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How Can IT Help Competitiveness These Bleak Days? - Part 1

Written By: Predrag Jakovljevic
Published On: January 27 2009

A week before this past Thanksgiving holiday (US), I was invited by a long-term analyst relationship contact at SAP to listen to (via multimedia streaming) a panel discussion on a late Friday afternoon. The expert panel explored reasons for companies to maintain IT investment even (if not especially) during difficult economic times.

Bruce Richardson, the Chief Research Officer of AMR Research, moderated the event. The star-studded and well-rounded panel also included:

  • Leo Apotheker, co-chief executive officer (CEO) of SAP;

  • A secretary of administration for a large public sector SAP customer;

  • A chief information officer (CIO) of a healthcare SAP customer representing the small-to-medium business (SMB) market; and

  • Andrew McAfee, the Harvard Business School (HBS) professor who reportedly coined the moniker “Enterprise 2.0" and who has been a proponent of good use of IT for boosting competitive position.


The Harvard Business Review (HBR) article by Andrew McAfee and Erik Brynjolfsson entitled “Investing in the IT That Makes a Competitive Difference" was the main supplement and starting point of the discussion. In a nutshell, the panel logically (and not surprisingly) argued that enterprises should use IT solutions to innovate and create differentiation, especially during a difficult economy.

Moreover, the aforementioned SAP contact privately solicited my opinion on the extent to which these esteemed academics understand our industry. According to the “you asked for it” motto, here are my thoughts (albeit parlayed into a blog post to be shared with our readers too).

We Learn New Things Every Day

Well, for one, as an ordinary mortal, I certainly have insufficient hubris to put down a well-researched-for article by such a prestigious publication and authors. The article certainly reveals many valuable stats and figures that I might have intuitively expected but was unsure of the hard facts. For example, I did not know the exact numbers like those below:
“Corporate investments in IT surged during this time—from about $3,500 spent per worker in 1994 to about $8,000 in 2005, according the U.S. Bureau of Economic Analysis (BEA)… At the same time, annual productivity growth in U.S. companies roughly doubled, after plodding along at about 1.4% for nearly 20 years. Much attention has been paid to the connection between productivity growth and the increase in IT investment. But hardly any has been directed to the nature of the link between IT and competitiveness…”

Also, the case studies of renowned companies like Otis Elevator Company, CVS/pharmacy Drug Stores, Tesco, and Cisco Systems, Inc. were astutely selected to point out the following:
“…many companies the authors have observed gaining a market edge by competing on technology-enabled processes—carefully examining their working methods, revamping them in interesting ways, and using readily available enterprise software and networking technologies to spread these process changes to far-flung locations so they’re executed the same way every time.”

To gain and keep a competitive edge in this environment, the authors recommend a plausible three-step strategy:

  1. Deploy -- A consistent technology platform to be used throughout your company, rather than stitching together a jumble of legacy systems;

  2. Innovate -- Design better ways of doing work in your company; and

  3. Propagate -- Use IT to replicate those process innovations widely throughout your company.


The best candidates for innovation (and differentiation) are processes that:

  • Apply across a large swathe of your company (such as all your stores, factories, or delivery teams);

  • Produce results as soon as your new IT system goes live;

  • Require precise instructions (such as order taking or delivery);

  • Can be executed the same way everywhere and every time in your organization; and

  • Can be tracked in real time so you can immediately spot and address any backsliding to older versions of the process.


This strategy has since been embraced wholeheartedly by other large platform providers like SAP. Most recently, I saw the attribution to the strategy by Oracle during its National Retail Federation (NRF) 2009 BIG Show Conference & Expo presentation.

In any case, the HBR study highlighted CVS/pharmacy as a great illustration of IT innovations. The report pointed to the CVS deployment of IT to increase customer satisfaction by being able to fulfill prescription orders without delays. The pharmacy retailer did this by performing the insurance verification earlier in the refill process while the customer was still available (on the phone or in the store).

While I sometimes also get my family prescriptions filled by somewhat scandal-tainted Walgreens, a friend of mine that always uses CVS pointed out that perhaps CVS did this to avoid its employees wasting their time and money fulfilling orders for which customers couldn't pay. If CVS is such a good proponent of IT technology, why does it still require its customers to keep past receipts in order to get future discounts?

Why can't CVS maintain this electronic receipt information (or a content management system [CMS]) on a database for its local stores instead? We're all soon going to be like George Costanza in the "Seinfeld" episode with having to carry an exploding (“morbidly obese”) wallet. But I digress…

Besides, the theories and supporting stats about the industry concentration (much larger market share that is held by top 20 largest firms in low-IT vs. high-IT industries), market turbulence (i.e., whereby the top selling company one year might not dominate the next), and the performance spread (i.e., the gross profit margin contrast between winners and losers) made the article worth reading.

Additionally, after repeatedly hearing that companies should change or improve all their business processes first and then automate them with IT, I was at least pleased to see an authority point out that IT often plays an integral role in impacting the needed business process change in the first place. The message one often hears at conferences or in publications is that companies should get all of their business processes right (in a "big bang" manner), before considering IT solutions.

Remember the business process reengineering (BPR) frenzy of the early and mid 1990s? I think this can often be a seriously oversimplified advice, however logical it might be to “put the house in order first.” Ironically or not, we consistently see companies gain a far better understanding of their business processes specifically through the process of introducing specialized IT tools. Technology alone may not solve the problem, but it plays a much more integral and enforcing role than just automating the "best practices" after the fact.

Ifs and Buts

On the down side, however, I was honestly left wanting and expecting a bit more of the things I did not already know about (or at least suspect). Perhaps the panel and the esteemed authors are not to blame for my (overly) inflated and/or misguided expectations, in part due to my SAP contact.

Certainly, I will not sound as harsh as a curmudgeon friend of mine who also covers the space (who holds a doctoral degree from a prestigious university like the authors) and who is known by his regular brash criticism of vendors and their solutions and marketing moves.  He simply said:
“Well, I've read it, and it's nonsense, alas, or at least a painfully asinine way of dressing up the completely obvious so that it sounds new.”

At least, for one, the data provided in the article were not more recent than 2005, which might not be that useful during these extraordinarily challenging economic times. I look forward to the authors updating their study past 2005 (and far from better economic times then) and let’s then see what they might find out.

Maybe then the article would mention the following disruptive technologies of today, all of which are of increased interest as a result of the current economic downturn: software as a service (SaaS), cloud computing, virtualization, free & open source software, and social networks (computing)? To be fair, some of these technologies could be implied from within the article (if one can read in-between lines), but more about it later on.

But really, I am not sure how this panel discussion was particularly applicable to SAP and not to other enterprise applications providers (e.g., IFS, Lawson, or Epicor). Maybe the abovementioned large companies that were showcased in the article are SAP’s platform users? Oh, now I get the point, right!

What was in fact interesting to me was how the study implicitly supports the notion that enterprise resource planning (ERP) and other IT investments are becoming increasingly commoditized. Make no mistake, they are still hugely strategic, and the baseline on which companies improve and standardize their processes, but pretty darn horizontal.

It's like saying your business will run better with fresh air, electricity, and air conditioning.  There's not much of an argument for installing super high-end air purifiers on your heating, ventilation and air-conditioning (HVAC) system that makes the whole factory smell like, say, Christian Dior fragrances. True, most likely this “smelly” investment would not bring any return on investment (ROI) per se, e.g., increased worker and equipment productivity. But the main point here is that all every enterprise needs is air, which is still largely free and not really a differentiating factor.

So in a way, it might even be ironic that SAP was sponsoring the presentation of this research because its findings could even be anathema to SAP's business model over the past decades. We've been saying for some time that once you reach a certain level of feature, functionality, and/or technology ante, most ERP systems are more alike than not, commodities of sort.

That being the case, why pay a premium for one of the over-engineered Tier One packages, whose pricing has more to do with sustaining the legacy business model than a true awareness of market value? Nothing against SAP or the HBR authors, just playing devil's advocate here.

Lean Deja Vu?

Another industry-savvy friend of mine basically pointed out, and I concur, that: “this piece is a great textbook solution that is best read by 20-something fresh college graduates with the gleam of business desire in their eyes and their idealistic ‘change the world’ mantra fresh on their lips.” In other words, seasoned and jaded IT practitioners and market observers will naturally take a much more cynical and skeptical view.

With all due respect, but these Harvard academics might have hereby reinvented the wheel or repeated a well-worn argument that may be true, but is quite tired and said time and again under a new name every five to 10 years. In my 40-odd years I’ve read this same theme by business theorist William Edwards Deming, who called the combination of technology-enabled business processes total quality management.

Then came the Japanese-inspired Just in Time (JIT) theory and operational practices that have been around since the 1970s, but started getting worldwide PR traction in the late 1980’s and 1990s. Today we might be talking more about Lean Manufacturing (also not a new concept, but it might arguably be the newest of these few related and complementary principles and best practices). All these concepts and practices basically say the same thing:
“Improved Business Process + Supporting Technologies = Competitive Advantage”

Thou Shalt Improve Business Processes

OK, I concede that this message should perhaps never get tired and worn out: even my five-part blog post series on processes and the ability to be responsive talks in that regard. In fact, according to results from the 2009 CIO survey by Gartner Executive Programs (EXP), improving business processes is the top business priority, ahead of cutting enterprise costs.

In addition, British manufacturers that invested in IT and lean manufacturing solutions when times were good are now in better shape as the recession deepens, according to a survey on productivity published recently by Engineering Employers Federation (EEF), the UK manufacturers’ organization, and ERP vendor InforAnother recent blog post concurs that while the spendthrift ways of the late 1990s are not likely to return anytime soon, leading companies understand that under-investing in technology – particularly during lean times – can erode profits and cost market share.

In a recent TEC blog post, Larry Blitz convincingly opines that in the current economic downturn companies should be exploiting technology not only to drive down costs and increase efficiencies, but to also grab market share and get a leg up on their competitors.

Part 2 of this blog series will continue with the analysis of the article and the related expert panel discussion. Meanwhile, your comments, suggestions, experiences and so on are more than welcome. Do you (and how) plan to use software to leapfrog competitors in the foreseeable future?
 
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