Finding IT strategies with a strong ROI

Finding IT strategies with a strong ROI

Published: July 18th, 2003

Rob Black is a consultant with the firm GSI Group and a member of both the national and Toronto boards of the Canadian Information Processing Society (CIPS). He shared his opinions as a CIPS board member.

IT Focus: What advice can you offer manufacturers, retailers and wholesalers in adopting new or new-to-them IT strategies in response to the competition they’re facing?

Rob Black: First of all, when someone starts talking about new IT strategies, you’re talking to a salesperson. Whether the person is a vendor salesperson or an IT guy in your own department who wants the latest or greatest, be careful. It is someone who has bought in and they are trying to get you to buy into it. You want to say right off the bat: ‘okay, how am I going to make money on this?’

My advice any time you’re talking to someone in sales is look really hard at the ROI. My example on that is do you really need real-time when current information will do? There is a difference between the two and you’ll pay for that difference. Do you need that difference? What’s the value on that difference?

Our ability to get at information corporate-wide has changed. I can get information that used to be considered my colleague’s personal information stored on his/her hard drive – I can now get at it from home! This is one of the ways that technology is making the information problem even larger because now I not only have my own information that I can get to, I have corporate information that I can get to. This move toward collaborative work and information is also going to allow a number of companies to address accounting issues and accountability. We see new regulations coming up [the U.S. Sarbanes-Oxley Act] whereby my new CEO has to sign off on all this information and all the accounting decisions. The CEO didn’t used to know where all that information was or even that we had all that information. And now we can actually share it and the CEO can find it and be held accountable for it. The SEC (Securities and Exchange Commission) here is beginning to do similar type rules changes.

One area where we see some of this collaborative work beginning to pay off is in the services area – the sales forces, particularly in the larger firms. Collaborative work does have an ROI. You’ve got some guy out on the road and here’s where wireless is going to come in and it will help enable this collaboration.

The sales guy will be able to turn around and say ‘I need two boxcars of X at my location Y; can you get them to me?’ Now you’ve got a collaborative process and people can more readily check all their warehouses across the country. Depending on the systems they had before they may or may not have been able to do that but this is getting better and better because of the collaborative systems that turn around and say ‘yea, but somebody else wants them; let me see what their priority is.’ That’s an improvement in collaborative systems.

IT Focus: So one can find a good ROI with wireless technology?

Black: Wireless is seen as a convenience. It’s not necessarily seen as something that’s going to save you money. Mostly when you switch to wireless it is going to be because you are upgrading your technology and your procedures and processes. The general changes that new technology will bring also bring changes to the business and that is where you’re going to find your savings.

The things that people are making mileage on are the move to Linux as your server and e-collaboration. You don’t have as many security issues with Linux as you have in the Microsoft world. It’s not just security in terms of the number of viruses out there and the ease with which people can get into Web sites, but Linux appears to be more robust than some of the other more commonly accepted operating systems. The neat thing about Linux is power. One Linux server can do what three other servers can do so you get a decrease in cost just on the hardware. And then there’s no licensing costs.

And also e-collaboration. People have managed to save money in those two areas.

IT Focus: Can you elaborate more on e-collaboration?

Black: E-collaboration is terrific when you’re spread across the country. It’s not just a matter of everyone using email. E-collaboration allows people to share a lot more information without going to direct, explicit actions. I don’t have to turnaround and send my colleagues all the leads that I’ve picked up in their territories and make an effort of keying that in and sending it to them. They will be able to look at my notes.

Documentum is a big player in e-collaboration and we see some growth in that area, particularly in the retail and manufacturing areas. Manufacturing, distribution and retailers have sites across the country. It really pays off for them. It is a reduction in communication and meeting costs.

IT Focus: Lotus Notes is another example of an e-collaboration player.

Black: Absolutely. Lotus Notes has developed into that. That’s an earlier example.

IT Focus: So the advice for someone looking to adopting e-collaboration would be…?

Black: It is an expense. Again, look at your ROIs, but I believe that is one area where they can find savings. This is for people that have offices distributed across the country.

IT Focus: What about e-procurement?

Black: I would say that’s one of the failures of the dot-com era when you’re talking about procurement portals. If you want to talk about e-procurement in terms of a retailer having a Web site and selling from it, different issue.

There are several examples of procurement portals where several examples of big players in Canada thought they could get there and put a lot of money into it. There were two big vendors there – Commerce One and Ariba – and both took big hits and were part of the meltdown. They sold cookie cutter procurement portals. There have only been one or two successes out there. As a rule of thumb, the cost of implementing and integrating didn’t equal the savings they were able to get in purchasing. Again, it’s an example of the ROI was not there.

The cost to implement was so much greater than the projected cost savings. The tool did not deliver the savings to the sellers the same way the buyers were hoping it would. There was an implementation cost on both sides of that equation and it just didn’t pay off. The market is highly efficient already. The portals did not replace anything or lower the cost for the vendors. If it didn’t lower the cost for the vendors, they couldn’t pass on the savings to the buyers. The buyers didn’t see a savings because the vendors did not lower their pricing because there was not an internal business process change that sped things up or lowered the cost there.

The other form of e-procurement – and I want to talk about Canadian Tire and Mark’s Work Wearhouse in terms of the Web site and selling it. There has been a lot more success there where bricks and mortar store has gone into a Web catalog. The two seem to go hand in hand very well. I am used to buying their product at the store and I know what the product is so I will feel equally comfortable buying a product I already know from a supplier I already know online. Whereas if it is something brand new that I’m not used to, they’ve got a bigger challenge trying to buy me over.

There are a lot of failures there too because people have not done enough user testing of the Web site. It’s a matter of not enough people doing the business analysis and user analysis. You have to have real purchasers walk through the site. Do not assume that everyone will happily put in the free plug-in such as Flash, such as Adobe. You have to make it as easy as possible for people to walk through and it has to be simple and fast, not graphically intensive and heavy.

IT Focus: What other challenges do you see Canadian manufacturers, retailers and wholesalers facing in integrating IT strategies?

Black: One area where you see people questioning things is on the security front, whether we’re talking viruses or hacking or just proper contingency planning. We see that coming through even in the tightest of sectors which is what I’d say we’re looking at now, manufacturing/retailing/wholesaling, I would say they’re probably looking at what would we do if our data goes down? What happens to all our employees if they can’t work? What’s our backup plan if our offices get flooded or there’s a fire and our servers go down? We have to get our data offsite.

You’re continuing to see streamlining in place. You’re beginning to see more people say ‘I can use XML to streamline my data management, data cost, data interchange situations.’ We’re so flooded with data so people are trying to not just get this data converted into knowledge but into manageable, usable, transferable widgets. So XML is continuing to grow. The other advantage of XML is that you don’t have to pay for it. It is like Linux.

IT is always a cost. Technology as a rule of thumb is not cheap. The real challenge is (a) being able to say ‘yes’ once you see an ROI and (b) trying to figure out is this ROI really worth it. And you have to look at your payback period. What’s an acceptable payback period? At one time, two years was an acceptable payback period. I know places where if it doesn’t payback in six months, don’t even bother submitting [the proposal] for approval. But most of the manufacturers are in a very competitive market and may not be able to afford not to accept new technology because your competitors are. Trying to deal with the money guys who are outside of the business is a challenge.