Southwest Airlines’ recent fiasco caused them to cancel over 16,700 flights. This left people stranded across America. It was the epitome of what’s happening with so many businesses right now across the US. A total and complete meltdown in service due to cheapness.
During their busiest season, Southwest had to apologize for miscommunications that led to thousands of their customers being left stranded at airports. In Nashville, the airport police threatened to physically remove and arrest travelers whose Southwest flights had been canceled. The charge was trespassing, because their boarding passes were no longer valid. Southwest employees got into verbal fights with obviously frustrated passengers. Meanwhile, the company offered very little communication to affected customers.
This nightmare is estimated to have cost Southwest in the neighborhood of $725 million to $825 million. Not to mention the loyalty of their customers and the damage to their reputation. Now, how’s the cost of that IT upgrading looking, Mr. CEO?
Nobody likes to invest money into IT upgrades and other “infrastructure” improvements. Money spent on a new website will drive new opportunities into your organization. It will also (hopefully) give you an advantage over your competition. That’s an easy investment. Money spent on an office remodeling can provide enjoyment every day. It makes employees happier and impressing clients who visit the office. This is another “easy” investment that delivers visible, tangible ROI instantly. But NOBODY likes to spend thousands of dollars on basic IT upgrades. That is UNTIL the meltdown brings your organization to a grinding halt at the worst possible time.
So, what should you spend on IT?
According to a study done by TechTarget, companies generating less than $50 million in revenue spend an average of 6.9% of their total revenue on IT costs. But with regulatory compliance laws and cyber-attacks on the uptick, companies need to increase those budgets in order to simply avoid a massive loss. Another survey, conducted by Capterra, showed that 75% of SMBs said they would be spending 10% to 20% MORE in 2023 on software and IT than in the previous year. A HUGE increase.
What are they spending it on? Cyber security is, without a doubt, one of the big areas of increase in spend. Compliance regulations and risk management are two of the major driving forces for this. Workforce enablement is another area, providing employees more flexible (but secure) ways to work from home, on the road or in the office. And finally, many companies are investing in any kind of technology that will reduce their need for growing their workforce. Overhead walks on two legs – so, if a business can increase productivity without adding people, that’s always a win.
Being “too cheap” in anything as a means to improve profits is a terrible long-term strategy. In fact, it’s a misnomer to even call it a “strategy.” It’s simply a short-term fix that you should only use in the direst times. Cutting IT spend to the quick gives a false sense of savings, as Southwest Airlines discovered. It’s not a problem until it IS. Then you have a giant, expensive mess to clean up that could cost you far more in losses than in money saved short-term.
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