Frugality is not the way of IT

Sometimes management decisions can be straightforward: When revenue is growing rapidly, business leaders invest more money; when growth is slowing, they cut costs. However, in the downturn, the cost that can be reduced has been reduced, the room for price adjustment of enterprises is very small, and the signs of growth have not yet appeared. How can enterprises continue to realize the value of shareholders? What steps should be taken to achieve high performance?

Speaking of costs, how important is the role of information technology, which consumes a lot of money, in the pursuit of high performance? In the past 10 years, despite the continuous growth of investment in information technology, there has not been established a perfect evaluation standard to measure the effectiveness of technology investment projects, the solution launch cycle is prolonged and the results are difficult to predict. As a result, many business leaders are cautious about investing in IT. It's no wonder that many executives view IT investment as a "necessary evil," managing and purchasing IT only as a general product or facility.

IT Investing at the Time

In fact, technology investments are critical to a business's future productivity and growth -- and thus to high performance. Moreover, it can be scientifically and strictly managed to increase its predictability and shorten the cycle of new solutions. Rigorous management of IT investments will help companies gain cost advantages, and opposition will also help to gain market share, launch new products and serve the market faster, and can better serve customers.

Companies that achieve high performance through technology know this. They make full use of the IT investments already made, not only for short-term gains, but also for long-term competitive advantage. This forward-looking move benefits from their full understanding of information technology itself, and they believe that the evolutionary path of information technology is similar to that of previous transformative technologies. With this understanding, companies have combined their significant investments in basic applications, communications, and computing infrastructure with investments in newer, value-creating technologies.

The late 1990s saw a series of major technological breakthroughs that enabled companies to perform well at low cost. At the same time, technology suppliers have increased their capacity in various ways. In order to maintain and capture market share, many vendors are launching a number of major promotions - which means that now is a good time to invest in a new generation of technology based on existing infrastructure.

Avoiding the Savings Trap

High-performing companies outperform their competitors by investing in technology. They pay close attention to opportunities that can create short- and long-term business value, and make a strict distinction between IT spending and IT investment.

These high-performing companies have successfully avoided the trap of tightening IT spending -- the point at which many stumbled into a spiral of declining performance: they were under pressure to generate more revenue in the short term, and Believing that information technology cannot create value, so only focuses on cutting costs. As a result, new technology projects were axed, and hardware and software equipment were only replaced when they failed or reached the end of their life, resulting in obsolete and increasingly inefficient company technology equipment.

Research shows that most companies have cut their technology reinvestment in half over the past three to four years. These companies allow their IT infrastructures to deteriorate. An outdated, poorly maintained infrastructure is unlikely to function properly, let alone be competitive.

In contrast, high-performing companies do not focus solely on cost issues, but consider the overall impact of a technology project—whether it helps establish a superior cost position, responds faster, and ultimately captures a larger stake market share. High-performing companies tend to take a broader view when considering costs. For example, they focus not only on the cost of acquisition, but also on the long-term total cost of ownership (the sum of the cost of purchasing the product, the cost of maintaining it, the cost of technical support, and the cost of end-use—editor's note). Alternatively, they focus on the annual cost savings and other benefits (such as increased safety) of technology upgrades. These companies evaluate investments and risks very rigorously, and are able to predict, based on past experience, which projects will deliver more than a minimum ROI. As a result, these high-performing companies invest aggressively and confidently to manage and upgrade their technology infrastructure to bring more value to the business.

According to Accenture research, companies with the fastest revenue growth in technology budgets spend 10% more reinvestment in technology updates than companies with average revenue growth. These high-performing companies create the necessary conditions for sustained high growth and competitive advantage, forming a virtuous circle.

In addition, high-performing companies invest strategically, seeking ways to invest in technology that creates a competitive advantage. Although this advantage won't last forever as competitors race to follow suit. But this short- or medium-term advantage can be turned into a long-term advantage if the resulting financial gains are reinvested in the next round of technology. High-performing companies are always one step ahead of their competitors through continuous investment and reinvestment.

Building an "IT Factory"

High-performance companies also have a unique and unique approach to technology solutions—the manufacturing model.

Manufacturing can inform IT channel selection because it has undergone two major changes. One was a shift from a workshop to a factory, which pooled skilled workers on the same site and had them follow repeatable procedures and use reusable equipment. Another time is the outsourcing of production.

In today's information technology age, tools and processes that can be reused still exist. Some large enterprises will centralize the required staff, tools and technologies in development centers, that is, "IT factories". These centers may be wholly owned by one company, or may be partially or fully contracted for other companies' IT operations.

In addition, given the ease and efficiency of communication on a global scale, more and more companies are finding it feasible to outsource some of their IT work to other companies -- even overseas. The advantages are not only lower costs but also faster production cycles. In particular, if the global distribution of IT work centers allows IT to "follow the sun" so that there is always a certain part of the IT team working at all times.

Currently, there are not many companies using this method of information technology centralization or outsourcing. So far, only some of the leading companies have started to create factory-style IT centers and remain cautious about outsourcing overseas. As a result, today's information technology is like the manufacturing industry of the past, and the introduction of new products has to go through a long cycle. Product qualification rate is low, inventory surges, and work is inefficient.

However, leading companies that have turned to this new centralization or outsourcing model have benefited. Take General Electric Company (GE), which applied its management principles of manufacturing and global outsourcing to IT management and logistics, and became one of the first large companies to establish 24-hour customer service and IT systems that operate 24/7. Currently, GE requires a certain percentage of IT jobs to be outsourced globally.

From a strategic perspective, determining the location of IT service centers on a global scale brings more value than cost reduction. This "sunset" type of IT operation can reduce the project cycle by 30% (for some application solution projects, the cycle can even be shortened by half), and increase the existing productivity of program developers by 30%. Reducing production costs and shortening the cycle of IT projects, while delivering top-notch results on time and within budget, will enable companies to achieve exceptional levels of performance and profitability.

Maintaining Existing Facilities

IT infrastructure continues to play a critical role in the pursuit of high performance. In order to reduce cycle time, companies must coordinate and arrange tasks in a timely and proper manner among IT suppliers, business partners and various IT service centers. This requires changes to the company's data centers, software and networks. Recently, radio frequency identification equipment (RFID, refers to the process of using radio frequency transmission technology to store data and identify data, which is a kind of non-contact automatic identification technology), mobile network solutions have become more and more popular, and IT infrastructure has become more and more popular. Continuous updating and improvement is an important part of ensuring their safe operation.

Does this mean more investment in IT infrastructure? The answer is yes. It should be pointed out that although many companies have established most of the infrastructure, there are still some infrastructure constructions that are not fully in place. For example, some enterprises may already have the core network capabilities to support communication between various business areas, but still need some network infrastructure to support wireless communication between personal devices. Although new technologies require additional investment, most companies can leverage the foundation laid by previous large investments. Leveraging your IT infrastructure to the fullest can improve your business' ROI.

In addition, the dangers of maintaining existing infrastructure without additional investment are unimaginable. Decades ago, the UK invested heavily in the rail system, benefiting from it for many years, but they neglected to maintain and upgrade the system. The operational performance and return on investment are so impressive that no one thinks about it: if the system is continuously upgraded, will it be better and better? As a result, the quality of infrastructure has declined year by year, and by the 1990s, there were loopholes in the safety system of train operations, rising accident rates, frequent delays of trains, and greatly reduced service levels. In this way, Britain had to re-invest heavily in the railway system. With this in mind, companies should try to avoid repeating the mistakes of their IT infrastructure investments.

Integrate, Innovate

To achieve higher returns and shorter cycle times, companies must also integrate their own software, tools and standards. They must leverage web services and enterprise integration tools to reuse applications and improve integration; they must also continue to leverage investments in general-purpose software (also called packaged software, as opposed to custom software) , to adopt workflow best practices rather than single-handed self-development and maintenance.

Finally, high-performing companies must consistently focus on technological innovation, both on the front end—that is, designing and implementing information technology, and on the back end—that is, bringing information products and services to market.

High-performing companies typically innovate with strategic goals in mind. This may or may not require investment in new technology. These companies already have a remarkable ability to discover the value drivers of the industry now and in the future; they have not only this insight, but also a deep understanding of the critical role that information technology can play in establishing distinctive operating models and business structures.

They know that the use of information technology can not only improve the customer service level and lower the cost of enterprises, but also increase the cost efficiency of products and services, thereby bringing more profits to the enterprise. They also know the value of past IT investments: existing information technology can serve as a leveraging platform for emerging technologies. Ultimately, new products, services or business models emerge that can harness the power of an integrated information technology infrastructure.

Some companies are more attentive than others, resulting in a much better return on their technology investment than others. At the end of the day, in the long quest for high performance, what really matters is how you invest in technology: can you make your technology investments work, put in a 12 percent effort to build your technology infrastructure, and be ready for the next wave A true breakthrough innovation.

This text is reproduced with permission from Accenture Outlook Magazine Volume 16 Issue 1 February 2004, Copyright Accenture 2004. Translated by Liu Songjie.

Author Bob Suh lives in Boston and is a managing partner in Accenture's global technology and outsourcing practice.