Typically, big companies invest one percent to four percent of revenue in IT. This investment is usually spent on integrated business model implementations, continuous innovations, and day-to-day IT operations. There must be a way to assess and take full advantage on the return of these investments; otherwise, IT organizations cannot move from being cost centers to value centers. Optimizing the value of IT is a top priority in today’s tough economy. Companies rush to reduce IT operating cost and IT capital expenditures mainly because of falling revenue sources.
Many companies are so focused on evolution in order to always be steps ahead of competitors. They, at times, push themselves hard through IT implementations and afterwards, fail to take advantage of the benefits. They resort to old habits, making change process difficult to achieve.
Once you implement new systems and processes, you need to aggressively drive value creation from it. Peter Weill, in his book IT Savvy wrote, “The firms that are best at this start driving value early. If you start driving value early as you take the first small steps towards building it, you will reduce the disruptions of major transformation. The goal should be—build a little, benefit a lot; build some more, benefit some more; and so on.” 1 In other words, keep it simple! Now is probably the best time to resort to this time-tested principle where investment is placed only on IT solutions that are cost effective and that deliver better value and greater performance for the business. Below are just some key initiatives that can help organizations maximize value of IT in a company.
Define Clear Strategic Vision
The first step is to have clarity of strategic vision for each of your IT portfolios. Executive managers in Steering Committees have the responsibility to clearly define the main business objectives of projects and portfolio of projects. They are the ultimate architects for the organizational transformation that will happen. The objectives that they define will guide IT project leaders in their decision making and will help them prioritize business requirements.
Maximize ERP systems
Most big firms implement a digitized platform anchored on a major piece of purchased enterprise resource planning software such as SAP and Oracle. Implementation should be kept within the standard configuration as much as possible. This is a difficult challenge though. Of course, some business requirements cannot be addressed by standard functionalities. They will have to be developed or coded to change standard functionalities of the application to suit business needs. The challenge is to keep the balance between benefits and costs of these developments. Keeping solution within the platform configuration standards will reduce consulting cost, configuration and development effort. In the long run it will reduce cost of IT operation and application support. Additionally, companies can leverage on continuous evolution of those ERP platforms whenever new releases and versions become available. They can change to the new version without lengthy and costly upgrade process.
IT Infrastructure Consolidation
Data center consolidation is a major focus of many organizations today. According to Computer Economics, in 2008, 76% of organizations had some level of activity in the area of data center consolidation. It is one of the most essential ways to lower the cost of IT operations. Bigger data centers are simply more cost-effective on a per unit basis. Therefore, for many organizations, consolidating multiple data centers into a single facility should be a primary strategy for cutting cost. Additionally, this consolidation effort can also result to mitigating risk and improving service levels. Concentrating computing resources into one or a small number of physical locations can boost the productivity of IT assets and personnel. It will also simplify IT operations management. Most organizations will realize quantifiable returns from such efforts.
1 Weill, Peter. IT Savvy: What Top Executives Must Know to Go from Pain to Gain. 2009.
Building an engine that generates a steady stream of innovations in processes, technology and product development is difficult, but companies that are able to do it, differentiate themselves from competitors. Innovation groups (other companies call it evolution committees or R&D groups) should focus their energy on:
- Incremental Improvements (streamlining, optimization, reengineering, cost reduction, reliability)
- Radical Periodic Improvement (New platform, new methods, new strategy, new philosophy, Enterprise 2.0, leap to Process Culture, etc)
Examples of two companies who have mastered innovation are Toyota and Google. Both are leaders in their respective industries. Toyota’s success is tied up to its well-known business model– the Toyota Way that has been duplicated by other companies in different industries. The Toyota business model has been so successful that the company has relied on it for decades now to run its global business successfully. Toyota, for a long time, has a strong process culture and its continuous dominance is driven by its focus on incremental process improvement that is tied up to its quality operations and production management.
Google, on the other hand, grew rapidly because of the radical rules they initiated that redefined the use of the Internet. Roberto Verganti in his book Design-Driven innovation compares this radical change to having a vision, and taking that vision to the heart of the customers. In the case of Google, this means the Web users. Think about it. This company has overturned our understanding of the use of information and networking. Jeff Jarvis in his book What Would Goggle Do?, talked about Google differentiating itself from the likes of Yahoo and AOL. Unlike the previous search giants, Google is not a portal; it is a network of platforms. Google, in a way, empowered the users of the internet, changed media and redefined the advertising rules. We as users have not asked for these new necessities, but when we experienced them, it was love at first sight.
It’s hard to imagine how already huge companies such as Toyota and Google can continue to improve and sustain growth well into the future. They have perfected the fuel that keep them competitive and well ahead of everyone else. They rely on the combination of continuous incremental changes and periodic radical innovations. I think it is mandatory for companies who aim for sustainable growth and continued primary industry position in the future to push for visionary innovation. There is no single scheme to follow. It is a transversal process that depends on combining industry experience and strong innovation methodologies that create new ideas, new technologies, new products and new processes.
Design-Driven Innovation- Book Recommendation
Last weekend, I came across a book entitled “Design Driven Innovation: Changing the Rules of Competition by Radically Innovating What Things Mean”. This recently-published book is written by Roberto Verganti — a professor of Management of Innovation at Politecnico di Milano. He is the founder of PROject Science, a consulting institute that provides consulting services on management strategic innovation.
The book caught my attention initially because of its title. I have a close affinity for design initiatives, having moved early last year across the Pacific from Asia to the company headquarters to join a Global Design Team. I have always believed that innovation from a well-thought out design initiative can radically improve a company and change the rules of competition in its industry — be it product innovation, organizational, technological, process and company philosophy.
From the front flap of his book, Professor Verganti presented his vision of a bold new way of competing. He wrote, “Until now, innovation studies have focused either on radical innovation or incremental innovation pulled by the market.” He explains that “…design-driven innovations do not come from new markets; they create new markets. They don’t push new technologies; they push radically new meanings.” His book talked about innovative products like Swatch in the 80s and as well as Nintendo’s Wii and Apple’s iPod – both of which are currently dominating their respective markets. In the fourth chapter of his book, Professor Verganti provided a comparison between the innovation strategies of Nintendo, Sony and Microsoft in the US$30 billion game console industry. Nintendo, after dominating the game market in the 80s, was experiencing a downturn, until they released their revolutionary Nintendo Wii. Meanwhile, Microsoft and Sony were focused on incremental improvements on their Xbox and Playstation products through better speed and graphics. Nintendo, on the other hand, introduced the radical idea of using game consoles as an active physical entertaining medium. It generated new meaning to game consoles and appealed to different consumers worldwide.
I think managers who are interested in innovation should get a hold of this book. This can be used as essential reference for all those interested in design and determined to make innovation the driving factor in their business and profession. In my case, the reason I bought this book is because I am interested in Processes and IT innovations. I believe this book will definitely provide me insights on methodologies that can drive process innovation initiatives. It is something that I want to write about and explore.
Book Cover Image Courtesy of Harvard Business Press.