Down But Not Out

The early 2001 numbers from Wall Street showed corporate earnings tanking and many companies cutting back on capital spending. Where does this leave new IT investments? Down, but definitely not out: companies are spending smarter; and they are adjusting technology priorities, tactics and timing to set a fresh course for 2002.

[From iSource Business, September 2001] On the one hand, Corporate Express' recent investment in a customer relationship management (CRM) system makes a lot of sense: As part of Buhrmann, a multinational company, Corporate Express is one of the world's largest B2B suppliers of office and computer products. Additionally, its proprietary e-commerce system, E-Way, does some $635 million in business each year, with online sales increasing around $3 million every month. With the growing trend in e-procurement for office products, it is clear that, in order for us to best meet the needs of our customers, we must continue to invest in e-commerce tools, says Guy Manuel, vice president of e-business at Corporate Express.

On the other hand, the investment makes no sense at all: The economy, while not exactly in free fall, has certainly slowed down. Corporate earnings have tanked, and there is clear evidence that companies are curtailing their capital spending, especially in software and hardware investments. Indeed, the U.S. Commerce Department recently reported that business spending on capital equipment, which has grown an average of 15 percent a year for the last three years, contracted in the fourth quarter of last year. Spending on such information technology (IT) software as CRM, enterprise resource planning (ERP) and supply chain applications exhibited the sharpest drop  some 6.4 percent in the first quarter of this year from the previous quarter.

It does appear that companies have stopped spending, at least for the moment, says Rob Austin, a Cutter Business Technology Council Fellow and assistant professor at the Harvard Business School. But I have advised people in recent months not to view what has happened in a bad light and completely shut down all information technology spending plans, he says.

Anecdotal evidence does suggest, however, that companies are not taking such drastic reduction measures, although they are being cautious. Now there is this attitude that everything dot-com sucks. But the world has changed forever. Especially in the supply chain arena, there is a lot of value still to be added, Austin says.

And indeed, here and there, amid the depressing government data and dismal earnings reports of such companies as Oracle, i2, Ariba, Commerce One and SAP, there are indications that companies are continuing to spend on information technology; it's just the priorities, tactics and timing that have changed.

Spending Smarter

One major indication that IT spending is not dead can be found in a report recently released by The Business Council, a Washington, D.C.-based group of 257 leading U.S. companies. Despite the faltering economy, only one-third of U.S. CEOs cut spending on high-tech projects, while more than 10 percent accelerated such investments, according to the Council's survey of top executives. Almost all the respondents note that IT spending in their companies has increased over the last few years and, as a result, productivity and efficiency have improved.

I don't see companies cutting back so much, says Bob Ferrari, research director at AMR Research. The interest level in supply chain applications remains high, since it has been proven they can deliver cost savings, competitive advantage or both. That is still there. What has changed, he says, is the timing. Companies are taking longer to make their decisions, now that the pressure is off. A sales cycle that took two to three months a year ago might now take six to nine months, spilling over into next year.

Companies are also becoming wilier in their cash management, Ferrari says. By breaking projects down into pieces, a company might chose to implement one application that will deliver an immediate payback and use those returns to fund the next phase of the project. The smart ones are trying to self-fund their way forward as much as they can, he says.

Companies are also taking a second look at their current IT spending, wringing out waste and excess cost in order to free up revenue for other projects, says Tom Mangan, a partner and U.S. co-leader in Andersen's Business Consulting Enterprise Technology group. That might mean renegotiating a telecom agreement or looking at selective outsourcing. A CEO can find 30 to 40 percent of the cost for a new project, just by squeezing out the inefficiencies.

Here are some other tips to help you stretch your company's IT dollars.

Picking the Right Applications

TechRepublic, a Web-based information resource on IT trends, found that 70 percent of IT executives surveyed said their budgets were the same or only moderately higher this year as compared to last year's. The difference is that companies reported looking for a better return on investment (ROI): 37 percent expect a better ROI in 2001; and 30 percent want more value without spending more. It's important for suppliers to realize that many buyers have had it with slick PowerPoint slides and unfulfilled promises, a recent U.S. Bancorp Piper Jaffray report states. What they want instead is documented proof of tangible, near-term ROI.

Determining which applications deliver the best and fastest ROI, however, is really worth a whole other article  a book, in fact  devoted solely to the topic. But one ROI-intensive application these days is business process management, which allows a company to be more responsive to changes in business strategy by managing business processes without retooling, recoding or replacing underlying enterprise software, says Eric Austvold, research director, AMR Research and author of a report on the subject. For his part, Ferrari of AMR Research cites inventory and asset utilization applications as two areas in which companies can get meaningful benefits up front.

e-Procurement and application service providers (ASPs) have often been credited in the past with delivering strong ROIs, so it would be natural that the Aberdeen Group married the two e-business models in a recent report. Called a purchasing service provider (PSP), Aberdeen predicts that this format will be the next big thing for the B2B industry. Basically PSPs act like traditional ASPs by hosting e-procurement software and hardware, while also integrating product, sourcing and supply-base management services, Aberdeen says. The model enables organizations of all sizes to maximize the benefits of e-procurement while avoiding the associated burdens and risks by providing more comprehensive support for the complete procurement cycle, the report states.

CRM is also considered to be an important revenue generator, according to AMR Research, U.S. Bancorp Piper Jaffray and a score of other tech consultancies.

However, Robert Caruso, a principal with Nextera, a Los Angeles-based CRM consulting group, does note that nailing a concrete ROI can still be frustratingly elusive with this particular application. It is very important that you determine what you want out of a CRM application before you make any decisions. ROI can be relative sometimes.

Corporate Express, which recently decided to implement i2's Customer Relationship Management Solutions, has a number of goals in mind, Manuel says  none of which are dollar intensive. It wants to serve customers across multiple channels, while also customizing to meet regional needs. It wants its customers to be able to order supplies from a variety of manufacturers, yet receive a single order and bill. And it eventually wants to deploy i2's supplier relationship solutions, which allow companies to better share information with their suppliers in order to meet customers' needs. But despite  or more likely because of  this focus on customer service, Manuel expects the overall result will be revenue generation.

Upgrade, Don't Replace

It's simple, says Assaf Kedem, director of Product Marketing for Intercomp Inc., a New York-based software company. You can't fall behind in your IT functionality, and that leaves two choices: either implement new technology or upgrade the old.

Kedem says he is seeing more clients hesitating to take on new projects. Not too many want to say they can't afford a new system. But they are asking what they can do to unleash further potential with their current systems.

A common way for a company to upgrade, Kedem says, would be to take its current business rules, extract and regenerate them in a newer language, like Java, and deploy them on new servers.

Interestingly, Kedem does not see a cutback in IT consulting. The need forthis type of analysis is something that is becoming more and more institutionalized. It began with the Year 2000 bug, which demonstrated to companies how important it was to understand what was in their systems. Y2K may have been a bust (although, to be fair, the billions spent on remediation had a lot to do with that), but Kedem says the need for legacy understanding is a robust need and is not affected by the economic climate.

Not everyone agrees with this assessment. Bob Artner, vice president of content at TechRepublic, says many companies' consulting budgets might take a big hit in the months to come. He suggests following the lead of Population Action International, which, instead of paying a consultant to provide monthly support systems checkups, decided to pay the consultant once to teach the staff to perform the checkups themselves. The company ended up saving 30 percent on consulting fees, he says.

Get Creative with Financing

The times may be bad right now, but we think this is a great opportunity, says Andersen's Mangan. Everyone is in the same situation and a lot of software suppliers are offering very good deals to our clients. Software suppliers are willing to get creative in order to work with cash-strapped clients.

New bookkeeping strategies are also helping to fund IT projects. Some companies, for example, are amortizing software payments instead of taking it as an expense, Mangan says. Others are leasing software so it doesn't have to be carried as a balance sheet item.

Indeed, many tech suppliers are more than willing to meet clients half way. One example is Amherst, a supplier of IT products and services, which has partnered with Deutsche Financial to provide leasing options to its clients. Bill Jenkins, IT director of UNICCO, first contacted Amherst two years ago, when he was faced with huge remediation costs for the millennium bug. We had to purchase new computers and the best way to finance was by lease. We've been into leasing ever since. I love the fact that I can take those costs and move them off of my balance sheet, he says.

Economic downturn notwithstanding, some motivations are timeless. 

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