Using the latest technology to strengthen your competitive position

Scala ECE

Why should businesses invest in IT

Why do businesses spend thousands of dollars in IT systems? Do they really get a tangible benefit from their expenditure? Do we really need these systems or are we purchasing them for the benefit of our head office and the IT department? How much of our business does our IT department understand anyway? Does it really have to cost so much? These are all frequent questions that most company directors ask themselves.

To answer these questions we firstly need to look at IT systems to see if they can help management to achieve some of its fundamental objectives. Below is a list of common objectives:

  • improve the bottom line profit;
  • improve customer service and satisfaction;
  • improve customer choice at little extra cost;
  • growth - allow us to expand the operation and volume of sales without incurring a proportional increase in our administrative costs;
  • increase efficiency and thereby lower the overhead costs;
  • create fair bonus and performance measurement schemes that motivate everyone in the company;
  • maintain financial control.

The next step involves understanding what IT systems can do for a company's business and calculating what the potential return on investment (ROI) could be. How to actually achieve this is another matter all together, but for the moment let's leave this aside.

Where and in what areas

Nobody today argues against using word-processors instead of typewriters or spreadsheet software in place of a large sheet of paper and a slide rule. The cost/benefit argument is clearly established in most people's minds and, given the fact that the costs have fallen so dramatically over the last few years, this issue is rarely ever raised. However, when the expenditure rises into the tens or hundreds of thousands of dollars for a FMA (financial management and accounting) system, eyebrows are naturally being raised. Is this expenditure merely an attempt to hold down our administration overheads or can we somehow use such systems to change the way we do business?

Now that the IT industry has conquered the challenge to write software which computerises and integrates accounting, sales, purchasing and warehouse administration, does it actually do what they said, ie, 'cut costs and improve efficiency'? 'Well, yes and no'; 'sort of, but not in the way we expected' are typical answers from executives who have recently undergone this experience. Did they get a return on your investment? The overwhelming answer to this is 'yes and much faster than expected'.

How do these two seemingly inconsistent statements add up? From speaking to experienced colleagues in the FMA and IT industry it is apparent that the fast ROI achieved by companies investing in FMA systems does not come from cost cutting or reduced head count, but rather from three distinct areas discussed below.

The first, not surprisingly, is the direct benefit obtained by pumping larger volumes of data (arising from growth of the business) through an efficient FMA system. The incremental costs relate purely to data input and manual intervention for 'out of the ordinary' situation handling, resulting in a disproportional lower administration cost in relation to the increased sales volume. Consequently we can conclude that to achieve the best ROI 'It must be for the sake of growth'. Typical ROI time scales for FMA systems are from eight months to three years after the system goes 'live'. Clearly the speed at which going 'live' can be achieved changes the picture completely. The rapid pace of change and growth within Eastern and Central Europe adds additional pressure to implement such systems rapidly. Three to eight months is acceptable, but some systems take two to three years to configure and stabilise! By the time the work is finished, the original business processes have probably changed substantially, as have probably the entire business dynamics of the company. Such a system will either never reach completion as it undergoes constant modification to catch up with the changes in requirements or it results in a highly computerised system of obsolete business processes that nobody wants to work with. To summarise 'Do it for the sake of efficient growth, but do it quickly!'

The second reason for companies achieving such good results is when they purchase an FMA system that forms part of a much larger 'Business Management Software' system. The returns come from 'Moving IT towards the customer interface frontier'. What does this mean?

Imagine that you want to buy a sliding glass door for your terrace and you make an appointment for a sales representative to visit you so that you can discuss your requirements, prices and take measurements. Traditionally the process of selection, checking availability, choosing options such as tainted glass and finally signing a purchase order can take a couple a visits, numerous telephone calls and extensive back office work for the supplier to check with production and design that your specific order can actually be supplied on time and within budgeted costs.

Nowadays you can get systems that have paved the way to radically changing the way that such business is done. Instead of a sales representative you are sent a 'sales consultant' complete with portable PC, integrated 'remote' business management software and probably a mobile telephone. The entire transaction, selection and pricing is done on the first visit with the help of the system on the PC which does all the complex cost and fitting calculations, checking of availability and, once the deal is agreed upon, passes it complete with details into the centralised system on the office network. What have we done? Well firstly we have enriched the job of the sales person as he now has to combine his sales skill with his knowledge of assembly and production of the products he sells. Secondly we have effectively removed the sales support and administration overhead; and thirdly, our sales person can visit more prospective clients and provide a better and faster service than any competitor. Return on investment? Within weeks!

The third reason for a rapid ROI is when companies manage to integrate their 'front-end' sales systems with their distribution and manufacturing systems, whilst simultaneously providing the accounting and finance system with all the necessary data. Essentially in today's competitive environment 'back-end' IT is not far back enough; sales systems must be integrated not only into the accounting system but directly linked into the manufacturing and distribution system as well.

The benefits of doing this are tremendous and numerous. A few examples follow.

Minimal or zero stock holding levels for the smaller distribution offices. Orders are passed directly to the factory and product is shipped fully configured either directly to the larger customers or bundled to the distribution office to unpack and forward to the customer.

At little or no extra cost, factory production runs are changed from producing large batches of standard product towards custom orders. Customer choice and satisfaction are thereby enhanced, giving the supplier a competitive edge.

An economic batch unit of one! Today's manufacturing production and control (MPC) systems are offering an unequalled production flexibility, providing the production department can follow the pace of change.

The latest technology myth

Ask anyone in the IT industry that is responsible for delivering results and they will agree that 'working technology is better than latest technology'. Too much attention is being paid to the latest IT buzz words that the hardware manufacturers use in an attempt to influence the prospective customer. Providing a cost-effective solution to the real business issues and problems is the only truly important thing.

Here is a simple example. Windows `95 is great, but what significant advantage did it make to financial analysts who spend their working time using about ten per cent of the features available in the word processor and spreadsheet applications that were provided? Probably none. The same concept applies to many of the latest 'you absolutely must have' items that are being offered by high tech suppliers, and one must really pause to ask the question 'what direct benefit does this have to my bottom line?' and if the answer is not obvious, then put it on the low priority list or forget it altogether. Latest technology is fine providing it works first time and you can find someone who has the experience to support it.

In conclusion

Investment in an IT system makes sense if it helps achieve your business objectives. Therefore, buy only what you need and remember that you only need those items that make a significant contribution to achieving your business objectives and profit. It must be integrated, it must be flexible, it must have a proven track record and it must be achievable within a reasonable time frame.

Yes, businesses should invest sensibly in IT, and given the correct resources, an impressive return on investment can be quickly achieved.

Scala ECE (Reuters code: SCLV.VI, listed on the Vienna Stock Exchange) provides companies in Emerging Markets with innovative business systems and services which are implemented locally and regionally according to that which best suits their organisation, practices, and procedures. Scala ECE covers Eastern and Central Europe, the CIS, Central Asia, Turkey and the Middle East, with 20 offices in 16 countries and a staff of 300 people. Scala's current clients include: ABB, Ernst & Young, Atlas Copco, Sheraton Hotels, Ericsson, Bristol Myers Squibb, Sony and PepsiCo. Scala offers a suite of fully integrated financial, commercial/inventory, manufacturing, and service software. In addition, Scala trained consultants help companies run their business with greater speed and efficiency across borders, currencies and legislative requirements. The Scala system is marketed and supported by a worldwide network of Scala Partners with offices in 62 countries. Worldwide, Scala has installed more than 14,000 systems in 90 countries since its introduction in 1988.

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