At what point does it make sense to invest in data management technology?
As soon as a firm knows it wants to scale to the point where the need for data management is going to be inevitable, it ceases to become a question of when you have to do it and it becomes a question of “when is your ROI on making that switch going to be highest?” (assuming the the resources are available).
It’s easy to incorporate annual licensing and maintenance costs when running the numbers but firms shouldn’t forget the implicit costs that are associated with making the switch from a Microsoft Office based system (Excel, Outlook, etc.) later in the life cycle. Decision makers should consider the sharp increase in internal man-hours required for these efforts when existing, entrenched processes have to be re-engineered, data has to be cleansed and transformed and in some cases, data that could have been easily captured is so disparate or dirty that it is no longer economical to bring it into the new system. You’re also making a bet about the speed at which the business will scale – and there are implications in both directions for improperly timing IT spend with growth and expansion.
In those terms, I think the question becomes when does the added business value and costs of upgrading a data management system sooner compare favorably to the increase in implicit (and sometimes explicit) switching costs that firms will incur if they upgrade later. There’s no right answer to this question, though. It all depends on the firm and the people.
Is the threshold at which it makes sense for a firm to invest in data management earlier than it used to be?
Absolutely. Generally speaking the costs of today’s data management systems are lower. Many of those inputs driving the ROI of a data management system have changed significantly over the last 5 or 10 years – subscription pricing models have dramatically changed the economics, system configuration and administration tasks have become more democratic, integration tools continue to improve every year – all of these things shift that point of parity on the timeline between sooner vs. later further to the left. And that doesn’t even consider the expanded applications for a data management system that have increased the average business value per licensing dollar of many of these systems.
Is it easier to get ROI if you invest in data management sooner than it is if you wait?
I’m not sure easier is the right word. I would say that the point where the average firm can achieve favorable ROI is much earlier in its life than it was 5 years ago. I would also say that a firm is more likely to achieve their anticipated ROI than they were before. In other words, execution and technology risk for the implementation of data management systems is much lower than it used to be.