What are the most important business terms to know as an IT professional? Colin German FBCS curates a useful list to help IT professionals communicate better in business.
Success, in all works of life, is founded on trust. Trust is based on understanding and is always easier when there’s a common language. Choosing the right language, you could say, is the key to success.
It all sounds so simple.
Yet, how many times, as a business analyst, IT consultant, or IT practitioner, have you left a meeting with senior leaders and felt like they didn’t understand you, your ideas or your pitch? Has this lack of understanding ever led to projects - which you knew were critical - going unfunded or being under funded?
The problem is, of course, boards and senior leaders gravitate naturally towards the language of accountancy: profit and loss, ROI, CAPEX, OPEX and liquidity.
The reality is: technical people providing services to businesses sometimes struggle to communicate their ideas clearly, since they tend to speak a different language - the language of technology.
Technical people are knowledgeable in their field and strive to achieve excellence in their work. Businesspeople, on the other hand, sometimes tend to view technology as a necessary evil, or as a cost to the business, since they do not always appreciate the real value being delivered.
This lack of appreciation frequently comes from a lack of understanding of how the technology will help the business achieve its objectives.
Framing any recommendations or technical work in the terms of business objectives and business concepts is a great first step to bridging this communication gap.
As you read on, we’ll explore 10 key business concepts. Understanding and using these important business terms to frame your business analysis and approaches to the board will help you achieve a common language, trust and increase your chances of being successful.
Ideas to build into your pitch: ‘How does my recommendation / project align with where the business is heading? Which aspects really matter and which are more “nice to have”?’
Technical people are frequently employees or suppliers to a business that they are working with, or recommending solutions to. This puts them in the natural position of thinking like an employee or like a supplier. The truth of the matter, however, is that the client is a business and the owner is the person approving any work and paying the bills.
For this reason, in coming up with any recommendations or projects, it is important to think like an owner. This creates a deeper understanding of the owner, the business and what the business really needs. It also results in recommendations that are more in line with the owner’s objectives.
Technical people should put themselves in the owner’s shoes and look at a situation from their perspective. Where is the company heading? What really matters to help it get there? What is essential and what is just a ‘nice to have’ in achieving the objectives? Is my recommendation a short-term quick fix, or am I really driving the business towards its objectives?
This stance enables a technical person to see the owner’s side of the story, as well as to come up with ideas and pitches that are more in line with what the owner wants and needs. It is, after all, the owner who is setting the business objectives and sanctioning payment for all the costs required to get there.
Ideas to build into your pitch: ‘How can my recommendation / project help align to the cash flow needs of the business? Does my recommendation / project fit within what the business can afford?’
There is a difference between profitability and cash flow and this is crucial to the survival of a business. Profitability is where the business is generating more money than it has costs. It is where the revenues are higher than the costs. This is a very important objective that businesses need to aim towards, since no business wants to make a loss.
Liquidity, on the other hand, is where a business has enough liquid cash to pay its bills. Liquidity is very much about timing of this cash. There have been many situations where a business was profitable - yet not liquid - and it ended up in trouble.
Salaries are paid to employees monthly; however, what if cash collected from clients comes in towards the end of the year only? How will a business pay its dues at the beginning of the year? It would need to spend money to acquire this cash in the form of loans or overdrafts. This increases business costs.
From a business perspective, liquidity is all about timing cash flows. The earlier the money comes in, the earlier it can be used. In managing their cash, businesses try to get as much credit as possible, in order to delay cash flowing out; they also try to collect their cash as quickly as possible. In quoting to businesses and working with them, one needs to be sensitive to these aspects.
Working with a small company a few years ago, the owners used to buy items and distribute to regional outlets. As the business scaled up, they decided to purchase larger quantities in order to obtain better prices and be more competitive. This increased their profitability dramatically.
As a consequence, however, they needed to spend a lot more at the beginning of the year in order to purchase the larger quantities, which sat in the stores for a longer period until they were sold. It also meant that the business had less money at hand to pay its bills and monthly salaries. This change nearly brought the business to its knees.
Being a small business, the accounting and operational systems were not too complex and they were pretty much spreadsheet-based. A small software company was helping them analyse the requirements in order to build up a system.
A sharp business analyst picked up on this liquidity matter and got to discuss profitability and liquidity with the owners. The discussion was not one where the business analyst positioned themselves as an expert - but rather one where they discussed the concepts and the requirements of the business, showing an awareness of the impact on the business.
Ironically, it was this very discussion that raised the alarm for the business. It was also the discussion that convinced the owners that the software company in question were the best partners to work with, since they really understood their needs and could add value to them.
Ideas to build into your pitch: ‘Is my recommendation / project heavier on CAPEX or OPEX? How does this align to the business needs or requirements?’
Costs are a ‘necessary evil’ that a business needs to incur. Having said this, they need to be considered in terms of their impact on profitability and cash flow. For this reason, businesses tend to make a distinction between capital expenditure, or CAPEX, and operational expenditure, or OPEX.
CAPEX is an investment that is done in a lump sum, up front, on a project or investment. An example of this is when one purchases a property for a lump sum. When businesses incur CAPEX, they need to have the money at hand immediately to pay for it (or they need to finance this sum through a loan or other measures).
OPEX, on the other hand, is an expense that is paid periodically along the usage of an asset or lifetime of a project. An example of this is a monthly payment for a SaaS application. Since OPEX is a periodical payment, businesses can better plan for this expense on a monthly basis and they can also better manage their cash flow and liquidity.
A sensitivity to the different types of cost is very important when working with businesses and recommending investment to them over time. Different businesses have different appetite for CAPEX and OPEX, so it is important to understand this appetite in order to ensure that any investment recommendations are already in line with their orientation.
Ideas to build into your pitch: ‘Which projects are the business choosing between when considering my recommendation? Is my project truly the most important for the business at this time?’
Whatever the method of investment, be it CAPEX or OPEX, a business is constantly making choices on what to invest and what to drop. This is not only based on the benefits that each investment will give the business, but also on two very important factors: financing the investment and opportunity cost.
Each investment needs to have money thrown at it and the business needs to obtain this money from somewhere. Few businesses have pots of gold stashed away that they can call on whenever an investment opportunity presents itself.
For this reason, the money being invested in a project sometimes comes at a cost. This cost could be a financing cost, such as a loan cost or an overdraft cost, since the business would not have the liquid cash available to make the investment.
However, whatever the financial cost, each investment also has an opportunity cost. This is the cost of an investment opportunity that is being lost in order to make this choice. What this means is that, since funds are not infinite, any funds invested in a project actually come at the cost of having to forfeit another investment, since the funds are used elsewhere.
For example, if a business is able to invest £500,000 and it chooses to invest this in an office refurbishment project rather than in new technical infrastructure and cybersecurity defences, the opportunity cost will be that the technical infrastructure and cybersecurity defences of the business have not been refreshed.
In working with businesses, it is always important to be aware that each project or investment suggested needs to be funded and that each investment undertaken is made at the cost of forfeiting other investment.
Business decision makers are constantly prioritising and deciding on which investments to make and which to drop, so an understanding of these concepts will help technical people to be sensitive in the way projects are pitched, as well as in the negotiation process with senior management and boards.
Ideas to build into your pitch: ‘Have I clearly articulated the ROI of the project I am recommending? Is the ROI defined in business terms and is it quantified?’
In considering investments, businesspeople are very focused on the return on investment or ROI. The question they are trying to answer here is: ‘What is the return that the business will gain if we make this investment?’
The concept is simple enough and sounds reasonable; however, the aspect that could give great leverage to technical people in pitch, discussion and negotiation, is the actual measurement of the ROI.
When recommending an investment, technical people have typically made studies, compared the current situation to best practices, tried to anticipate future needs and future technology advances, then made their recommendations to provide the best technology fit for the business today and one that could take it forwards into the future.
Working with technical people in these situations, it is easy appreciate the hard work and research that goes on before a decision or a recommendation is made to the business. These are the experts; they know their job well and it is why they are called on to make the technical recommendations.
Businesspeople, on the other hand, will not always understand these technical reasons and may frequently disregard them without trying to understand, or even minimise the depth of work behind such recommendations.
This is not due to a lack of interest or respect, but rather because they feel out of their depth in the discussion. It is usually also clear to them that an actual debate is often impossible, since they will never understand the technical aspects and the technical people will not understand what the business needs.
An appreciation of the concept of ROI can help technical people try to bridge this gap from their side. In making any recommendations, it is useful to consider listing the benefits to the business of making the investment - as well as cost if this investment is not made.
It is also useful to try to quantify these benefits and costs, ideally presenting them alongside the project cost. Sometimes the sheer action of discussing this quantification with the businesspeople is enough to strengthen their understanding of the project return.
Ideas to build into your pitch: ‘What scarce resources will my project be putting demands on? Are these demands justified? What scarce resources might my project free up? Have I made the business aware of this?’
We operate in a world of scarcity and our life is all about taking decisions on scarce resources. Businesses operate in scarcity on a daily basis, since most resources are not infinite. There is scarcity of money, scarcity of time, scarcity of skills, scarcity of human resources ... and the list goes on.
This concept of scarcity is what pushes businesses to embark on the practice of doing more with less. Can we produce more product using the same resource pool we have today? Can we bill more hours using the same staff complement? Can we purchase more raw material or services using the same expense we make today? What can we automate to reduce the human input required? These are just a few examples that spring to mind.
When discussing or presenting anything to businesspeople, the concept of scarcity should also be kept in mind and emphasised. It is crucial to highlight what can be gained or saved through an investment or what further capacity can be created due to the investment.
This not only helps businesspeople feel that their position is being understood and that there is better communication and understanding with the technical people, but it also gives them tools to justify the actual investment to boards and business owners.
Ideas to build into your pitch: ‘How am I showing the business that my project proposal is managing costs? Have I been abundantly clear in any costs that would be created should the project not go through, or go through in a different format to what is being recommended?’
Businesspeople are very sensitive to costs and spending and, as such, are frequently perceived by technical people as being stingy. Whether we like it or not, businesspeople tend to hold the purse strings and it is their job to ensure that the business is well managed and that its financial position is strong. In doing their job, they may come across as questioning investment, stopping it, or even reducing the investment to a level that is felt by technical people to be unfeasible.
Costs need to be incurred; that is a fundamental fact in life. However, in working with businesspeople, it is important to show a sensitivity to keeping costs low while delivering what is really required for the business. It is also important in this process to ensure that, in keeping costs low, other costs are not incurred as a consequence.
In discussing with businesspeople, it is normal to feel pressured into reducing a budget, cutting down a project or even dropping it altogether.
In discussing any cutting down of projects, it is important that any additional risks or costs that will arise are highlighted up front for consideration, as they are, after all, part of the total project cost. This sensitivity to costs and project objectives, as well as to the overall longer-term investment of the business, is another way technical people could work at closing the understanding and communication gap with businesspeople.
Ideas to build into your pitch: ‘How does my project fit into the three to five year planning cycle of the business? How can I present my ideas a little differently to ensure that the project fits?’
In working with businesses, it is important to keep in mind that businesses typically need to look and plan ahead. They work in three to five year cycles and they plan the major investments and activities of each year in advance.
The way they typically do this, is by planning the standard costs they typically incur, adding any investment that is required in the period and adding a projection for profit that they are comfortable with, which typically gives them their minimum sales targets.
Business planning is there to try to make the future a little more tangible and to try to create certainty where uncertainty reigns. In executing the plan, whatever is in it will take place, while whatever is not mentioned will pretty much not exist.
Technical people need to be aware of these cycles and to use them to their advantage. In looking at the technical aspects of a business, it is important to consider a similar planning cycle. In discussing with businesspeople, sensitivity to the planning cycle is important.
In addition, when negotiating projects with them, whatever is suggested needs to be part of this plan. If, during negotiations, any aspect of the required investment is not part of the plan, then the focus should be on getting it into the plan in the first place, even in a future year.
Ideas to build into your pitch: ‘Am I defining the risk related to my project in business terms? Have I clearly explained the mitigation measures and plan Bs for my project?’
All businesses face risk and businesspeople are used to living with and managing risk; however, the way a business defines risk is different to the way in which a technical person defines it.
In businesses, risk is defined in terms of business objectives and consequences; businesspeople spend a lot of time and money on identifying potential risks, understanding their probability of occurrence and measuring the impact on the business, should one occur. Despite these studies, business can never be zero risk. Businesspeople come up with mitigation measures for each risk and create alternative plans, should any risk materialise.
Mitigation measures are actions that the business takes in order to reduce the probability of a risk occurring or its impact on the business. On the other hand, should a risk materialise, these alternatives are there for the business to have a pre-thought-out action for them to take in order to get around said risk.
The relevance of a risk discussion for technical people dealing with businesses is that, when discussing with businesspeople, it is important to present any risks in terms of the business objectives and consequences, rather than in the terms of technical objectives and consequences.
In addition, always keep in mind that risk is best discussed with options of mitigation measures and alternative plans in hand. This preparedness clearly shows businesspeople that the technical person truly understands the business needs and can be trusted to recommend solutions.
Ideas to build into your pitch: ‘Have I shown sensitivity around how my recommendation will help manage the cost of the business’ product or service? Have I demonstrated any way that the technical work will enable a higher selling price of the product or service?’
Businesses produce a product or a service and they sell this to their customers. One fundamental principle is that you sell for a price higher than your cost. While this sounds simple enough, the reality is it might be a little trickier than it seems.
When a product or a service is created, the cost price is the sum of all the costs that are spent to actually create the product or the service. In the case of a product, for example, this includes all the raw materials, the cost to bring them into the business, labour and other manufacturing costs. If a product or service is sold for its cost price, the business will simply recover the costs that were directly involved in producing the product or service.
In addition to these direct costs, a business needs to recover a number of other costs that it incurs in running its activities that are not directly attributable to a product or service. These can include administrative costs like admin, rent, utilities, sales staff and sales costs, etc. What this means to a business is that, while one can look at the cost price and simply sell a product or service for a higher price, the reality is that the real cost to the business is much higher than that.
In fact, when calculating cost price, a business typically takes a portion of these administrative costs and allocates them to each unit of product or service that it intends to sell. This way, as units sell, the business slowly recovers these costs and eventually moves into making a profit.
On the sales side of things, a business needs to carefully consider how much it sells its products or services for. The cardinal principle mentioned above, i.e., that a product or service is sold for more than its cost price, including a portion of administrative expenses, always applies.
Over and above this, an actual selling price will need to be established. This price needs to be established based on the market and should includes elements like competitive and alternative products or services, elements within the product or service that can add higher value than others on the market, etc.
In brief, the price set is based on what customers would be ready to pay for the product or service in question.
Another point to consider is that, when one speaks of a selling price, a business usually has only one selling price for each product or service. In practice, however, the product or service might be sold for different prices depending on the customer to whom it is sold. For example, let’s take a business that produces cans of baked beans.
If these are sold to the end client, they are sold for a specific price. If, on the other hand, these are sold to the supermarket who eventually sells to the end customer, then these are sold at a much lower price. In this case, businesses tend to make their money by selling larger volumes.
As a technical person, it is important to have a basic understanding of the direct and indirect costs that go into a product or service, as well as in the considerations that a business takes when setting the selling price. This appreciation is not there for you to cost or price products and services, but rather to show an appreciation of this to the businesspeople, as well as to clearly understand where any recommendations that you give the business will fit into the bigger picture.
Important business terms: a consultant’s reflections
Technical people from various disciplines have very important roles in businesses. In fact, provide many critical services to business - be they employees or external service providers. In this relationship, a very common situation is that the businesspeople and technologists try to converse, yet they somehow seem to end up speaking different languages and not seeing eye to eye.
In managing technical teams over the years, the topic of how technologists can talk to businesspeople and vice versa has always been one that has intrigued me. As a consultant with a technical and business background, I have always had a foot in both camps and this has helped ease the communication between both sides. My role has always ended up being translation, rationalisation and mediation between the two sides.
Over the years, I have explored the reasons for this situation in depth. I have seen businesses invest in soft skills and communication skills for their technical staff, yet this has seldom done the trick. Delving deeper into the matter tends to unearth an uncomfortable, unspoken reality that tends to occur between technical and businesspeople. Relationships are based on trust and respect.
While I have seen a lot of respect between business and technical people on a human level, strangely enough, despite endless credentials and experience, professional respect is frequently lacking. Experience has shown that the main reason for this is that both sides do not necessarily feel that they are listened to and understood. This understanding is crucial for the building of trust between the two parties and with it comes an awareness of what the other party is really facing.
While, in an ideal world, both the businesspeople and the technical people would reach out and try to understand the other side, the reality of our world is that the businesspeople are typically the ones requesting and paying for the technical service. This makes it especially important for technical people to go out of their way to try to bridge this gap of communication and understanding. In doing so, they will increase their chances of success with the businesspeople, by trying to increase the technical value in their eyes.
Strong relationships and trust are built in situations where both sides understand each other and speak the same (business) language. For this reason, it is important that technical people are aware of a number of key principles that businesses operate on. The awareness of these principles does not need to be academic and neither does it need to be displayed academically. It actually should be displayed through conversation, example and recommendation of the technical options and solutions given to the businesspeople.
Technical people are typically perceived by businesspeople as the ones who ‘invent’ projects and push spending. While this statement is not exactly justified, a perception is a perception and it is also something that technical people should seek to amend. Being more aware of business concepts and of how businesspeople think is a great first step on this mission. Applying these concepts in any discussions and recommendations to businesspeople is an excellent follow-up step that can contribute to trust-building and more fruitful relationships.
About the author
Colin German FBCS is Co-Founder and Senior Consultant at CMG Consulta, a boutique business consultancy working closely with startups, SMEs and family businesses to help them structure, plan and achieve their commercial dreams.
Colin has been a BCS Fellow for over 10 years and, through his work, tries to bridge the gap between technical people and businesspeople through translation, rationalisation and mediation. Should you want to discuss any of these concepts further, Colin can be reached on email@example.com
‘Business decision makers are constantly prioritising and deciding on which investment to make and which to drop, so an understanding of these concepts will help technical people be sensitive in the way projects are pitched and in the negotiation process with top management and boards.’