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

Are you frustrated because you have to wait until after the financial month end close to obtain any information about your company or departments operating results?  This happens in too many companies today!  In my last post, The Real Value of Information Technology, I reviewed the 4 critical areas to create value in Information Technology.  The first was real time information for better decision making.  

Jack Welch retired Chairman of General Electric said   ‘An organization’s ability to learn, and translate that learning into action rapidly, is the ultimate competitive advantage.’ 

So how can you as an executives learn fast and translate that learning into action rapidly? 

First, you need to have critical information at your fingertips in real-time.  So what is critical information commonly known as KPI’s (Key Performance Indicators).  Every company is different, however, KPI’s are generally financial or statistical values or percentages/ratios that indicate to you when critical operations are moving in the right direction. You know what your KPI’s are and once those are defined then we can define what is required provide them instaneously.  

Information Technology is critical to obtaining KPI’s on a real time basis. 

1.  Use technology to load data at it’s origin.  This can include mobile devices and/or internet to process sales in the field, receive products and inventory, load information from vendors, transfer data from manufacturing equipment or monitoring equipment, load agriculture data, etc. It can also include direct file transfer from customers, vendors and partners. This data is generally then loaded into an ERP system and optionally into a Business Intelligence system. 

2. ERP systems today process data from sub-modules (sales, manufacturing, purchasing, AP etc.) directly into the general ledger and/or job cost system on a real time basis.  An ERP system is a key component to process data and prepare/present information instantly. Processing data instantly is one of the key reasons to upgrade an old ERP system to a new system.

 3. A final puzzle piece in the technical stream to provide instantaneous information is the Business Intelligence system.  These systems provide functionality to dynamically process data into information and present it in numerical, graphical or text format into MS Office products and/or feed directly to mobile devices or web-based applications.  Data can be displayed in numerical or graphical formats and you can drill to detail transactions. Business Intelligence systems and mobile devices are the key components in transforming data into information immediately that enables you to learn, make decisions and act rapidly to make corrections.  As Jack Welch indicated this provides a distinct competitive advantage and the value of the technology used is invaluable!

For more information on how to define KPI’s and implement a fully integrated Business Intelligence system contact LJR Consulting Services at 818-709-6583 or info@ljrconsultingservices.com.

Most CEO’s and CFO’s of companies of all sizes would say that IT expenses are too high and they are not convinced that they receive value for what they spend.  CIO’s today spend a significant amount of time focusing on reducing costs and explaining the value of IT projects to the business.  While it is always a good idea to find ways to get the same value at a reduced cost and IT has alot of room to reduce costs, just cost cutting is not the optimum way to support the business.  In fact frequently a focus strictly on cost cutting will result long term lost value of IT.

The reality is that new technologies and IT business solutions have come together in the last few years to really provide the long term promise of enabling IT to increase revenue, reduce costs and increase productivity in businesses.  This situation has resulted in the new focus of aligning IT with business goals.  In a recent blog post I discussed the reasons to create an IT Strategy and that is certainly the beginning of ensuring that IT is aligned with the business strategy.

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

The IT strategy is the first step. The next step after the IT Strategy is to define the projects, create budgets, obtain approvals and architect the solutions so all the pieces fit together to fulfill the strategy.  This is generally where the strategy and alignment falls apart.

So how to ensure the strategy and plan come to fruition and bring the expected value to the business?  First, I recommend the company  create a board of executive management that includes the CIO, to define project priorities and requirements for project business cases and review project progress. 

Second is to manage all of IT – ongoing maintenance, new projects and infrastructure as a unit so the executive board can see how all the projects fit together.  The IT department basically has 2 tracks – investment in new systems and functions and projects to sustain existing systems.  Create separate budgets for existing system maintenance and new investment.  Group the new projects into major programs that work together as a group. Then bring the two together to define the entire IT budget.  The consolidated portfolio should include an overall picture of how each project fits into the company strategy and what existing systems and costs will be phased out as each new project is brought online. 

This approach enables all of management to see the global picture of IT initiatives and expenditures and for CIOs to manage expectations.

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