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Friday, 29th March 2024
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Making IT investments pay their way Back  
Owen Purcell reveals that recognising bad investments is the first step to making the most from e-finance.
Businesses have invested large sums of money in technology over the last few years, particularly in e-business initiatives. Right now, many in the financial services sector, which has invested more than most, are asking themselves whether the money has been well spent. Some of the costs are sunk. Some will repay many times the initial investment. What is certain is that, regardless of their recent experience, financial services organisations will continue to invest in technology because the potential payoff in increased productivity is simply too great. This begs the question: what will be the critical success factors for getting the best out of IT investment?

First let’s look at some of the technology-driven challenges which senior management are facing
:
• There are going to be more projects and consequently IT resources will have to be spread thinner.

• There is going to be more new and varied technology. Therefore expertise in particular niches is going to be required.

• Projects are going to have greater complexity but business users and consumers are going to have less tolerance for solutions which do not meet their expectations.

• Business users expectations on time to market have significantly reduced.

• There will be an ongoing need to maintain existing systems while developing new innovative solutions.

All of this means that the pressures on making the IT investment perform are only going to get worse. And the spend on IT will continue. For e-business initiatives alone, Gartner estimates that the global market spend on hardware, software and consultancy services will grow from $76 billion in 2000 to $527 billion in 2005.

Some of the key drivers of this growth are the technology companies themselves. They make their money by developing and selling new products, so cannot afford to stand still.

And consumers are demanding more. For those of us who have worked or consulted extensively in the financial services sector, we are well aware of the difficulties involved in amalgamating customer data from disparate legacy systems in order to develop meaningful Customer Relationship Management initiatives. From the consumer’s perspective, all they see is that they can ring their local takeaway and using Caller ID the takeaway knows who you are, your preferences, how regular a customer you are and where you live. Yet every time they want to apply for a new financial services product from their bank, they need to fill out their name, address, date of birth, etc. on yet another form.

With all of these challenges it is important for senior management to have a road map as to how to move forward. The following key success factors summarise some of the main steps in DCP’s methodology for assessing the appropriateness of e-business initiatives.

• When reviewing existing or partially complete initiatives, recognise sunk costs for what they are and do not be afraid of walking away from an investment, if it no longer makes sense.

• Align all initiatives with the corporate strategy, objectives and core competencies. Do not get distracted by initiatives which are not core to your strategy, which will not help you to achieve your corporate objectives or which you do not have the ability to deliver. Clearly, if you identify initiatives which present significant opportunities but do not fit with your strategy, objective or core competencies you should look at alternative ways of capitalising on the opportunity, e.g. outsourcing, joint venture, etc.

• Prioritise. Many organisations have more initiatives than they could possibly hope to deliver on and end up doing none of them well. A simple way to prioritise initiatives is to map them on a matrix which has one axis as ‘Ease of Delivery’ and the other axis as ‘Impact on Corporate Objectives’. The initiatives which you should focus on are the ones that are easier to deliver and have a high impact.

• Understand why you are making an investment, i.e. understand the difference between strategic investments which position the organisation for future market opportunities and investments which should have an immediate positive P&L impact.

• If it is a customer facing initiative, make sure that it enhances the customer experience. Too many e-business initiatives have been done in a rush and have failed to deliver on customer expectations. Consequently, they have caused more harm than good.

• Develop a business plan with clearly defined business objectives. Many decisions will have to be made over the course of a project, it is important to have clearly defined business objectives in order to provide a context for those decisions.

• Define the measures of success. The business plan should include clearly defined measures of success, i.e. the old adage of what gets measured gets done applies just as much for e-business initiatives.

• Develop a holistic business plan not just an IT investment plan. To achieve maximum return on an investment, an e-business initiative should look to transform the way that that the company interacts with customers and/or suppliers, manages its processes, shares knowledge, etc. This requires the involvement of multiple departments from the start, in order to ensure that the investment is successful.

• Cash is king. While it is often difficult to predict cashflows, discounted cashflows are still the best way to analyse potential investments. For defensive initiatives, i.e. to protect market share, it is perfectly valid to include the positive marginal cashflow from the saved market share.

• Communicate. You can never communicate too much, this is particularly true if the initiatives is going to have a significant impact on the way that people work.

• Manage scope ‘creep’. Over the course of a project, as a business gains a better understanding of the capabilities of the new technology, there can be a tendency to want to include additional features in mid development. While management who are responsible for the delivery need to keep an open mind it is important to maintain focus on the business objectives and to manage the scope accordingly.

• Benchmark. This is particularly important if a business is new to the e-business space. It is important to know if an investment in technology is under-performing and the reasons why.

• Have a fulltime financial analyst. Some large IT investments have budgets bigger than the operational costs of a medium-sized business. It would be unreasonable to expect a business to operate without adequate financial information. Similarly it is unreasonable to expect an IT investment of scale to operate without financial information.

• Learn from every project regardless if it is a success or a failure.

Finally, do not lose the energy and decision-making impetus created by the e-business revolution. Opportunities still exist to leap-frog your competitors or to drive out costs. Many organisations created an energy in the early hay-days of e-business and it is important that these energy levels are maintained and nurtured in the organisation.

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