META Trend: Through 2005/06, Global 2000 organizations will concentrate e-business efforts on optimizing and driving consistency across direct and indirect sales relationships, emphasizing enhanced channel efficiencies, collaborative planning and selling, customer retention, and new product introduction. Vehicles will include extranets, private or consortium Net markets, and portals.
Fiscal restraints have forced many companies to leverage existing IT investments to the greatest extent possible. This has helped reduce vendor and system proliferation and helped companies exploit economies of scale.
As e-business initiatives have been primarily tactical, limited to small cost-cutting and ad hoc projects, most companies are not yet willing to abandon fiscal restraint.
However, industry leaders are beginning to revitalize their strategic thinking. Through 2003, e-business expenditures were limited to core and non-discretionary investments (forced expenditures caused by regulatory compliance, expansion, or the need to replace outmoded or worn-out assets), but this began to change by 2004, where companies have or will once again shift a portion of their budgets to discretionary and strategic investments.
Investments in customer-centric e-business investments such as CRM and Web commerce will begin to increase in the coming months and into next year. By 2006 or 2007, supply chain investments will dominate general IT and e-business budgets.
These trends, and their implications for e-business investment strategy, will require that companies become proficient in portfolio management.
Many leading Global 2000 (G2000) companies have successfully deployed e-business initiatives (e.g., external processes improvements with supply partners and customers) by taking risks and investing in emerging or enabling technologies. Their results have generated measurable benefits — hard-dollar savings in process improvements, time savings, and innovative products — as well as less measurable but certainly perceivable benefits in soft-dollar productivity gains such as ease of use, quality improvements and customer satisfaction.
Unfortunately, many companies have failed to realize these benefits.
This can be attributed to several issues — incomplete business process engineering efforts in the beginning process design, subsequent customization during implementation, training and marketing among them. But our research indicates that a common characteristic of most failures is deficiency in the management approach.
CUSTOMERS FIRST, TECH LAST
Many planners have failed to adequately address the characteristics of targeted users (customers, suppliers and even employees), and instead have focused on deployment of a software package as the solution design point and business objective. A typical example of this project management-centric approach, seen within many IT organizations, is the implementation of various high-profile software packages (e.g., ERP and CRM packages from Siebel, SAP, i2, et al.), with the assumption that conclusion of the implementation represents achievement of the business objective.
To be highly effective in the future, companies will instead manage an e-business portfolio targeting specific constituencies as design points and use IT portfolio management principles. Of course, it is not pragmatic to move completely away from traditional IT project-oriented deployments. ERP and many aspects of supply chain management (particularly internal manufacturing, production, and operations systems) will continue to be crucial foundations supporting e-business portfolio management.
Portfolio management defines three strategic business drivers that help guide investment strategy: investments that run, grow, or transform a business. Our research indicates that most companies (65 per cent) have created strategy to run their businesses more economically, with far fewer companies engaged in growing (20 per cent) or transforming (15 per cent) their business.
By 2006 or 2007, we believe the strategic emphasis will shift, with 40 per cent of companies emphasizing economic performance, 30 per cent targeting business growth and 30 per cent engaging in formidable transformation initiatives.
Portfolio management will help planners by specifying how companies should allocate budget across various classes of assets (i.e., core, non-discretionary, discretionary, investment, and venture). After defining a strategic direction, planners must then balance tactical and strategic expenditures by allocating budget across operational assets and investment opportunities. We note the following trends among G2000 companies:
• Core operational assets (e.g., necessary expenses to enable the e-business initiatives): we note that budgets remain fixed or are growing slightly (four to eight per cent) for e-catalogue content life-cycle management.
• Non-discretionary assets (e.g., forced expenditures caused by regulatory compliance, expansion, or the need to replace outmoded or worn-out assets): although concerns over privacy and taxes vary by industry and geography, these concerns may take their toll on IT budgets, particularly for North American companies pursuing European and Asian business, if legislative agendas shift from their laissez-faire approach to more heavy-handed regulatory patterns. Planners should be prepared to increase budget by five to 10 per cent.
• Discretionary assets (e.g., required to upgrade or replace existing platforms, application versions, etc.): we see a slight budget increase (two to five per cent) in maintenance updates for sell-side commerce packages (e.g., improvements to J2EE or .Net architectures) that lower application maintenance costs.
• Strategic investments (e.g., to support a business growth or transformation strategy — CRM, product life-cycle management, supplier relationship management, etc.): we have observed small investments in reverse-auction technology, tools that support negotiation management (e.g., automated request-for-proposal tools), and some contract management platforms. Internet EDI is currently in strong demand. Yet few enterprise-class strategic initiatives are on a par with ERP implementations, for instance.
• Venture investments (e.g., used to incubate future business opportunities or experiment with the transformation of business models or product/service lines): few venture investments are being considered. Resources previously reserved for speculative or incubator e-business projects (e.g., Net markets) have been channeled back into core, discretionary, and non-discretionary assets.
As effective e-business strategy minimizes redundancy and helps align business objectives by building organizational consensus to clarify rank and prioritize e-business investments, portfolio management can help planners balance the IT budget across tactical assets and strategic investments that run, grow, or transform a business. These techniques will be vital to e-business initiatives.
— Lehman is vice-president in META Group’s Enterprise Applications practice based in Duxbury, Mass. covering extended supply chain management strategy, inter-enterprise integration, and supplier management. Helmer is vice-president for META Group Canada heading up its Strategic Solutions practice in Toronto.