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
* Deregulation
* Globalization
* Mergers & acquisitions
* Increasing productivity
* Expense control
The challenges generally fall into the following categories:
* Manufacturing & high-tech firms
* Deregulated companies
* Mergers & acquisitions
* 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:
* Cost benefit analysis
* 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:
* Reducing cost
* Improving productivity
* Increasing throughput
* Increasing market share
* 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:
* Revenue
* Net income
* Cost savings
* Earning per share
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:
* Customer satisfaction
* Customer retention
* Customer profitability
* Customer service levels
If the value is in a business process that crosses multiple departments, divisions or organizational boundaries, value could be defined as:
* Cycle time reduction
* Productivity increase
* Reduced cost
Value can and should be measured differently within the IT organization. These metrics might include:
* Transactions processed
* Staff required
* Overall cost
* Deadlines met
* Maintenance cost
* Training costs
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.
*
Determine the seriousness of the threat or the impact of the opportunity.
*
Make a decision about the urgency of the threat or the potential of the opportunity.
*
Perform problem analysis to validate seriousness, urgency and impact.
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.
* Brainstorm solutions.
* Select a potential course of action.
* Perform risk analysis.
* Determine budget.
* Create implementation plan.
* Assign resources.
* Assess skill sets.
* Implement 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.
* Invest in training.
* Measure, monitor, track.
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