Friday, May 20, 2011

Technology: Enabler or Inhibitor

In their enthusiasm to cut costs during the great recession, American corporations cut spending across the board. These cuts included major reductions in capital spending, of which information technology is a substantial part. The result: Companies are now feeling constrained by the ability of their (obsolete) technology to enable new strategic business functions.

imageFor example, consider this study published by McKinsey Quarterly that shows the impact of not adopting an integrated life-cycle-based pricing strategy. As a product moves through its life-cycle of introduction, ramp-up, maturity, and decline, the costs associated with the product change. So does the profitability. However, this is not easily visible to the company unless they adopt an integrated life-cycle pricing strategy. In addition to the product life-cycle, the factors affecting the prices depend on product demand, movement, inventory, promotions, mark-downs, and competitor pricing. For any retailer to capture all these contextual information and consider them in pricing their merchandise, the integration technology and a streamlined integrated process that spawns across organizational boundaries are an absolute must.
An integrated pricing strategy becomes ever more important with proliferating channels and the mobile revolution that allows consumers to compare prices anywhere, anytime.  
This predicament of needing to enable an integrated pricing strategy and unable to do so, is precisely what is being captured in a recent RSR survey. In the survey from RSR, 76% retailers reported having to “operate within an extremely price competitive environment” which necessitates an integrated pricing strategy, but almost half the retailers felt that their technology infrastructure constrains their ability to adopt optimized pricing strategies. When asked what would be the most valuable way to overcome the barriers, a whole of 56% selected “improved integration technology tools” closely followed by their desire to have their business leaders help them change their process and process analysis for improvements. You can read the complete RSR article by clicking here.
But most companies have themselves to blame – in the heat of the great recession, sometimes to survive and at others to meet expected Wall Street numbers, companies aggressively cut costs including capital investments.  The result is that most companies have fallen behind on their technology investments and are either saddled with higher maintenance costs to support older technologies or are unable to support business innovations, such as the integrated pricing situation described above. 
Research from Georgia Tech College of Management shows this declining trend in capital investment driving the companies where they are unable to leverage their technology assets to support changing business requirements.
To understand the relationship between the business goals and how technology enabled business capabilities can help you achieve them, review my book on business strategy
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© Vivek Sehgal, 2011, All Rights Reserved.

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