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Recovery in Technology, Part I – Buyers

Published
  • September 27 2002, 1:00am EDT

As most people are hoping for a miraculous recovery from the economic recession, I’d like to identify certain aspects of technology from a buyer’s and seller’s standpoint, how the mistakes of the buyers and the sellers contributed to the recession and how the initiatives of the buyers and the sellers help the economy return to higher rates of growth. This is the first part of the recovery series focusing on buyers: how strategy and business intelligence is combined to become an integral part of the recovery process. While we are in the middle of an economic crisis, the opportunity exists for buyers to learn from their mistakes in purchasing products, services and people, and take advantage of technology to increase their competitive advantage at a much lower price than two years ago.

There are three key components of a firm’s technology infrastructure from an acquisition standpoint:

  • Products
  • Services
  • People

Products and Services

Prior to the crisis in the technology sector, the industry had a narrow view of the technology world and the buying patterns were haphazard. The view was narrow, because in the boom times not spending on technology simply meant that losing competitive advantage. This applied to both products and services. In other words, the demand for technology was high without justification for underlying economic reasons. The server rooms were full of servers shipped from various vendors running only those vendors’ specific software. Almost each software product had its own server because if the product resided in a server with several other programs, there was the perceived risk of "corruption" and the vendor might not have supported the product. Investment in technology meant investment in software and hardware anyway, and hardware was perceived as inexpensive. This approach led to underutilization of hardware resources, which meant lower efficiencies, which simply means a low return on investment. It didn’t take too long before firms decided to take advantage of the existing processing power they had to achieve higher utilization rates, but that meant that they would not invest in new hardware purchases. This was the end of the hardware buying frenzy.

People

With several products purchased, maintenance was a nightmare, so the firms hired more and more people. As the firms realized that some of the technology they invested in did not necessarily meet their needs, they decided to write it off and reduce the maintenance costs. This realization occurred naturally because the firms wanted to reduce the level of complexity. When the firms were in a hiring mode to support their growing set of technology investments, many people saw that as an opportunity to build a career in technology, one with potentially a higher level of income. This led to a boom in the training sector. When the firms decided to support only the core technology they needed to run their businesses and support decision making, they simply got rid of excess technology and with that, the excess manpower. This was the end of hiring frenzy and the beginning of layoffs. (One would notice the difference between acquiring software and hardware and hiring employees at this juncture from a cost perspective.)

Overall, while the employees and the product and service vendors seem to be hurt the most in a downturn economy, the buyers, i.e., the private and public organizations that make up the market and create the demand, were hurting in their profitability figures. Billions of dollars were spent in hardware and software that would never be used. Thousands of people were hired, trained and laid off. One must realize that the impact of all this on the competitive strategy of any firm is extremely high.

It is the buyer firm’s responsibility to obtain a positive return on investment? The key in obtaining a positive return on investment depends on identifying a justifiable value and a reasonable total cost of ownership. In business intelligence or in any other technology investment decision, the first task is reviewing the corporate, competitive and functional strategies. The next step is identifying the information needs, problems and opportunities.

In facing business decisions, i.e., problems or opportunities, Herbert Simon identified three phases of decision making: intelligence, design and choice. The firm must adopt a simple framework in its decision-making processes at every functional layer. The technology needs of the firm are for supporting the complications of this framework by means of computing power. This leads to business intelligence. If technology offered does not fit in the technology framework of the firm, or if there is ambiguity, the firm must either wait until the ambiguity is resolved and there is a clear benefit or decline the offering. The second important aspect is that the firm must choose a vendor that offers an end-to- end product even if the product is for a small process. This does not mean that the product or service must be an enterprise solution but rather it is less dependent on other processes that must be in place with minimum maintenance.

In summary, it is clear that the times are tough. Still, there are companies maintaining profitability regardless of what analyst estimates say or what the stock price is. There are firms out there increasing their intrinsic value. The successful ones that I see, hear and read about are the ones that are very focused in their corporate, competitive and functional strategies and core competencies and follow their frameworks. They build realistic technology road maps. Technology investment for these firms has a higher chance of providing a positive return on investment in the short and the long term but, more importantly, these firms are using technology to increase their competitive advantage in today’s economy. What’s more, they are doing it at bargain prices.

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