Technology is supposed to help businesses, but even big companies can find themselves spending money without a return. There are competitive advantages waiting for you, if you spend wisely. Some up-front analysis with an eye to your industry, competitors and business processes will make your investments pay off and help you avoid those that won't.
"The amount a company spends on IT is a poor indicator of IT functionality and business impact," says a recent report on midsize company spending by Keystone Strategy Inc., a market research firm with offices in South San Francisco and Waltham, Massachusetts. After interviewing 600 companies, Keystone concluded that organizations with IT strategies tightly integrated with key business processes typically grow faster, with more profit, than those lacking real technical savvy. "This enables them to grow their revenues and their profits faster than competitors," the report says.
Managers must also think beyond what happens within the four walls of the company. Several executives interviewed for this story offered their own insight into how to make IT investments pay off. Robert Tuchman, CEO of New York-based sports marketing company TSE Sports & Entertainment, says, "You must have the technologies that are going to impact your business the most." That means identifying where your business really needs the help.
Know your business. Find the potential critical intersections of technology and processes that will impact your operations. And be willing to research and learn more. Tuchman is considering specialized purchasing software that costs between $30,000 and $50,000. The company needs services and supplies for events it runs and also carries sports merchandise for inventive programs it runs for some clients. But he noticed that inventories sometimes ran high. After examining the purchasing history, Tuchman found that some purchases were happening more than once, and the existing software didn't alert managers to the potentially unnecessary spending that was running between $30,000 and $60,000 annually. That justified acquiring a more sophisticated purchasing system that would produce a 100 percent return on investment in a year.
Focus on hard benefits. Soft benefits like generalized promises of freeing time for more productive uses can sound good but may not add much to the bottom line. Consider a sales order entry system that saves five minutes per sale. "If you were able to process 500 more transactions [because of the savings], that would be great," says Barry Steinberg, CEO of Direct Tire & Auto Service, headquartered in Watertown, Massachusetts, with three other locations. But that won't excite yacht dealers who make their money not by shoehorning more transactions into a single day, but by guiding customers through an extensive sales cycle for incredibly expensive items. Recommendation: Cast a skeptical eye to soft benefits, and try to find enough hard benefits to at least justify the cost a new system. If you get unexpected, additional benefits, consider them a happy surprise.
Undertake a financial analysis. It may seem obvious, but many managers fail to take this step. Rather than analyzing the upside in quantifiable data, "too many decisions are made on look and feel, sometimes gut feel," says Gerard J. Presepe, vice president of ComputerCare Inc., a Cranbury, New Jersey, vendor of manufacturing software for the apparel industry. But go with the wrong gut feel and the waste of money could leave you nauseous.
Tap into the expertise at hand. Getting to the specific bottom line can be difficult and require more than one set of eyes to challenge assumptions and find places to apply technology. Luckily, managers have many allies in identifying waste and areas of improvement. Employees handling specific functions are often the first to see wastes of time and money. A more encompassing look at their observations can offer clues as to the systems most in need of a change. The head of IT is one employee in particular who should be able to blend company mission and values with technology, according to Brian Young, vice president of information technology at Creighton University in Omaha, Nebraska, and a consultant. For example, the CIO of a company doing significant overseas business might look at easing communications expenses. "You can see the return on investment that voice over IP would offer vs. paying the phone bill each month," he says.
Look for opportunities based on your own experience. Rely on your understanding of the business, your industry and your customers. At a trade show about five years ago, Steinberg saw a system that could display an image of the model of someone's car, in the correct color, and add custom wheels. "I didn't spend more than three minutes with the guy before I made an order," he says. "I knew this would excite my guys and make it easier to sell wheels to people." Steinberg didn't need the long analysis because the price was so low—under $700 for all four stores at the time—that recouping the investment would be a matter of a few sales. Yet he still counsels taking as much time as necessary to make a decision. "Business changes more slowly than technology," he says.
Think outside the box. Managers must also think beyond what happens within the four walls of the company, considering customers and their perceptions. ComputerCare had to update its Web site, which lacked such features as product demos and company background. "It [became] painfully obvious that what we had was very outdated, and we needed to make a change," Presepe says. Prospects comparing the Web site with those of competitors might have concluded that ComputerCare and its products were behind the times.
Look outside the mainstream. Once you decide that software will help you gain a particular advantage, don't be too swayed by mainstream press accounts of products in that category, which often focus on market leaders catering to big corporations. In virtually every category of product, there are vendors that focus on midsize companies and that emphasize the practices of specific industries with their software. Application service providers that essentially host their applications and rent out the capabilities to clients can also offer technology at prices that work for midsize firms.
Don't overlook hidden costs. You might have to pay additional software licensing fees to cover all employees who must use a particular product. Some companies charge an annual maintenance fee that may or may not include the cost of a future upgrade, and you might need some consulting time to tailor the application for your particular business requirements. Other costs to consider include training programs and the loss of productivity that could occur as you transition from one way of doing business to another. All factor into this complex weighing of benefits against costs.
Get ready to do it again. Once you have found and implemented an IT investment that makes sense, congratulate yourself and get ready to start all over again. Every time you improve your processes and systems, you open the door for potential new investments, because the shortcomings of other areas of your business become clearer compared with the newly improved parts. And that means the chance to earn more profits.
Erik Sherman is a contributing writer for Momentum, the Microsoft® newsletter, magazine and Web site for midsize U.S. businesses. He writes about business and technology from western MA.
Last Updated: Thursday, February 16, 2012; at 12:43:37 PM
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