Three Ways Family Offices Can Better Select Technology

Perhaps you’ve heard the popular adage in which an executive complains that “half my technology spend is a waste, but I don’t know which half.” In this blog, we discuss three steps that family offices can take to ensure they get a better return on their technology investments. A more front-loaded process in your selection process will go a long way to producing better and more results when you select new technology - much like you do with your investment process.

Choose your Technology Like you Choose your Investments

Technology selection may not be a core competency for many family offices, but taking a page from your investment selection playbook can go a long way. For example, when investing a firm would first define the appropriate asset allocation and investment characteristics they want before evaluating individual investment opportunities. Your selection evaluation should be a well-defined, repeatable process that has multiple stages with milestones. The same should hold true for selecting a new technology or technology vendor in the sense that you have to clearly define what you want before you go looking for it.

The analysis starts with understanding what problems you want to solve. Family office managers should have intimate knowledge of areas for improvement. With this knowledge in hand, apply your problem-solving skills to your technology search. The payoff is that your firm will not get the technology it wants, but the technology it needs.

Tasks to Perform Before Searching for Technology 

1. Define the Problem

The first step is the most important, but so obvious it's often neglected. Take the time to define what problems you want to solve and what it takes to solve them. While it may be obvious to those close to the situation, having a clearly defined, written, set of requirements will become the foundation for your technology plan and provide guidance to all involved during the selection process.

When you start looking at potential technology solutions, things can get confusing fairly fast due to the complexity and interdependencies of various platforms and packages. Software vendors can present an array of impressive features and functions, but not all of their functionality will solve your problem. Having a clearly defined set of requirements will help you filter out the bells and whistles from your minimum requirements.

It's important to note that it’s unlikely that one vendor will be able to solve all your problems. Prioritize your needs, because, “The hard part is not figuring out what to do, but what not to do.” Throughout the process, your planning is critical.

‍2. Create a Plan

Eisenhower once said, “Plans are useless, but planning is indispensable.”  This quote implies that even a well-intentioned plan may go sideways in the real world, but that the act of planning itself is invaluable. Long-term planning requires a roadmap that details how you are going to get from one stage to the next and ultimately to your goal.  A technology roadmap is the equivalent of creating a financial plan for your client.  Just as when you create a financial plan, you seek to understand their current situation as well as their future goals before making specific recommendations. Technology is no different as you need to make an assessment of your current situation and define the future direction of your firm before you can determine what specific technology investments you should make. Bringing in outside technology consultants can really help during this process as they will see things that you might otherwise miss.

Your roadmap must reflect your firm’s priorities, as they will drive your technology priorities. Prioritization should be given to efforts that will have the biggest impact on your business goals and should not be based on what is the easiest or the cheapest. A realistic plan should factor in available resources and any system inter-dependencies. For example, you may need to upgrade your servers before implementing a new CRM system or you may want to consider implementing a new CRM before embarking on a new marketing automation platform.

Your roadmap should be a living document, but don’t let perfection paralyze your decision making process. You have no way of knowing what the future holds in the external environment, but this should not prevent you from taking internal action using the best information available at the time. Sometimes the greater risk is not taking risks. Your roadmap is about setting a strategic direction and defining priorities. You can and should review your roadmap periodically to maintain your strategic direction. Taking this time upfront will pay dividends down the road with smarter decisions and better use of your resources.

3. Define Success

In the family office, a good advisor will collaborate with their clients to define what success looks like and how can it be measured. Without this definition, how will progress be measured?

Measuring success can be difficult, as it has to be mutually agreed upon with the vendor as well as other stakeholders, and it requires quantifying things of which you may have limited, or no visibility. For example, you know that the reporting cycle takes too long, but do you know how many hours of labor it takes to complete? Having a good grasp of your current total cost of ownership (TCO) will be an important benchmark when comparing potential solutions. Without information like this, how can you know if an outsourced solution provider is cost-effective? How would you know if an upgrade will properly address the situation?

The objective of any proposed solution should not necessarily be to find the cheapest but to find one that provides the greatest ROI. Returns can be measured by economic value (i.e. saved $25,000 per year) and intrinsic value (i.e. allowed staff to focus on higher value tasks). Set realistic goals for your project that can be quantified and hold you and your staff accountable.

You wouldn’t place a client in an investment without having an understanding of their goals and risk tolerances. Why should it be any different when it comes time for investing in technology for your firm? Consider applying the same planning skills you use with your clients to your next technology decision. It will help you achieve greater satisfaction, and reduce your headaches by reducing your chances of failure. 

Better Planning Means Better Results

The path to a better return on investment (ROI) starts with a strategic, planned,  selection process. Drawing parallels between technology choices and investment strategies, the importance of a well-defined and repeatable process is emphasized. Strategic planning is paramount. It forces stakeholders to treat technology decisions with the same rigor as financial planning for clients. As a roadmap is developed, it becomes a dynamic tool reflecting the firms’ priorities, avoiding the paralysis of seeking a perfect plan, and encourages adaptability to system inter-dependencies. 

The critical tasks before a vendor search means defining the problem, creating a plan, and establishing success metrics. These are actionable steps for ensuring a technology investment's success. By aligning expectations with the meticulous planning skills employed in client investments, these proactive measures promise not just a monetary return but a transformation in operational efficiency, maximizing the utility of limited resources and mitigating the risk of failure in the dynamic landscape of technological advancements.

Resource

Common technology mistakes family offices make - Video