Hidden Profits Blog

Google alerts are Great!  I found a great blog by Steven Romero at CA Technologies on the importance of IT Strategy. 

I have discussed IT strategy here based on the concept of aligning the IT Strategy with the Business Strategy.  Steve discusses embedding IT into the business strategy discussion.  This is a subtle yet a very important difference.  When an IT Strategy is merely aligned with the business strategy it implies that the IT Strategy comes after the business strategy as support.  While just creating an IT Strategy is a major step forward for your company, it is still only a partial solution.  By embedding IT Strategy and thus the CIO in the Business Strategy process, you now are in the position to take advantage of advances and trends in information technology to influence your Business Strategy. 

So how does that help you? 

Well let’s look at some companies that have used Information Technology to change their industries.

• Amazon.com completely changed the book retail industry by making technology the business focus. 
• Dell is another example of a company that embedded technology in their business strategy to completely change an industry. In fact it so changed the industry that many people don’t even realize how difficult it was to purchase computers before Dell.   They leapfrogged over some of the biggest competition in the world, IBM and HP. 
• To a lesser extent, Vistaprint has changed the printing industry.  You no longer have to find a printer to create business cards and stationary.  You go online create your look and the products are printed and shipped directly for a fraction of the cost. 

All of these examples are focused on the internet but that is not the only way that technology can be a game changer. Other technology options might include:

• Mobile devices for customer facing applications, executive dashboards, and source data entry
• Document management to reduce paper and copies
• Electronic workflow to replace manual routing of paper forms, such as PO, expense reports, capital authorizations etc., for approval
• Electronic marketing

 By including the CIO in the business strategy process, you open your business to experiencing significant leaps in productivity, profitability and customer loyalty!  And just as importantly you reap tremendous value and success from your investment in Information Technology.

For more information on this topic read Steven Romero’s blog    Read Steve’s blog 

Prior posts on IT Strategy

How an IT Strategy helps control IT Spending  http://www.hiddenprofitsblog.com/how-to-manage-it-spending

What is IT Strategy  http://www.hiddenprofitsblog.com/what-is-an-it-an-it-strategy-or-it-roadmap-and-why-do-i-need-one

If you would like  help with your IT Strategy, contact me at 818-709-6583 or email info@ljrconsultingservices.com

Do you feel like the Information Technology (IT) bills never stop coming?  It seems like there are always upgrades, maintenance costs, new software that must be purchased.  The question becomes ‘What Value Do We Receive From That Investment?’ That is actually a very good question.  Most IT executives would answer that there is almost 100% uptime, business transactions are processed with stunning accuracy and speed, employees have access to recent releases of Office software to better do their jobs, everyone has email with near 100% uptime, response time is quick and everyone has smartphones with email.  All  that is true and important, I mean just think of how the average office worker would do their job without email, MS Office and the standard accounting system used  in business. 

However, the value of Information Technology (IT) should go much further than that, especially today.  We have instant connectivity to the internet almost anywhere and from devices that we hold in our hand.  We use those devices to access our personal information instantly while many busy executives still wait until the end of the month and later to access critical business information.  In our personal lives we interact with each other quickly and learn more about each other than ever before with social media. Yet companies still have limited interaction with suppliers and sometimes customers.  

 In order to move to the next level of IT value there are 4 key areas that should be addressed.

1. Real time information for better informed decision making
2. Information provided suppliers to improve supply chain and customers in the form of new or add-on products and services
3. Optimized business operations and back-office from increased use of technology
4. Innovative interaction and collaboration with suppliers, partners and customers 

In many cases companies already have the technology to add value in these four areas but there is a lack of communication between IT and business and often a lack of innovative thought on the part of both business and IT to address these opportunities.  The reality is businesses that add technology value in these four areas will be the businesses that stand out, attract customers, attract ‘A’ level talent and become more profitable.

I will address each of these value opportunities in subsequent posts.  If you would like an evaluation of how your company can increase value in these areas, call us at 818-709-6583  for a free 90 minute consultation. 

Almost all corporations today provide mobile devices – smart phones, iPad, etc. to employees.  The question is ‘Are they used for more than just phones, email, Facebook and Twitter?’ There are many business applications for which these devices can be used that increase the value to the business and improve business efficiency and performance.

Here are some types of business applications that can add value to the operation.

1.  Key Performance Indicators (KPI), business alerts, and other business information displayed via mobile device.  This could be any piece of key information that is important to executive management in monitoring business activity.  Some examples are:

• Daily sales
• Cash balances
• Key project alerts
• Profitability by key customer
• Manufacturing statistics
• Crop ratings for agriculture

2.  Purchase order/requisition entry and approval. One of the key reasons that company’s have for not using electronic purchase orders is that it is inconvenient to be at a computer when making a purchase. For industries in which employee’s that need to make purchases and do not easily have access to a computer providing a mobile device application to create and approve purchase orders greatly enhances the efficiency of the company and the AP department.

3.  Purchase Order receipt – for companies such as construction or agriculture that receive product deliveries in locations without computer access, the ability to receive PO via mobile devices reduce manual data entry and provide more accurate inventory control. 

3.  Delivery orders and authorizations for product delivery companies.  Many companies that deliver product such as food, uniforms, beverages, etc.  or provide on-site service such as plumbers, HVAC repair, electronic repair, still print the delivery orders daily for drivers.  Once the product is delivered the customer signs the paper order and often companies then scan those documents into a system for access by customers.  By downloading the orders to mobile devices the addresses can be input to GPS automatically for directions, the actual cost of the delivery or service calculated on the mobile device, customer authorization recorded and the completed order uploaded to the corporate ERP system and made available to customer facing applications.  All this is done with no data entry which can significantly reduce time and cost.

 4.  Customer Orders.  Company’s with sales reps that take orders in the field the entry of the order and contract signing can be competed on the mobile device. 

5.  Customer facing applications – many companies have already added the applications that are already available on the web to mobile devices.

These are just a few ideas on how to use mobile devices to improve corporate efficiency.  If you would like your organization’s systems reviewed  and  opportunities for mobile device applications identified, contact me at 818-709-6583 or by email lynda.roth@ljrconsultingservices.com 

In my last blog post I discussed the importance of evaluating risk of cyber crime in business and 5 steps to protect your company.  Well in the news in the last couple of weeks are 2 high profile examples of cyber crime and the affects to the victim firms’ reputation and profitability. 

The first was last week when BP (British Petroleum) announced that an employee had lost a laptop that contained social security numbers for victims of the BP oil spill that had been reimbursed by the company.  This is an example of the first type of breach I discussed in my previous post.  The laptop contained data that had either been downloaded from corporate systems to the laptop or had simply been created on the laptop using desktop software.  This was completely avoidable and has cost BP not only financially but also another hit to their already shaky reputation.  Today files with critical information do not need to be stored on laptops or workstations for employees to have access to them.  In a major corporation like BP, these files should have been maintained on a corporate secure server.  Other options are to maintain the files on outsourced secure servers.

The second was this past weekend when the Epsilon data servers were hacked and client information from a host of major corporations was compromised.  The good news is that it appears that the only information that was exposed was client names and email addresses.  How this was done is not yet known, however, it is one of those situations that may not have been easily prevented.  One scenario is that the data files may not have been as secure as they could have been because the data was not considered critical.  The Epsilon client corporations that were affected took adequate precautions by only providing customer name and email information to Epsilon.  While that information can lead to more details about a customer it will require additional work to obtain that information.  The big risk in this scenario is that the end customers could begin to receive pshing emails in which the perpetrators are seeking the additional identity information required directly from the consumer. 

Even though limited personal information was obtained, this will still cost numerous corporations significantly.  First Epsilon’s reputation is severely impaired and the company may lose significant revenue from this incident not to mention the cost of notification.  The victim companies involved which include Citibank, Capital One, Walgreens, will probably spend millions in notification and corrective action to protect their customers.

Senior executives and board members, this is a critical issue.  Security should be re-evaluated in all companies.  If you would like to discuss your security in more detail please contact me at 818-709-683.  Here is the link to my previous post www.hiddenprofitsblog.com/5-steps-to-protect-your-company-from-cyber-crime

This is the fourth in the series on Understanding the Strategic Value of IT in M&A based on the McKinsey & Co article of the same name by Hugo Sarrazin and Andy West.

The topic for this post is ‘Creating the IT transition and merger plan’.

Most of the time in an M&A transaction the acquiring organization has made the purchase for specific reasons such as increasing market share, expansion into new geographic locations, adding products/services that compliment core products/services, consolidating functions to increase profitability in the combined organization.  In order to support their goals for the acquisition, they usually create plans to consolidate common functions within the merged organization such as sales, accounting, customer service, HR, potentially manufacturing, logistics, etc.  However, the consolidation of most of these functions require consolidation of IT systems and infrastructure.  As a result IT usually needs to be the first organization to the table.

If the acquiring company has followed the first 2 steps, IT will have already completed a due diligence on the acquisition’s systems, architecture and IT personnel.  This provides a natural platform to create a transition plan.  As the author’s noted in the article, building the transition plan in advance of the transaction completion, the IT team can move quickly to consolidate IT and enable a quicker consolidation of other functions and as a result quicker realization of ROI. 

The first component of the transition plan needs to be the personnel.  In the 1st phase, which was the analysis of the acquiring organization’s IT, a skills inventory should have been created.  So, the CIO will know the staff required to build the IT organization.  Also, as part of the due diligence the CIO will know the skills of the acquisition IT team and be able to make the decision quickly of the team members that are retained post merger.  In addition the CIO must identify the personnel in the acquisition that must be retained during the transition and create incentive plans for those team members. 

The second component of the transition plan is the network, hardware, mobile devices and communication infrastructure.  How will those be combined and what equipment, outsource arrangements and communication will be required.  This plan will include how to consolidate infrastructure prior to the consolidation of systems and processes.  I also include office productivity software such as email, spreadsheet, word processer software, etc..

The third component of the transition plan is the business systems and processes.  Decisions are required on which systems will be maintained, which will be eliminated and what new systems will be required.  This portion of the transition plan requires collaboration with business functions affected by the business systems being addressed.  Ideally the acquiring company will consider the age, functionality and support of the systems in their decision of which systems to eliminate.  Years ago I consulted with a bank to upgrade all of their legacy applications to new systems. The upgrade included not only their financial and back office applications but also their ATM, automated teller system and telephone systems.  The upgrade had been part of a strategy to re-insource their systems after an unsuccessful outsourcing arrangement.  Shortly after the upgrades had been completed the bank was merged with another bank that still had mainframe legacy applications.  Management decided to convert the acquired bank to the legacy applications.  Had the combined bank not been acquired again a couple of years later, it would have proved to be a very costly decision as ultimately all the legacy applications would have been replaced.  When the acquired company has newer and more effective systems it is in the combined company’s best interest to evaluate the systems to be maintained objectively. 

In addition to systems it is very important to evaluate business processes at this time.  Often in order to consolidate business functions, business processes need to be redesigned in order to enable the consolidation.  For example, I had a client that had grown by acquisition to greatly expanded geographical regions.  Because they had not modified their business processes and added additional technology such as document imaging, they were required to maintain back office functions in each of their geographic locations.  When we redesigned their processes and selected new systems they were able to consolidate to a single back office location and realize significant savings and productivity improvements.

It is the final phase of system consolidation that really enables the company to combine business functions and bring to fruition the goals of the merger.

Growing your business by acquisition seems like a fabulous idea but it can be fraught with problems especially when Information Technology is ignored!

In my last post I discussed the article in the McKinsey Quarterly "Understanding the Strategic Value of IT in M&A’.  The article listed 3 key components of IT in an M&A transaction.  The first component is ‘Getting Your IT House in Order’ or as I call it Know Yourself First.  This applies primarily to the acquiring company but it also has application to the selling company.

What happens when executive management prepares a growth strategy based on acquisition, spends the time and resources to find businesses that fit in that strategy, and develop plans to merge the companies only to have those plans not meet expectations because the information technology structure is not sufficient to support the combined company.  I have seen this in far too many clients.  After years of attempting to consolidate, functioning on multiple technology platforms they have failed projects, wasted capital and lack of synergies of the combined companies. 

So what should be done to prevent this outcome and  ‘Get Your IT House in Order’?

The areas that should be evaluated and upgraded include  IT  infrastructure, business systems, business processes and IT personnel (within the company and outsourced).  

Infrastructure

Many companies operate on hardware and communication infrastructure that does not have any room for expansion. Many companies, especially those in the mid-market, tend to not invest in IT infrastructure until it is falling apart.  So if the company is barely supporting it’s current systems on the infrastructure, how will it support the instant growth from an acquisition?  This affects simple functions such as email, website and server and network capacity  for additional personnel, in addition to major applications.   So first the infrastructure must be evaluated and upgraded as necessary to support the acquired company or companies.

Business Systems

In this area also, many companies frequently have core systems such as ERP, CRM, industry specific operational applications, that are unable to support additional users or companies.  The situation may be as serious as the core systems cannot support another company or the number of transactions from another company.  One of my clients had acquired several companies over a 5 year period and the ERP system they were using was no longer supported and had been so heavily customized that they could not put the acquired companies on it.  As a result they were using multiple ERP systems and one of their acquisitions was using Excel spreadsheets for manufacturing and inventory control because it had been a corporate spinoff and did not have an ERP system.  In another client who had acquired 4 companies over a 2 year period, now had 5 ERP systems and could not get any consolidated reporting because the ERP systems were different and all operating on their own servers.  This is probably the biggest problem that companies experience after making one or more acquisitions.  By evaluating the capacity for their existing systems and upgrading or selecting and implementing new systems prior to acquisitions, the company will be prepared to add the new acquisition(s).

Business Processes

Inefficient business processes in conjunction with limited use of technology hamper the growth of many mid-market companies.  In many mergers the additional workload from the acquired business can have a significant impact on the performance of employees.  This has an impact on customers and vendors and frequently sales.  As part of the review of core systems, core business processes should also be evaluated.  The goal is to be able to absorb the acquisition with limited if any growth in personnel while maintaining customer service.  As part of the business process review and redesign, implementation of additional technology such as document management systems, bank and vendor integration applications, customer self-service applications, mobile applications can significantly improve productivity.

IT Personnel

This is the final area of evaluation in which the company needs to identify the IT team that will be required to support the combined companies.  Often the consolidated organization and the technology needed to support it, requires different skill sets in IT personnel. 

In summary, when a company decides to grow by acquisition, it is critically important to ensure they have systems and processes to support the new company and ensure the success of the merger.  This is true for strategic acquirers and for financial buyers that are planning an industry roll-up.

In addition to the acquiring organization ensuring their ability to support the new company, executives that are planning to sell their company, especially to a financial buyer, need to get their IT house in order also.  Having antiquated IT infrastructure and systems can greatly impact corporate value and suitors. I have had clients that are unable to complete a sale because their systems are weak and ineffective.  We strongly recommend an IT and business assessment for any company planning either a purchase or sale.

Link to the McKinsey article   https://www.mckinseyquarterly.com/Corporate_Finance/M_A/Understanding_the_strategic_value_of_IT_in_MA_2709

M&A transactions were in the news this week with the article in the McKinsey Quarterly entitled ‘Understanding the Strategic Value of IT in M&A’.  I of course was thrilled to see this article as the authors Hugo Sarrazin and Andy West echoed the key issues I have discussed in earlier posts. 

Their opening statement states what I have experienced with several clients, ‘Many mergers don’t live up to expectations, because they stumble on the integration of technology and operations.  But a well planned strategy for IT integration can help mergers succeed’.  Sarrazin and West stated that in their work with post merger management ,they have found that 50 to 60% of the initiatives intended to capture synergies are strongly related to IT, but most IT issues are not fully addressed during due diligence or the early states of postmerger planning.  Simply stated, the more thorough the IT Due Diligence during the evaluation phase the greater the chance to realize expected synergies and cost reductions.

Sarrazin and West highlighted the 3 major tasks that acquiring companies perform that enable them to reap the greatest benefits from the merger.  These are:

1.  The acquiring firm  must get their own IT house in the best possible shape before initiating any deals.  I call this ‘Know Yourself First’.  The authors provide several suggestions on what should be done to get the IT house in order.  What is required to get the acquiring firms IT house in order is dependent on the company, the current status of the IT systems and infrastructure, and the types of acquisitions that are planned.  I strongly suggest an complete IT assessment and development of an IT roadmap based on managements strategic plans.  

2.  As companies begin merger talks, executive management must include IT in the due diligence process to evaluate the target company’s technology, to determine how it complements their own IT strategy and operations.  In my opinion this is an absolutely critical step that should be performed by IT professionals experienced in M&A issues.  This can be internal IT professionals or an external team that specializes in IT due diligence.

3. Prior to completion of the deal the postmerger integration must be carefully planned, including the systems and processes that will be merged, and the IT resources required. 

I will discuss each of these tasks in detail in subsequent posts on this topic.

Per the article, when these tasks are done, the acquirer can rapidly integrate the target company’s platform into a carefully considered architecture, enabling data from the acquired company to be migrated in less than 6 months.  I would also add that more importantly it enables synergies such as

• Merger of customers and cross selling of products/services,
• Realization of staff reductions
• Rapid penetration of new markets
• Rapid consolidation of products/services
• Rapid consolidation of vendors and potential favorable pricing due to increased volume

Serrazin and West also stressed the importance of the role of the CIO as a strategic partner in identifying acquisition targets and that the earlier the CIO is involved the more value can be added.  This requires the CIO to be not just technology focused but also business focused.  They also discuss the importance of evaluating the IT talent in both companies and determining who will be retained and implementing strategies to ensure continuity during the transition, maintenance of crucial talent within the organization.  In order for this to be accomplished, IT must be involved early in the merger discussions and due diligence phase.

Their summary states ‘As organizations depend increasingly on the information systems that coordinate transactions, manage operations and aid the pursuit of new market opportunities, the role fo technology in mergers becomes more critical.  Companies with a keen understanding of IT’s essential role in M&A can gain an edge in completing successful mergers.’  I concur wholeheartedly.  I would also add that it is important for executive management to understand the strategic role of IT in successfully meeting all the business goals including cost reduction, productivity improvements, market share growth, customer satisfaction, revenue growth.  In the 21st century, Information Technology is the heart of every successful company.  

Here is the link to the McKinsey Quarterly article.  www.mckinseyquarterly.com/Corporate_Finance/M_A/Understanding_the_strategic_value_of_IT_in_MA_2709

Here is the link to my previous post about IT Due Diligence

www.hiddenprofitsblog.com/it-due-diligence-what-and-why

At some point you have probably heard the quote, ‘If you fail to plan you are planning to fail’.  And with that individuals create goals and plans for their careers, life, vacations and companies create corporate strategies, annual plans and budgets etc.

However, how often does a company create a strategy for Information Technology.  I’m not talking about an IT budget although there are plenty of companies that don’t even have those.  An IT budget just defines how much of the corporate funds that IT department is allowed to spend and on what products/services.  What I am referring to is a strategy on how the company will utilize information technology to create competitive advantage, to open new markets, to brand the company and to support the operations of the business.

What do I mean by an IT Strategy or IT Roadmap?

An IT strategy or IT Roadmap is a detail plan that defines how and where information technology will be utilized in the company.  It identifies areas where management believes IT can be used to:

• Improve productivity and reduce cost
• Create a competitive advantage
• Improve intra-company communication and cooperation
• Improve financial controls
• Increase market share and open new markets
• Provide new opportunities for customers, partners and vendors to interact with the company 

It defines the priorities of the opportunities/initiatives, assigns responsibility/ownership and defines date and timeframe for each initiative. 

Like most plans it should encompass both short term and long term goals.  So it should include a vision of what the company would look like with all the desired functionality implemented over a 5 year time frame.  Then each initiative should be prioritized and placed on a 5 year, 3 year or 1 year schedule.  Finally a detailed 18 month plan should be defined that includes initiatives, projects, timelines and estimate cost and resources.

Why do I need to have an IT strategy or IT roadmap?

IT is no longer just about how to document the business transactions so it can be accurately reported to the IRS, the bank and other outside entities that need a picture of the financial status of the company. 

IT impacts every part of the business.  As a result there are many competing priorities from all areas of the company.  At one time accounting was the primary consumer of IT services, however, today IT touches everyone in the company, customers, vendors and partners.  So needs must be assessed, solutions identified, costs estimated and priorities set for all those competing interests.  In addition a path needs to be defined on how to get from where you are to where the company wants to be.  One of Dr. Stephen Covey’s 7 Habits is ‘First Things First’.  This is critical to define in an IT strategy.  Every IT initiative requires infrastructure, systems, and resources.  If those are not addressed in the correct or most logical order, the result is a failed and/or significantly over budget project.  A good IT strategy will define prerequisites and enable you to put the initiatives in the correct order for success.

To get more information regarding creating an IT Strategy, contact Lynda at 818-709-6583 or email info@ljrconsultingservices.com