|
Use Information Technology as a Strategic Weapon! |
|
|
Use Information Technology as a Strategic Weapon!
By Ron Finklestein
Information technology should be an asset to a business and support the business through a clear definition of the role technology will play in the business. This is defined in the business plan.
Implementing a full technology strategy can have benefits that cascade throughout the organization. For example, a tactical use of technology might be where a company decides to build its own PCs using components purchased from local vendors because it thought it was less expensive to do it this way. When the true cost was analyzed, it became apparent that this was not the case: the component cost was less expensive, but the overall costs were higher. For example, when a machine broke and needed repair, it was taken apart, and the broken component was sent back to the vendor. The time to take the machine apart, the shortened warranties, the cost of keeping extra parts on hand and rebuilding the machine, when included in the total cost, made it clear that it was far less expensive to standardize on one vendor and buy those PCs than to build them.
On a more strategic use of technology, another company decided to purchase a software application. It assumed it could implement it itself less expensively than it could by engaging an experienced consultant. Seven years later, it was still not installed correctly. The company overestimated the skills of its employees, did not plan effectively, did not assign the correct resources to the appropriate activity and under-funded the project.
On the other hand, when a technology strategy is defined and implemented as part of the formal business plan, the risk is significantly reduced. The strategy needs to address:
- Company hardware and software standards
- Definition of roles and responsibilities
- Vendor performance management criteria
- Asset retirement strategy
- Buy versus lease analysis
- How technology supports the business plan
Let’s discuss how to create and implement an information technology strategy. The approach to information technology must first be addressed as part of the business plan. It must investigate and clarify the roles technology will play in the business. From an information technology perspective, there are only three kinds of projects:
- Those necessary to stay in business
- Those necessary to stay even with your competition
- Those that give you a strategic advantage
For our discussion, we will focus on the third type of projects, those that give you a strategic or competitive advantage.
But first let’s define strategic and competitive advantage. A strategic advantage can be thought of as redefining or changing how the game is played. For example, Amazon changed the rules for bookstores. Books can now be purchased online and shipped to your door very quickly and inexpensively. You can read what others think and track what other books were purchased when a specific book was purchased. For example, at the time of this writing, more books are sold over the Internet than are sold in bookstores. This knowledge certainly changed how bookstores function in order to attract and retain customers. Many of the smaller bookstores went out of business, and the larger book stores implemented coffee shops or cafes and invite entertainers to perform at their stores, all in an effort to attract and retain customers.
Wal-Mart is a great example of creating a competitive advantage through the strategic use of information technology. It was successful in integrating the supply chain and driving costs down. This savings was then passed on to Wal-Mart customers. It competes effectively on price and quality because of its strategic use of information technology.
A competitive advantage raises the bar in a specific market or industry. For example, if a manufacturer creates an innovation that allows a product to be produced for 20% less than the industry average, the rules haven’t changed but the bar has been raised to a whole new level. Other definitions of competitive advantage could be higher quality, lower cost, speed to market, or improved customer service.
What kinds of problems are suitable and can be addressed by the effective use of information technology? This is a broad question, and information technology (IT) can be used in many markets, on many kinds of applications and on many different kinds of problems. Some of the more effective solutions would address the following business challenges:
- Foreign / local competition
The challenges generally fall into the following categories:
- Manufacturing & high-tech firms
- Companies facing financial crisis
- Companies under heavy end user demand
- Highly competitive service industries
Many people mistakenly think that management understands IT and will use it effectively. Nothing could be further from the truth, especially in smaller companies. Management, through the effective use of strategic planning, must define the role IT will play within the organization. They must define critical processes and applications, return on investment hurdles and priorities of business objectives and budget. These include:
- What constitutes a hard dollar return on investment
- Are soft dollar benefits acceptable?
- What external/internal agencies/departments will be used for benchmarking?
- Where is the biggest impact to the business?
- How is the priority determined?
Hard dollars can be defined as activities that contribute to expenses being taken out of the business or money coming into the business that directly impacts the bottom line. Soft dollars impact the business but not directly. An example of a hard dollar savings would be the elimination of three people from the process. An example of a soft dollar savings would be to increase productivity of the existing staff so that more work gets done by the same number of people. No additional hiring is required.
How to Measure IT Value
IT does not typically generate value directly. IT adds value by enabling the productive and effective use of existing business processes. This is accomplished by defining the core processes within a business that impact the most and by providing the business objectives that cost-justify moving the project forward. Depending on the processes, the cost justification would include:
- Improving shareholder equity
Each of the business units has a different expectation on how IT should perform and where in the organization the impact would be felt most. For example, if your stakeholders for a specific application or project include chief executive officer (CEO), chief financial officer (CFO), directors, or business owners, the metrics they use to determine the effectiveness of a project might include:
If the primary stakeholder were the customer, a different set of metrics would be used to understand the value of a project to the organization. Some metrics would include:
If the value is in a business process that crosses multiple departments, divisions or organizational boundaries, value could be defined as:
Value can and should be measured differently within the IT organization. These metrics might include:
How do you appraise a situation?
If you have an immediate opportunity and want a way to appraise the opportunity within the organization, you can use the following checklist to determine how best to move forward. Use this only as a means to identify potential opportunities.
The first step in the process is to identify the opportunities and/or threats being felt. Once the opportunities/threats are identified, take the following action:
- Prioritize the opportunities/threats based on impact to the business plan, if a plan exists. Otherwise, assess the impact to the business overall.
The outcome of this analysis will be a list of the top two or three opportunities/threats on which the organization should focus. Once this is complete, take the following action:
- Determine the root cause of the problem.
- Define metrics for solution.
- Select a potential course of action.
- Create implementation plan.
For every technology intervention, there is a customer using the results of the solution implemented. Customers can be defined as either internal or external, so maintaining a customer focus, not a technology focus, is important.
Moving forward with a project
For customer-facing applications, such as (Customer Relationship Management (CRM), the focus is always on solving a business problem that relates to the customer. You have decided there is a problem and that you want to solve it. What steps do you take to reduce your risk and increase your opportunity for success? If you follow the steps below, you will be will on your way to effective and productive use of information technology.
- Define a measurable goal or outcome.
- Ensure the project aligns the business objective with the IT objective.
- Make sure you obtain executive support for the project.
- Let the business drive the functionality.
- Minimize (ideally eliminate) customization of the software.
- Use trained, experience consultants.
- Actively involve end users in the solution.
10 Critical Success Factors
There are 10 steps any business owner can implement to ensure the project progresses forward in a timely manner. The most critical is to ensure the project supports the business plan. If it is not solving a problem or satisfying an objective described in the business plan, why are you doing it? If the project directly supports the business as described in the plan, take the following steps:
- Create a vision for the project (impact/expected outcome).
- Define critical success factor. (How do you know you are done?)
- Define incentive to support the desired change. (Why is the project important?)
- Name one decision-maker who owns the results and give that person the authority for the project.
- Define skill sets needed.
- Determine if the skill sets will be employees or external resources.
- Find/train resources. (Don’t skip training.)
- Create an achievable plan (realistic, measurable and achievable.)
- Perform a risk analysis and create contingency plans.
- Measure progress. Adjust and be flexible.
11 Mistakes to Make to Ensure a Project Fails
As we look at the steps necessary to be successful, we need to spend some time understanding why projects fail. The failure rate of projects can be traced to specific actions. These actions significantly increase the odds of failure:
-
Approve a project that does not support the business or provide business value.
-
Don’t tell anyone what you are doing or provide regular status updates.
-
Don’t implement a change management procedure.
-
Don’t budget correctly. (Translated into vendor-speak, win the business first. Address the budget later).
-
Don’t use the right people.
-
Underestimate the amount of time the project will take.
-
Don’t do an implementation plan.
-
Don’t do due diligence on vendors.
-
Don’t write a contracts or statement of work that defines deliverables, outcomes, payment milestones, change management processes, budget, timeframe, required resources.
-
Don’t assign roles and responsibilities.
-
Don’t train the users.
Create a 90-Day Plan
We talked about the importance of IT to the organization and how to identify effective projects. We discussed the importance of following the proper methodologies for eliminating risks and improving the opportunities for success.
Let’s take a minute and determine what is needed to move forward to make the necessary threats/opportunities a reality in your business. What do you do first?
- Clearly identify the business priority of all stakeholders.
- Define the value you are looking for.
- Set metrics for measuring the value.
- Start measuring – Before, to establish a baseline, In an ongoing manner, to measure changes, After project completion, to see if metrics were met.
The Actual Plan
The action plan is broken down in three separate and distinct phases to allow you to take progressive steps. This planning process will allow you to learn at your own pace and get comfortable with the process.
Month 1 - Audit your processes to identify business inefficiencies.
Month 2 - Define and prioritize your company’s requirements.
Month 3- Evaluate and select technology vendors.
Month One of the Plan
During this first month, focus on identifying the speed bumps in your business.
- Review your demand planning strategy, tools and processes needed to forecast customer demand.
- Evaluate how your company manages and mobilizes working capital, inventory, cash and resources to fulfill customers’ sales orders. Assess the effectiveness of your company’s procurement and inventory management.
- Determine your ability to make decisions in real time.
- Analyze your business processes. Look for opportunities to automate manual processes to shorten the time it takes to move through the supply chain.
- Understand how technology could be used in a unique and special way in your business.
Month Two of the Plan
Define and prioritize your company’s business requirements and determine how they support the business objective documented in your business plan.
- Assess your findings and rank your business inefficiencies based on the costliness to the company.
- Categorize your business requirements in must have, like to have and nice but not necessary.
- Prioritize projects based on return on investment (ROI), cost and potential impact on the business.
- Present finding to stakeholders.
- Develop an accurate and realistic project budget and timetable to completion.
Month Three of the Plan
You have done your homework in the business. Now it is time to determine who can help you in a manner most consistent with your expectations:
- Evaluate and select technology vendors.
- Chose vendors based on:Technical expertise, Knowledge of your industry, Other requirements specific to your business
- Calculate full implementation cost, including:License cost, Training cost, Customization cost, Hardware cost, Software cost, maintenance, Support cost
- Determine the amount of disruption to the business.
Congratulations, you are ready to move forward with confidence because you have a roadmap. Remember, having knowledgeable partners reduces the risk and lowers your stress level. Do your homework, find the right partners and trust their judgment. Summary
Technology is here to stay. It is a core strength to many companies and is used in every company studied to solve a variety of business problems. Understand that the items described above may not be relevant to all businesses. Depending on your business’ size, some of the processes described above may be unnecessary. It is important to treat your IT organization as a partner in the business.
What to focus on when creating an Information Technology strategy?
When creating a strategy, it is important to have a Director work on and help create the initial strategy. Their leadership and “do it now” attitude are critical in gaining momentum in a project like this. The Director focuses on the business outcomes and the impact to the business. A Director should then pair up with a Thinker to peel back the details and help others understand the process necessary to implement the strategy.
End-of-Section Activities:
-
Does your business plan have a technology component?
-
Do you have a trusted technology advisor who can help you sort out what technology can work in your company?
-
Does the information technology installed in your company do what you need it to do? If it doesn’t, what needs to be changed?
-
Does your IT employee understand how to apply technology to solve your business problems?
-
Are you happy with your technology vendor’s performance and customer service? If not, what would you like to do about it?
-
Do you have and track software licenses for all users? Is the process defined?
-
Have you implemented project management tools and techniques? If not, why not?
-
Does your company have a technology asset management program?
-
Do you know what percentage of revenue you spend on IT purchases as compared to your competition?
Information Technology Assessment
Information technology is the application of computer systems, tools, software and project management techniques to solve business problems, drive out costs and increase productivity. Please rate your use of information technology.
| Information Technology |
|
|
|
Not Applicable |
Strongly Disagree |
Disagree |
Agree |
Strongly Agree |
| Does information technology do what you need it to do? If you picked agree or strongly agree, you can stop right now! |
|
|
|
|
|
|
|
|
| Do your IT employees understand how to apply technology to solve your business problems? |
|
|
|
|
|
|
|
|
| Are IT purchases designed to support your business plan? |
|
|
|
|
|
|
|
|
| Do you have and can you track software licenses for all users? |
|
|
|
|
|
|
|
|
| Have you implemented project management tools and techniques? |
|
|
|
|
|
|
|
|
| Are your projects consistently delivered on time and within budget? |
|
|
|
|
|
|
|
|
| Are your IT vendors performing to your expectations? |
|
|
|
|
|
|
|
|
| Do you know what percentage of revenue you spend on IT purchases? |
|
|
|
|
|
|
|
|
Are your IT projects designed to: Create or maintain a competitive advantage Maintain your existing market position Necessary to stay in business | |
