Outside the box
Forget 2002 at your peril. For many, the past year will be one they would be more than happy to forget. To do so, however, would be to lose a major opportunity to learn a few good life lessons.
The first big lesson seems to be that you need to test and re-test your key assumptions on a regular basis – and each time, be prepared to throw away some of those assumptions altogether.
Consider, for example, the plight of any corporation in 1999 that set out on a three year journey to evaluate, select, plan, implement and then quantify the benefits of a major CRM (customer relationship management) or ERP (enterprise resource planning) system. How likely is it that business assumptions made in the wild summer of 1999 will have a great deal of relevance in the dying days of 2002?
Many of those companies will have had to significantly modify what they expected to achieve with their solutions. If they have restructured, retrenched or re-focussed (and there are few companies that have not done so during that period), then the solution will have had to evolve to recognize that fact. Otherwise you would be in the absurd position of having a solution that perfectly met the needs of what your company used to be – and had little relevance for the company it has since become.
So the key message here lies in the notion that technology-based business solutions must be flexible, responsive to changing business conditions, and be capable of delivering business value incrementally (so that a business doesn’t have to shell out cash constantly for three years before seeing a benefit).
Unless solution providers hear and understand this message, they will find it much harder to melt the current freeze on capital spending that exists at many customer sites.
One senior executive at a Canadian tech company, for example, told me recently that his firm is only succeeding in making sales in situations where the cost savings achieved by the solution in its first year will entirely fund its purchase, implementation and adoption. Unless that’s the case, customers are not interested.
Another vital lesson from the ashes of 2002 is that providers of IT solutions need to have some elements of their business that live outside of their customer’s capital budget. That is why many software and hardware companies are putting more effort into their professional services organizations.
Consulting services also help IT companies to stay in touch with the ongoing needs of their customers. It is no longer acceptable to “load and leave.” Customers increasingly expect higher levels of service – and they reward that service with continuing business.
The other important thing to remember is that consulting services can carry higher margins than simply selling hardware or software licences. Most companies don’t make a lot of margin on hardware – and the selling of simple “per seat” software licences is also getting increasingly competitive. And that is why solution providers can deliver the greatest profit margins to themselves – and fully contribute the value of their experience to their customers through consulting services.
NO ONE ELSE CAN TAKE YOU TO PROFITABILITY
The final moral of the 2002 fable is that you can no longer count on anyone else to subsidize you until you reach profitability. Public markets are all tapped out. Meanwhile, private investors will now typically want to wait until you have a dividend to share with them before they start writing cheques.
Any slowdown or detour on the road to profitability is severely punished by the markets. Although it would be nice to think that a business should operate without respect to the vagaries of the stock market, the fact is that a low market valuation can undermine the confidence of customers as well as investors.
You only have to look at the recent turmoil suffered by Ottawa-based Corel Corp. to see the way this scenario operates.
Despite the company’s relatively strong cash position – and a range of upcoming new products (including applications for Microsoft’s Tablet PC platform) – Corel’s share price has dwindled to around the $1 mark. As a result, the company had to make some bold moves on Nov. 6 by announcing a significant reduction of its workforce as part of a plan to streamline operations and increase efficiencies.
Corel said that its action represented “a significant step forward in the company’s goal to return to profitability and generate positive cash flow despite the persistently soft economy and weak spending in the IT sector.”
The company slashed its global workforce by 220 employees – or approximately 22 per cent.
“Corel has made a commitment to run the business profitably regardless of the prevailing economic conditions and the measures we have implemented today position us to achieve that goal,” said Derek Burney, president and CEO of Corel, in a statement that underscores the no-one-else-is-going-to-do-it-for-you message. “(These) actions are necessary for us to realize the company’s ongoing strategy to build long-term value for our shareholders and continually improve the experiences of our customers.”
A BRIGHTER 2003?
At the riskof bringing down a curse on the entire industry, it’s probably fair to say that things can’t get much worse than they were in 2002. Spending cannot stay frozen forever – and there isn’t a whole lot of room left for many of the biggest losers to fall. It may turn out to be tough, but at least 2003 will start with an understanding by many that they have learned lessons in 2002 that will help them through any future challenges.
Wheelwright is a freelance journalist, author and broadcaster. He most recently served as editorial director of StockHouse Media Corp.