23 November 2008

Extending the Power of Your Information Technologies

In today’s exceedingly challenging business environment, it is becoming increasingly important for executive management to establish corporate strategies that include extending the reach and power of the organization's information technologies beyond the four walls of the firm. If your company is not building "communities" of customers or con-necting with your vendors and customers in real time up and down your supply chain, then it is likely that you are falling behind your competition.

No Technology for Technology's Sake

I am not advocating new "gee-whiz" connections beyond your enterprise just so the CEO can brag about them on the golf course or in the steam room at the club. Before embarking on a spending spree to extend your IT systems beyond the walls of your enterprise, it is important that you determine what you want to accomplish by moving forward with such efforts. Generally speaking, the valid reasons for investing in the extended enter-prise may be reduced to three fundamental categories:

1. Increasing throughput,

2. Reducing inventories or the need for new investment, and

3. Slashing or holding the line on operating expenses.

Let's consider some of the thinking that might go into such an analysis.

Increasing Throughput

When considering increasing throughput, your team should ask questions like these: Could a CRM (customer relationship management) system, a corporate blog or forum, or other enterprise extensions improve our ability to connect with our customers? Could such efforts improve our comprehension of our customers' needs enough that fresh new insights would result from understanding them better? Could the new insights lead to improved products, enhanced market segmentation, and the ability to create superior win-win offers?

If the answers to any or all of these questions are affirmative, then the next step would be to quantify the estimated impact and to set specific goals for any investments in new technologies. Each individual part of the IT investment plan should be directly correlated to expected quantifiable results. How many new customers will be added? How many additional sales to existing customers are to be expected? What additional market share are we likely to gain as a result of these efforts and investments?

Reducing Inventories or the Need for New Investment

The questions that should arise regarding inventories or investments should be along these lines: Will improved supply chain visibility with our customers allow us to better manage and reduce the volume of inventory lying between our manufacturing plants and our products' end users? Will linking our inventory systems with those of our suppliers allow us to reduce lead times and, as a result, reduce the amount of inventory we keep on-hand? Will improved end-to-end supply chain linkages reduce losses due to obsolescence and shrinkage?Again, if asking these questions leads to some "yes" answers, then the organization should take steps to quantify the benefits that are likely to accrue to the organization from reduced carrying costs, managing and handling less inventory, and (if true) the reduction in a potential investment in additional warehouse or production space, for example.

Slashing or Holding the Line on Operating Expenses

Generally, this area faces a two-fold battle: First, most organizations today have already done all the cost-cutting that they really can (or should) do. This is no longer the 1980’s – the heyday of cost-cutting as U.S. industry was struggling against the onslaught of Japanese products. Second, when you are talking about implementing new technologies, it is really difficult to get buy-in from your organization if the move is likely to lead to a significant reduction in the workforce.
However, results stemming from efforts to increase throughput (revenues) and reduce inventories are likely to drive growth, on the one hand, and internal improvements, on the other. Normally, then, a case can be made on the basis of these combined factors (i.e., growth and internal improvements) that your organization can support 30%, 60% or even 100% growth in the near future with little or no growth in operating expenses. The net result is often estimated and stated as savings in FTEs (full-time equivalents, i.e., the average cost of a full-time employee). In this way, the effect of “holding the line on operating expenses” may be properly factored in to the benefits accruing from investments in new technologies.


There is no longer a place for business as usual. In today’s highly competitive markets – driven to a significant degree by the international reach of the Internet and other technologies – every business owner, CEO, and CFO should be considering how extending their information technologies beyond the four walls of their enterprise might lead to in-creasing throughput and reducing inventories, while holding the line on operating expenses. However, every investment in technology should be carefully planned, be geared to achieving measurable goals, and fully aligned with the enterprise’s strategic and tactical objectives.

©2008 Richard D. Cushing