications to an individual who has expressed a preference not to receive marketing.
  • Where required by applicable law, express or implied consent to marketing exists and has not been withdrawn.

Pearson may provide personal information to a third party service provider on a restricted basis to provide marketing solely on behalf of Pearson or an affiliate or customer for whom Pearson is a service provider. Marketing preferences may be changed at any time.

Correcting/Updating Personal Information


If a user's personally identifiable information changes (such as your postal address or email address), we provide a way to correct or update that user's personal data provided to us. This can be done on the Account page. If a user no longer desires our service and desires to delete his or her account, please contact us at customer-service@informit.com and we will process the deletion of a user's account.

Choice/Opt-out


Users can always make an informed choice as to whether they should proceed with certain services offered by InformIT. If you choose to remove yourself from our mailing list(s) simply visit the following page and uncheck any communication you no longer want to receive: www.informit.com/u.aspx.

Sale of Personal Information


Pearson does not rent or sell personal information in exchange for any payment of money.

While Pearson does not sell personal information, as defined in Nevada law, Nevada residents may email a request for no sale of their personal information to NevadaDesignatedRequest@pearson.com.

Supplemental Privacy Statement for California Residents


California residents should read our Supplemental privacy statement for California residents in conjunction with this Privacy Notice. The Supplemental privacy statement for California residents explains Pearson's commitment to comply with California law and applies to personal information of California residents collected in connection with this site and the Services.

Sharing and Disclosure


Pearson may disclose personal information, as follows:

  • As required by law.
  • With the consent of the individual (or their parent, if the individual is a minor)
  • In response to a subpoena, court order or legal process, to the extent permitted or required by law
  • To protect the security and safety of individuals, data, assets and systems, consistent with applicable law
  • In connection the sale, joint venture or other transfer of some or all of its company or assets, subject to the provisions of this Privacy Notice
  • To investigate or address actual or suspected fraud or other illegal activities
  • To exercise its legal rights, including enforcement of the Terms of Use for this site or another contract
  • To affiliated Pearson companies and other companies and organizations who perform work for Pearson and are obligated to protect the privacy of personal information consistent with this Privacy Notice
  • To a school, organization, company or government agency, where Pearson collects or processes the personal information in a school setting or on behalf of such organization, company or government agency.

Links


This web site contains links to other sites. Please be aware that we are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of each and every web site that collects Personal Information. This privacy statement applies solely to information collected by this web site.

Requests and Contact


Please contact us about this Privacy Notice or if you have any requests or questions relating to the privacy of your personal information.

Changes to this Privacy Notice


We may revise this Privacy Notice through an updated posting. We will identify the effective date of the revision in the posting. Often, updates are made to provide greater clarity or to comply with changes in regulatory requirements. If the updates involve material changes to the collection, protection, use or disclosure of Personal Information, Pearson will provide notice of the change through a conspicuous notice on this site or other appropriate way. Continued use of the site after the effective date of a posted revision evidences acceptance. Please contact us if you have questions or concerns about the Privacy Notice or any objection to any revisions.

Last Update: November 17, 2020