At the coffee table today, we were discussing how should a company decide to invest in a new technology. How it should align with business strategy of a company and here it is a study framework to decide the same.
So for the purpose of this blog, let us assume that a bank is coming to you for consulting engagement to decide on embarking on a technology change. The change will cost the bank close to $ 50 Million. Now that is a lot of money, bank is asking us, should we do this or not?
Before we start creating hypothesis about whether this is a good idea or not, we have to understand the reason for this technology change. Is it the case that, this will help in gaining more market share by increasing customer base? or is it just a technology change due to support termination of the current technology? Nail down the reason and build this in the part of the hypothesis.
Ultimately, this exercise should lead to a basic NPV analysis. For that we require cash flows. The next question is how to reasonably determine cash flows. The answer would be to investigate the situation in the form of 3 Cs customers, competition, and company. So if the hypothesis is not to go ahead with the technology, factor in the the possibilities whether the customer base will be shrinking or not, that the competitors for the smaller number of banks were huge and low, low cost providers, and that the companies cost structure and particular strengths would keep them from being competitive with larger players no matter how much they invested in technology.
This is not a an elaborate framework, just a guiding tool for the study!
Thoughts?
So for the purpose of this blog, let us assume that a bank is coming to you for consulting engagement to decide on embarking on a technology change. The change will cost the bank close to $ 50 Million. Now that is a lot of money, bank is asking us, should we do this or not?
Before we start creating hypothesis about whether this is a good idea or not, we have to understand the reason for this technology change. Is it the case that, this will help in gaining more market share by increasing customer base? or is it just a technology change due to support termination of the current technology? Nail down the reason and build this in the part of the hypothesis.
Ultimately, this exercise should lead to a basic NPV analysis. For that we require cash flows. The next question is how to reasonably determine cash flows. The answer would be to investigate the situation in the form of 3 Cs customers, competition, and company. So if the hypothesis is not to go ahead with the technology, factor in the the possibilities whether the customer base will be shrinking or not, that the competitors for the smaller number of banks were huge and low, low cost providers, and that the companies cost structure and particular strengths would keep them from being competitive with larger players no matter how much they invested in technology.
This is not a an elaborate framework, just a guiding tool for the study!
Thoughts?
No comments:
Post a Comment