Article 11 by HC12100114275

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									   Moving the back office to the front – a fundamental need to re-appraise the
                         management of IT in the SME
Background

All those working in the business world agree that IT is having a significant impact on working
practice and overall productivity – much as advanced manufacturing/ service delivery and inventory
control systems had on operational efficiencies in the 1970's and 1980's.

For many companies, IT is becoming increasingly central to the way in which they are building
competitive advantage in four main areas:

Improving the management of information within the organisation (data mining, customer
relationship management, knowledge management);
Improving productivity in handling and processing information – automating and simplifying a
range of business processes;
Co-ordinating suppliers, production and customer delivery into a seamless process;
Promoting and developing business relationships via web based systems.

That is the theory, but

Most companies report poor returns from their IT initiatives, with key findings such as:

Only    20% of companies in an average of three recent surveys stating that they were highly
   satisfied or completely satisfied with IT initiatives;
 89% of companies surveyed stated that there were problems with either budget, time or
   specification in their large scale IT projects;
 Only 7% of companies considered that they were getting an adequate return from their Web
   based investments
 Only 10% of customers regularly visit their suppliers web site (Ibis research suggests that it is
   lower – below 5% for the typical SME)
 Conversion rates – that is customers switching from traditional means of doing business to e-
   commerce based systems remain low in many sectors

Why should the short term promise not be fulfilled (there is evidence that in the medium term the
benefits start to occur – witness recent economic analyses in the US)? The majority of problems
appear to lie in seven areas, each of which have planning and organisational implications.

Lack of investment appraisal. Many companies have failed to apply investment appraisal techniques
to IT projects, unlike similar investment in plant or premises. This is because the IT programme is
often perceived as a “must have” act of faith. This has inevitably led to a failure to set clear output
objectives of each IT investment, and an inability to set priorities for IT investment – as no-one
knows where the highest returns will be achieved.

Limited project planning. Complex IT projects are often outside the expertise of many firms, which
has meant that project planning and project leadership has not been as rigorous as in other areas.
This accentuated the poor goal setting which is created by the lack of a detailed investment
appraisal process.

Lack of career path and staff retention. There is the temptation to regard IT personnel as purely
technicians with their severely restricted position within the firm. Little attempt is then made to
integrate them into the personnel development and succession planning systems within the
organisation – leading to higher turnover rates and lower levels of work satisfaction.

Outsourcing controls. Most IT projects involve outsourcing; indeed they are often the first time
many companies are involved in any major outsourcing deal. Few create the necessary frameworks
to manage such arrangements well; recruiting external advisers with experience in the contractual,
technical and operational details that are vital to manage often complex programmes.

Limited internal integration of IT functions. The growth of IT within many organisations has been
haphazard. “Traditional” IT (office systems, network, intranet management) has been added to with
web management (the web master often reporting to a separate centre within the company), order
processing systems managed by production/ logistics, hr by personnel, and so on. This often means
considerable duplication of effort and investment.

A failure to develop a strategic approach to systems architecture. Associated with all the other
problems is the tendency to bolt on further IT functions for specific departmental requirements,
with the result that systems are incompatible; cannot share information, and are cumbersome to
operate.

Poor monitoring. As different departments operate different systems there is no integrating
monitoring information to drive out better performance and focus on those investment areas which
will generate the highest level of return.

Looking back at solutions from previous decades

The most obvious analogy that can be drawn (and one that is useful as well) is the change that
happened with manufacturing industry. For those wishing to go back in history, manufacturing
industry operated with a series of separate kingdoms. There was a purchasing department, a
production department, a transport department, and very often a separate warehouse and storage
department. The result was somewhat similar to that which is seen in many company IT operations:
order, counter order, disorder.

A more competitive environment meant that manufacturing industry was forced to:

Increasing the integration of processes
Create unitary management structures
Monitor and benchmark performances to drive steadily greater productivity

The result is that leading companies within manufacturing industry have continued to see quality,
productivity and skills enhancement.

Starting with the vital organisational response for IT development

The Ibis view is now that the standard structure of the SME in the first decade of the 21 st century
should reflect the growing importance of the IT function. Management should accept that IT is no
longer a back office function – it is now in the front line in building and maintaining competitive
advantage. This must be reflected within the senior management structure of the company.

This new organisational approach has obviously already happened within those companies where
IT operations are a core competence, but the analysis of trends in the importance of IT as a means
of gaining competitive advantage suggest that the senior management structure should reflect this as
a normal feature of company governance.
Creating clear responsibility and authority

Once the strategic decision has been made to re-organise in this fashion, the accompanying new job
descriptions and authority for IT management can be clarified. IT senior management now take
financial responsibility for project management and delivery; they control outsourcing programmes;
they become involved in staff development programmes.

Where this has happened, IT performance and returns have already been substantially enhanced. In
Ibis experience it is Scandinavia that is leading the way in Europe – reflecting their often more
analytical approach to business structures, planning and organisational development. The potential
returns throughout all areas of the business have far outweighed the cost of installing a further
director/ senior manager in each company reviewed.

Building useful monitoring systems

What monitoring targets should be introduced? One of the big problems with IT investment in
many organisations is the lack of clear measurement. What does IT deliver that we can easily
measure? The obvious overall impact is on productivity – but this is derived from a number of
separate initiatives within the normal company, many of which are only poorly connected to IT
investment. The clearly measurable (and useful) components of an IT monitoring module can be
identified in 7 different areas.

Some of these need a re-organisation of the typical monitoring module structure which is
introduced as part of the Ibis standard programme. This is current Ibis thinking on the relative
importance of the monitoring framework – but each organisation will have slightly different criteria.

Administration cost ratio (AER). IT is all about delivering productivity gains particularly in back
office areas. Concentrating on the AER as a key performance indicator (KPI) for the IT department
has substantial implications for training and the particular choice of systems.

Purchasing. The key performance indicator here must be the percentage of purchases made through
e-commerce platforms, and the efficiencies of the operation.

Sales. Similar key performance indicators can be created for sales, though where the company is
involved in web based development the number of criteria will need to be expanded.

Logistics costs. Obviously the ability of IT solutions to deliver improved logistic costs is a central
feature of IT delivery.

Training cost per staff/ day. Where the IT department is involved in sourcing and delivering
training evidence has shown continued and substantial reductions in costs.

Web functionality. Key measurements on web functionality will need to be included, particularly
where web systems are central to operational development.

Intranet functionality. Similar measurements of intranet functionality and usage can produce
significant changes in the operational performance of the entire organisation.

Many of the benchmarks for each of these elements exist, so the creation and management of the
monitoring module is a fairly easy exercise.

A late building block in the creation of the monitoring programme
The introduction of an IT management and monitoring module requires a substantial amount of
organisational development to have been completed, and the current experience would suggest that
it needs to be a fairly late introduction.

For new companies entering the monitoring and development programme this module is now
considered to be essential for the creation and maintenance of competitive advantage.

								
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