Investing to capture value

Posted on December 20, 2004 
Filed Under Julian, The Edge

INVESTING IN IT TO CAPTURE VALUE

In today’s competitive business climate, IT investments have fallen to budgetary concerns. But in fact, investing in IT now, more than ever, can create value for the future.

By Lim Beng Choon

I have a bone to pick with my previous bank. After moving house, the bank continued to send my statements to my old address despite repeated attempts to inform them of the change. Several letters and phone calls later, I moved house again—but the bank continued to send my statements to the old address.

There was only one thing to do. Close my account and move my business elsewhere.

How many of us have similar frustrations with our financial institutions?

Is this a case of technology gone awry? I beg to differ. It is easy to blame technology as the scapegoat. My previous bank is in the same boat as other  institutions and businesses across the country. The crux of the issue is acquiring the mindset to make IT investments part of building new business capabilities.

Successful IT projects have strong ownership under key business leaders and are a critical part of differentiating one business from another.

A recent Accenture study reveals that most companies have reduced their technology re-investments by half in the past three to four years, the drive to cut costs passes the burden of outdated, poorly maintained infrastructure onto employees and customers ( as in my case above).

Can a business today sacrifice IT investments and still continue to innovate, raise productivity and add value to its customers? The answer is an emphatic “No”.

TAKING THE HIGH PERFORMANCE VIEW

High-performance businesses have a different perspective on technology investments. They actively watch for opportunities to create business value not only in the short term but also in the long term.High performance businesses leverage IT for distinctive business capabilities.

They look, in addition to annual cost savings, other benefits such as improved sales capability, superior visibility of customer billings, better profiling and reduced time-to-market.

These companies then measure investment and risk so rigorously that they are able to predict which projects will exceed return-on-capital hurdles.

According to the same Accenture study cited above, companies with the best earnings growth re-invest up to 10 percent more of their technology budgets on upgrading to newer technologies than companies with average earnings growth. These companies do so to stay one step ahead.

COMPETING GLOBALLY

The World Economic Forum (WEF) recently published the annual Global Competitiveness Report 2004-2005. The countries ranked highest included many of the Nordic nations Finland, Sweden, Denmark, Norway and Iceland as well as the USA, Singapore, Japan and Taiwan.

Is it a coincidence that these very nations also feature on top of global lists for highest cellphone penetration, Internet access and ICT adoption? Successful corporations within these countries know that innovative application of new technology often produces the breakout new product, service or business model.

For example, in the US, retail giant Wal-Mart has begun to adopt radio frequency identification technology throughout its business systems. It wants compliance from all its top suppliers to have RFID tags on all pallets and cases by next January.

Courier giant DHL plans to also go global with RFID tracking for the millions of packages it handles each year.

Zara, the Spanish clothing manufacturer and retailer, has it’s store managers send customer feedback directly to the company’s in-house designers via handheld devices. As a result, Zara can deliver new styles in three to six weeks, compared to up to five months for competitors. Small wonder that Zara has enjoyed 20 percent sales growth for more than a decade, along with consistent, industry-leading 10 percent profit margins.

US carmaker Saturn generates return-on-sales revenues that are twice that of other GM brands. The company also has the highest percentage of car owners who go to the dealer for repairs, rather than to independent repair shops. The keys to Saturn’s service success are its powerful information systems and its ability to integrate service operations and parts-supply processes with the demands of its retailers.

In the Iraq conflict, RFID technology was used on a huge scale with all material sent to the Persian Gulf tagged for fast, easy tracking. For one unit, the time required to take inventory of incoming equipment shrank from two or three days to 22 minutes.

Converged with other technologies, such as sensors, remote cameras, wireless devices, GPS, network systems and real-time databases, RFID creates a new layer of infostructure of exciting possibilities. How companies gather, analyze and make decisions based on this type of data will translate to enormous payoffs in customer service.

PROFILING CUSTOMERS

In the telecommunications business, IT plays a crucial role in its transformation. The industry is plagued by stiff competition, rising customer churn and decreasing margins.

Billings is a critical function in the revenue-generation process. With the right billing systems in place, network operators can track spending and target discounts, rewards and new products and services to its most credit-worthy customers.

I was pleasantly surprised recently when my mobile phone service operator called me and offered me a free phone because my profiling suggested I was a “very valued customer”. There was no catch to it. I didn’t have to do anything.

Similarly in the retail side of oil and gas industry, there is the technology to profile customers with loyalty cards. Without the technology it is difficult, for example, to understand who is willing to spend on premium versus normal fuel and to direct your marketing and advertising campaign to generate such sales.

IT FACTORIES

High-performance companies also take a different approach to the procurement of technology solutions — an approach that now closely follows the model of the manufacturing sector.

Like manufacturing, purchasing IT solutions is slowly moving from customised craft shop to automated factory; from doing everything in-house to taking advantage of labour costs offshore.

CIOs today face similar dilemmas to manufacturing powerhouses of 70s and 80s: How can a high-performance solution be developed quickly and at low cost sans the defects?

High-performance companies have moved toward the new industrial/outsourcing model and are reaping the benefits. General Electric, for example, was among the first large companies to establish 24-hour customer service and IT operations. “A truly global company will be one that uses the intellect and resources of every corner of the world,” said the legendary boss of GE, Jack Welch.

The Internet has enabled many corporations to send portions of their information-based work offshore.  Accenture analysis suggests the “follow the sun” model can decrease project cycle times by 30 percent (and up to 50 percent for some applications delivery processes) and increase existing programmer productivity by 30 percent.

USING TECHNOLOGY WISELY

The best companies invest in IT with an eye toward strategic goals. High-performance companies continue to value technology innovation, both at the front end, where IT operations themselves are designed and executed, and at the back-end, where information-based products and services perform in the marketplace.

They recognize the value of investing in IT to leverage emerging technologies to launch a new product, service or business model for customers.

Ultimately, of course, on your journey to high performance it is what you do with technology that matters - how creatively you put it to work, how you build upon it, and how prepared you are to ride the coming wave.

(Editorial services by Trinetizen Media Sdn Bhd for Accenture)

NEXT MONTH: Boosting human performance

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