January 2003 | Commentary | IT Matters

Balancing IT Strategy with ROI

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For years enterprise software implementations were all about the Big Bang. After spending months and millions of dollars installing a new system, the grand moment would come, the "on" switch would be thrown, and the organization would suddenly achieve Nirvana.

Times have changed. In a chilly economy, IT executives cannot afford to wait very long to realize the benefits of their investments. The long-term approach of the late 1990s has been replaced by more tactical short-term considerations. This does not mean that IT executives are forsaking long-term strategy. The environment is now one of balancing long-term IT strategy with short-term pay off.

The Big Bang Bust

The world is moving faster than ever before and making a bet on what your needs are going to be two years down the road is too risky. Even if you are still moving in the same direction, toward the same strategic objectives, are you still willing to make the investment to get there? Companies must be flexible and responsive to change.

The Big Bang approach locks IT buyers into a long-term project where they doesn't see any appreciable return until the very end of the process.

Additionally, companies have become wary of shelf-ware. They have grown extremely critical of the promises made by vendors and can't afford to run the risk that the solution they are investing so much time and money in won't do everything they need it to do.

They want to talk to users and see ROI numbers. Then, when they do go forward, they want to bite off smaller chunks, so they can stop at internal "way" points to gauge progress and re-evaluate their strategic goals. By installing smaller pieces, companies can ensure they are on the right track and use the quicker ROI of these implementations to justify further technology acquisitions.

In With the New

Another evolution is the disappearance of the "out-with-the-old mentality" that used to be status quo. Companies want to know how they can leverage existing technologies while taking advantage of breakthroughs. In cases where they are considering ripping out obsolete systems, they are carefully assessing whether or not the new technology provides more value than the existing system.

So, rather than buying an entire suite, which might offer a broad selection of enterprise applications built on a proven enterprise resources planning (ERP) backbone, many companies are purchasing separate pieces and integrating them with their legacy systems to maximize the value of all their investments.

These trends impose new requirements on those who sell enterprise software. The primary adjustment is the need to partner more intimately with customers than ever before.

While companies are pausing to take a breath following Y2K, and capital expenditures are cooling, they are still looking for ways to reduce costs and improve efficiency. One area that has been largely overlooked in the past is logistics—often making it an ideal starting point for manufacturers to achieve the quick ROI they are seeking. Finding the least expensive way to move inventory, from optimizing truck routes, to minimizing the number of trucks that hit the road partially full, to using return trips for backhauls, makes the organization much more efficient.

It doesn't matter whether the company maintains an internal fleet of trucks, or uses third-party logistics providers. The common objective is better utilization of assets as goods move across the company. Software companies need to offer solutions that can help their customers look at demand patterns, enabling them to see where the demand is geographically, and use that knowledge to make sure goods are manufactured at the most logical plant, to minimize shipping costs and time.

The Logistics Opportunity

Logistics is a largely untapped market. A lot of manufacturers haven't looked at solutions that can help optimize cost and efficiency in this area and they're very interested in finding ways to optimize these processes.

Whether they start with logistics or not, manufacturers and software vendors must take into account three things: Be prepared to demonstrate how clear value can be obtained from any proposed investments; be mindful of legacy technology and how it can work with the new systems; and reduce risk by engaging in smaller projects that can help achieve rapid ROI.

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