IT offers an extra dimension
Companies can now use information technology not just to run their business, but to grow it. Roger Trapp reports
Sunday 06 October 1996
According to Eric Marcus, vice-president with CSC Index, "the role of information technology has changed totally". Whereas it used to be about automation and the operations part of the business, it is now much more fundamental. "It's no longer just about running the business, it's about growing the business," he said.
His remarks come as KPMG, the firm of accountants and management consultants, released a survey showing that electronic commerce has huge potential, since among companies with turnover of more than pounds 200m it accounts for just 3 per cent of sales.
Mr Marcus's solution is a mixture of "digital business strategies and tactics". Consequently, he calls on companies to develop a vision, acquire competencies and build business models as well as adopt appropriate tactics for prospering in a fast-moving world.
A digital vision can be incorporated into the existing business strategy by envisaging what the business could look like in several years' time if new technologies were applied. As a start, a company could identify areas of business where it is obvious that technologies are being used but in its own case are not. A retailer might be using point-of-sale systems to provide fuller information about sales. But if that approach was to be carried further by applying more complex technologies such as supercomputing and parallel processes, the company could move to "real- time store management" and overtake competitors.
Gaining the right competencies or techniques is not easy and, says Mr Marcus, companies cannot expect to acquire such know-how on their own. He suggests they form partnerships with groups outside the organisation, such as start-up operations or even large companies that may be competitors.
As part of this, he adds, chief executives should evaluate their own information systems teams to see whether they are capable of advancing in this way. If they are, IT specialists should be elevated to the executive level and regarded as "technology leaders and mentors, not support people". In return, IT professionals need to behave as "business partners, not as technologists".
It is necessary to build business models in order to overcome employees' scepticism that the technologies are either too futuristic or not robust enough. CSC says companies should set up centres where staff can try out and comment on developments. In addition, companies need to be aware that introducing systems on a large scale can dramatically change the business.
The consultancy divides the tactics that should be used into five areas - information, partnering, customer service, marketing and management.
In the field of information, companies need to list what they have and ensure that it can be easily located. They also need to realise that the Internet is not the only platform available for transmitting information.
Partnering involves companies recognising that the fall in transaction costs means that they no longer have to be self-contained. It is now more cost-effective to concentrate on "core competencies" and form "value networks" with organisations that can complement their strengths. This will require the development of new skills to co-operate rather than fight with competitors.
Customer service is a key area in which information technology can make an impact. As CSC says, "finding new ways to keep your customers loyal is one of the best investments a business can make". Companies, it adds, "will need to understand their customers' wants, values and desires in cyberspace. They should also use technology to make transactions simpler (and more fun) for customers".
In the marketing arena, organisations will have to counter the erosion of copyright through creating new pricing models, convening on-line focus groups, speeding up promotions and integrating groups of transactions to enable one-stop shopping.
Finally, the most important job for management is to build bridges between the technologists and business people. Moreover, since the business environment is changing so fast, organisations should hire people for their potential rather than their experience. And, related to that, they should recalibrate incentive schemes for employees, customers and shareholders.
In case companies need any convincing, Mr Marcus, who was once a publishing executive, has a few examples. An Internet organisation called Amazon iswidely regarded as the world's largest book retailer despite having no conventional shop. But the most interesting thing about it is not its route to market but its approach to marketing. "It has created an environment that encourages customers to write reviews of the books they read," he says, pointing out that this is essentially adopting the highly valuable word-of-mouth approach to get customers to sell to customers.
Similarly, the parcel service Federal Express has managed to convince customers that shifting control of the process to them in return for no cut in price is a great advance. Meanwhile, Wells Fargo was just a west coast bank until it decided to increase its sales volume by creating its own shopping mall. Though it does not operate all the stores, it benefits by handling all the transactions.
CSC is also seeking to help businesses deal with all this change by organising regular seminars under the name Vanguard. The idea, says Mr Marcus, is to help sponsors - which include 3M, British Airways, BT, Hewlett Packard and Guinness - understand "the most critical emerging information technologies that will have the most significant business impact three to seven years ahead".
An added advantage, he adds, is that the programme's advisory board includes such leading lights of the digital revolution as Nicholas Negroponte, author of Being Digital and computer pioneers Alan Kay and Gordon Bell.
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