Wednesday, March 24, 2010

Is Technology Expendable?

Bookmark and Share

In my last post, I referenced several surveys and reports showing that a large number of companies reduced their spend on technology either through reducing workforce or capital investments during the last couple of years. AMR research showed 51% of the companies surveyed reduced technology headcount as a result of the recession.

That raises the question: Is technology expendable?

My view is that this is a short-sighted strategy for the companies and would backfire. In the recent years, technology has become like the basic infrastructure that enables all the processes and business functions that firms need to run. In most cases, technology enables their core business models – reducing costs through automation, consistent processes, increased efficiency, reliability, increased accuracy, and so on. Irrespective of the strategy pursued by a firm, it is the underlying technology that enables the capabilities on which the businesses depend for survival and growth. For example, none of the retailers can survive long if their point-of-sale (POS) systems were down for a day, or key warehouses were not able to receive or ship merchandise, or shipments were stranded due to an unavailable EDI gateway that blindsided their planners. The examples can go on. In the online world, the availability and performance requirements for the online retailers on cyber Mondays have become legendary.

But technology itself needs to be supported and managed. The fast pace of change of technology makes managing technology a core organizational skill. Managing technology is different from maintaining technology. A lot of firms plan their IT budgets in two categories, (1) budget to keep the lights on, and (2) new capital investments, training of IT resources, upgrades, etc. The focus of the first category is on maintaining the existing infrastructure, renewing software licenses, data center operations, etc. and the second category deals with new planned capital expenses on technology, training, and upgrades. It is generally the second category that gets cut when the times are tough. The fact is that it can be expensive to maintain a skilled IT workforce, ensure that their skills upgrade with the changes in technology, and that the infrastructure does not become obsolete.

So far, two key points:

  • Businesses depend on technology for their mere survival and existence.
  • The pace of change in technology requires that organizations learn how to manage technology effectively. This includes the technology and skills upgrades.

However, firms cutting on technology are only short changing themselves unless they really believe that in some magical future, they will be able to do away with technology completely! Pushing technology upgrades not only makes it more expensive to maintain the existing infrastructure (finding obsolete technology skills is an expensive game), but also makes it prone to failure increasing the risk of business discontinuity. It also reduces the process efficiencies and cost advantages as the competitors upgrade to newer, better technology. In short, it erodes all competitive advantages that the initial investment may have produced and eventually becomes a liability due to increased costs of maintenance, low flexibility, and low efficiency. The only way out is generally a wholesale transplant of new technology which causes huge and unmanageable change in the organization that few firms can deal with.

Many readers would recognize the symptoms in their own organizations where the firm implemented a favored technology and then declined to nurture and update it. A decade or two later, the technology dinosaur becomes too expensive to keep, too risky to change, and too inflexible to continue supporting the business requirements of the new times.

Solution? Have a technology renewal strategy and be disciplined about continuing investments. Byte-sized (the pun is intentional) change is generally much more manageable than the giga-saurs you will have on your hands without planning.

© Vivek Sehgal, 2010, All Rights Reserved.

Want to know more about supply chain processes? How they work and what they afford? Check out my book on Enterprise Supply Chain Management at Amazon. You will find every supply chain function described in simple language that makes sense, as well as see its relationship to other functions.

1 comment:

  1. Your comment about having a long-term strategy around technology investments is crucial. Suppliers are constantly driven to develop new products to compete with their peers, usually surpassing the requirements of all but their “bleeding edge” customers. The average customer is compelled to invest in technology that exceeds their requirements in the mistaken belief that technology alone will make them competitive. As I mention in one of my blogs, category busting productivity gains come from organizational breakthroughs that may use technology, but technology doesn’t cause breakthroughs without an overall plan.

    Posted on behalf of John Balodis, President
    Procurement Management Group