[A-List] New economy bull

["Keaney Michael" <Michael.Keaney@xxxxxx>]

FT Boardroom - October 25 2001  

A waste of money?
By Andrew Fisher
Financial Times, October 25 2001

Frustrated executives have long chafed at the difficulties of working
out just how much their companies benefit - if at all - from costly IT
investments.

But now that economies are stagnating and most dotcom upstarts have
failed, they are taking a sharp and critical look at their IT systems
and strategies.

In many cases, executives do not like what they see. "The vast majority
of companies believe that they need to make improvements across all IT
value-related activities," says PA Consulting in a study called
Increasing business value with Information Technology.

PA also found that only 40 per cent of executives polled in Europe, the
US and Asia-Pacific had confidence in the business cases used to justify
their companies' IT investments.

John Little, a member of PA's global IT consulting group, is "stunned"
at these findings. "It says something about the real frustrations of
getting value out of IT, which are emphasised in the current climate."

Since IT is so central to corporate activity, the need to identify the
real benefits of investment is especially acute. Many companies wonder
what they have spent their money on - especially if they were spooked
into action by the threat of online competition - and how they can
control IT strategy without being left behind in the e-business race.

"We are seeing some backwash from the internet boom - there's a flight
to certainty," says Alisdair Milne, head of IT consulting for the UK and
Ireland at Cap Gemini Ernst & Young. Companies are also stretching out
some IT projects and slowing down their equipment replacement
programmes.

"Companies are becoming more rigorous. They are looking before they leap
when it comes to IT investment," says Chris Gant, a partner at KPMG
Consulting. "Companies have started to look at things more holistically
- seeing how any project links to other areas in their business."

But whatever approach they adopt, the challenge now is for companies to
make sure that their IT policies match their strategic aims. Chip
Gliedman, of US-based market analysts Giga Information Group, notes that
many companies devote nearly 75 per cent of their IT budgets to
maintaining systems and infrastructures.

This leaves only around 25 per cent for new projects. But on average,
only around a third of those, representing some 8 per cent of total IT
spending, actually deliver value. Thus, he says: "It is imperative that
IT aligns itself with the key corporate goals."

It is, of course, for companies to decide what their goals are. They may
want to increase market share, enhance profitability, speed up
innovation or raise brand awareness. Or they may be aiming at a
combination of some or all of these.

They are likely to have a variety of IT projects to help them achieve
their objectives, covering such areas as enterprise resource planning,
supply chain management, customer relationship management, online sales
and marketing.

PA recommends that companies should agree both what drives value in the
business so that IT can be used to best effect, and who is responsible
for realising the business value of IT.

"Many companies are frustrated by the practicalities and pressures on
their IT resources and find that the impetus for delivering business
benefits is lost after the financial investment and immediate project
deadlines are met," PA says.

Jack McMullan, also with PA's IT consulting group, believes companies
must measure the value they are getting from IT. "A lot of companies
just consider 'design, build and implement' and forget that the benefits
should be part of the overall project," he says.

Thus, they should look again at their IT projects to see if these are
achieving their purpose. In some cases, companies may need to spend more
on some projects to obtain long-term value.

Managers are now subject to a bewildering array of influences and
expectations. At the same time as they are being asked to improve
performance, corporate budgets are under extreme pressure.

"The number of constraints on the IT side is increasing massively," says
Andy Jerram, London-based senior vice-president at United Management
Technologies, the US consultancy. "There is a need for reprioritisation
and reoptimisation."

Awkward though these words may be, they highlight the challenge of
thinking hard about what IT strategies are supposed to deliver and then
realigning these to business goals.

Companies should look anew at their objectives. These may have changed
in the light of changed circumstances. "Maybe a year ago, revenues and
market share were at the top of the list," says Yorai Linenberg, a
partner at UMT. "Now, it may be cutting costs and improving margins."

But even if the objectives remain the same, "reprioritisation" is still
necessary, he adds. IT projects should be scrutinised to see if they are
contributing the intended value to the business. This should not be a
one-off exercise, but be carried out regularly.

For many companies, this is a far cry from the rushed investments
indulged in during the dotcom and e-commerce phase. "The problem with
the e-stuff was that it was blind spending," says Mr Gliedman. "Now, it
has to be more 'where are we trying to go as a business?'."

A firm business case has to be established for any investment. "'If we
don't do it, we will die' is not a business case - a threat is not a
business case."

Mr Gliedman warns against treating technology as a separate entity.
Wholesale cuts in the IT budget could prove a false economy if business
efficiencies are hampered. These could also ignore crucial links between
projects. For companies wanting to improve performance without
jettisoning existing IT systems, the use of middleware programmes to
integrate functions is becoming increasingly important. This enables
businesses to retain flexibility without being locked into expensive
upgrades.

Despite the renewed emphasis on caution, safety and value, companies
have not lost the will to experiment. But they are less likely than a
year or so ago to commit large sums to projects with only vague payback
prospects. This is not a time for bold leaps in the dark.

Full article at:
http://specials.ft.com/boardroom/FT38P3IG4TC.html

Michael Keaney
Mercuria Business School
Martinlaaksontie 36
01620 Vantaa
Finland

michael.keaney@xxxxxx