Technology companies are feeling a thaw in the recent ice age in IT spending and are starting to plan again for growth. As a result, IT within these tech companies is exiting the retrenchment mode of the last three years and looking again at enhancement and expansion. Technology companies are defined as hardware and software vendors, including network gear, as well as telecommunications and related service providers. Excluded are IT services firms that specialize in consulting, such as systems integrators. The most hopeful sign for technology is a strengthening of IT spending overall. This, in turn, fuels business growth, which then creates demand for new and enhanced information systems and applications. Despite the positive signs, there won't be a return to the free-spending approach to IT infrastructure of tech companies during the 1990s. Rather, tech companies will expand their IT systems and capabilities conservatively and in close alignment with business results. The image that comes to mind for the relationship between the business and IT is the tango - intricate motions at close quarters.
The Tech Environment
The US Commerce Department reported that in the third quarter of 2003, spending on information processing equipment and software rose 15.4 percent, its highest growth rate since the fourth quarter of 2000. The figure was the second consecutive quarter over quarter increase as well. The most recent monthly poll by CIO magazine of readers also indicated that an uptick in IT spending is likely in 2004. The average budget increase in the survey was 6.4 percent (for the next 12 months), up from 4.5 percent in the prior month's survey.
However, since tech companies will remain conservative in the expansion of IT systems and capabilities, IT in tech won't be able to invest in capacity in anticipation of demand. Rather, it will have to build quickly to respond to demands for greater capacity. This means IT projects with payback periods of months. It means that low costs will still be the organizing principle for IT in tech.
Demand Side - Enterprise Portals
Beyond making intranets more productive and enabling employee-self service, portal technology can help IT in technology companies to better support customer and partner initiatives, and where better to start than with the tech sector? It is high time that portal technology providers and their high-tech compatriots put their money where their mouth is and make portals the centerpiece of their customer and partner sites.
Potential portal buyers should look beyond customer references and see how well their portal provider uses its own technology. Beyond this select group, other technology sector companies can benefit from the personalization, process and streamlined maintenance that portals offer. Technology customers should require a tour of tech vendor "portals" and look for true use of portal technology as an indicator of commitment to customer satisfaction.
E-Commerce Channels
High-tech companies were among the pioneers in e-commerce, so it's tempting to think that they have little room for improvement. Unfortunately, that's not true. Certainly, e-commerce leaders like Dell in both B2C and B2B or Cisco and Sun Microsystems in B2B e-commerce continue to set benchmarks for successful e-commerce Web sites, and they have been joined by others such as Microsoft, Adobe and HP, to name a few. However, many high-tech companies still lack effective e-commerce sites. Enterprise application software vendors - with notable exceptions like Oracle and Microsoft - are reluctant to sell directly to customers via their Web sites. Even those companies that do use their Web sites for selling - either publicly or via private extranet sites for their partners and distributors - in many cases need to improve Web site design and navigation and customer information. The low-cost, e-commerce channel is too important for tech companies to ignore or neglect, especially as growth opportunities for IT solutions shift to the midsize and small enterprise market.
Software companies' avoidance of the online channel has some logic behind it, since many enterprise applications are complex systems that require varying degrees of configuration and integration to work effectively and thus have a wide range of pricing possibilities. Indeed, selling enterprise applications through dedicated salespeople and avoiding the Internet was compelling in the days when these applications were new and sold mostly to large enterprises. But as these applications mature and sales opportunities shift from Global 2000 companies to midsize and even small enterprises, software companies will need to develop an effective online sales channel. The high cost of direct sales forces won't work with these smaller accounts, so the lower-cost Internet channel will be critical to success in reaching midsize and small enterprises. That means following the lead of Oracle and Microsoft by pricing and selling software applications for small and midtier companies at the Web site.
Supply Chain Opportunities
As the high-tech sector slowly emerges from the recession and demand picks up, IT managers in high-tech companies will need to expand their focus to broad new initiatives that will support their firm's growth strategy. One area of focus should be supply chain management (SCM). SCM success stories in high-tech abound: IBM claims its supply chain improvement initiatives helped Big Blue save $5.6 billion in operating costs, while HP claims to have saved $1.2 billion in inventory costs in 2002 after its merger with Compaq.
Learning from the success of IBM and HP, IT executives should invest in projects that support their company's growth-oriented SCM initiatives. As they plan their 2004 IT budget, high-tech firms should earmark IT dollars for supply chain process improvement initiatives they have traditionally shunned. To begin with, they should invest in software that gives them visibility into their increasingly outsourced manufacturing activities.
As demand picks up, accelerating the launch of innovative products should be the second imperative. Surprisingly, only 47 percent high-tech manufacturers say that IT can improve product quality, and just 26 percent expect it to drive innovative market offerings.
Flexible Budgeting
In the fast-paced world of high tech, traditional financial planning and reporting systems are too cumbersome to be responsive to the needs of the business. As a result, some high-tech companies have adopted more agile planning methods, such as continuous forecasting, in lieu of traditional methods such as budgeting. High-tech companies, and businesses with similar needs, should move to virtually real-time planning, reporting and measurement systems to improve control and business performance.
Factors limiting the financial management capability of fast-paced businesses are the traditional budgeting methods and the use of stale historical information and spreadsheets as a tool for planning, budgeting and reporting. Discussions with high-tech companies indicate that the majority have moved their planning and reporting systems to more agile and responsive methods. High-tech companies tend to be more innovative in deploying technology solutions for internal use, and financial management is a mission-critical activity that has benefited from this approach.
Instead of making spending and resource allocation decisions based on history and outdated budgets, high-tech businesses have adopted more responsive planning and reporting methods. One of the key methods involved is forecasting, which is used in lieu of the classic annual budgeting process. In general, a majority of companies have moved to rolling budgets - updating the planning data monthly or quarterly based on revised assumptions and current operating conditions. High-tech companies tend to go further to accommodate dynamic market conditions and rapid product innovation, moving to virtually continuous planning or forecasting in lieu of a budgeting process.
Outsourced Tech Support and Entitlement
Performing entitlement prior to providing support is critical to avoid supporting customers with no contract or with an expired warranty. When outsourcing technical support, allowing the outsourcer to perform customer entitlement means giving the outsourced agents access to the customer information stored in an internal customer relationship management (CRM) system. This can be accomplished by granting browse-only access to the CRM system, transferring information to an outsourcer system or using a CRM vendor's partner relationship management (PRM) tool if available.
Companies should start with the outsourcer to understand how it prefers to work and to determine the costs associated with various methods for allowing agents access to the entitlement data.
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