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Early IT Adopters Article

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Where Have All The Early Adopters Gone?
An analyst study reveals that early adopters of technology are better aligned for growth and
outpacing their competitors

                         by Mark Livingston, Dan Starta, and Christian Hagen
                         July 2003, Issue 22




Illustration by
Michael Klein




In the not too distant past, labeling a company as an "early adopter" of IT was a badge of honor. In most
cases, it meant your company was innovative, shrewd, and competitive. Early adopters changed the way
entire industries conducted commerce. Managers quickly developed new business models for which
these technologies served as the "tip of the sword," creating opportunities and new regional cultures.
Aggressively leveraging new technology was the way to do business; early adoption and market entry
meant everything, and caution led only to disaster. When economic conditions changed, however, most
companies pulled back on IT spending, and the importance of early adoption—of just about any
technology—dropped to about the lowest business/technology priority a company could have.

But an A.T. Kearney study completed this spring with Harris Interactive shows there's proven value in the
early adopter status, provided the strategy is driven by the business side. Early business-driven adoption
of technology can lead to competitive advantage. Not only do early adopters and companies that focus on
innovation grow faster than their peers, but they also have a tighter linkage between their business and IT
strategies. In fact, in our research of 144 companies in the United States and Europe, more than three-
quarters of innovative companies described their IT planning as "fully integrated" or developed with "direct
reference" to corporate strategy (see chart, below). Also, nearly 60% of early adopters of technology said
their IT sponsorship was primarily business-driven. Both these figures are much higher than the overall
survey average.

And the real payoff: Of those businesses that followed the early-adoption approach, 63% grew faster than
their competitors over the past five years. These same companies were much more likely to indicate that
their business and IT planning was a cooperative, integrated process.

That's the good news. The bad news is that while many companies would prefer to adopt earlier in the
technology life cycle, most seem unable to execute this vision. Instead, they reluctantly invest in mature
technologies—and miss the advantages of early adoption (see chart, p. 86).

How can a company reap the benefits of early technology adoption? Mainly by changing the way it views
three important elements: its own strategy-development structure, the process it uses for evaluating IT,
and the potential technologies themselves. Gone are the days when a company could view IT adoption


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from an isolated technology-centric stance. Instead, IT adoption must now be integrated into the
business, from strategy, to implementation, and then on to measurement. IT adoption and innovation
must create business value and fit into the overall business architecture as a key competency required by
the enterprise.

What's more, CIOs and their business-executive counterparts need to become more skilled in evaluating
and making sound investment decisions about disruptive technologies that support their corporate
strategies. The ability to assess the potential impact of nascent technologies on a company's value chain
and competitive position is crucial. The most successful businesses will be adept at drawing technology
landscapes that put emerging technologies into the context of their corporate strategies. This will help
identify both the potential benefits and any adoption or technology issues, such as complexities or a lack
of standards, that might interfere with building business value.

There are three steps that should be considered.

The first is to understand the functions that create, or will potentially create, advantages for the company.
Not all functions are created equal, and spending large amounts of capital to implement a new commodity
application, such as a general ledger, typically does little to help a company.

The next step is to generate a list of all potential technologies that might play a role in your industry and to
align them with crucial functions. These technologies should be evaluated against such measures as
value to the business, risk, implementation costs, standards, and how they fit into and complement the
present IT architecture.

Finally, it's vital to have a solid understanding of the internal and external triggers for each function and
technology. These are events that occur in the internal function, industry, or technology that can
accelerate or decelerate a technology's adoption time line. Examples include reaching a certain
purchase-order threshold, developing a technology standard across the industry, or reaching a lower IT
cost point. Anticipating the timing of triggers related to specific functions and technologies—and
identifying the options for deploying those technologies—can help to efficiently and effectively deliver
business benefits.

After developing the technology landscape, it's time to evaluate your options against both the high-level
business benefits the technology will generate and your ability to implement the technology. The decision
is influenced by how successfully you can deploy your technology and which benefits it will produce.

Finally, companies should evaluate potential projects against specific financial and strategic benefits.
Business cases for adopting new technologies require great care and rigor. Companies that fail to realize
business value from IT investments often begin with flawed business cases.

Chemical reaction
We've seen that innovative IT adoption must be a business-driven competency; technology alone isn't
enough. Now let's explore what that actually means.

Many companies still struggle to determine when in the technology life cycle to deploy a particular
technology. Our research shows that delaying a decision causes many to miss out on the growth benefits
of effective early adoption. Businesses that continually innovate and adopt new technologies at points in
their value chains where comparative advantage can be realized are well-positioned for the future.

A good example of innovation and early adoption geared toward the customer can be found at Occidental
Chemical Corp., a $7.3 billion manufacturer of basic chemicals, vinyls, and performance products. A
participant in the A.T. Kearney study, OxyChem illustrates how an old-line manufacturing company can
effectively innovate and align IT adoption with both its customer and business needs, and in the process


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redefine the rules of the game for its industry.

Several years ago, OxyChem realized it needed more integration points and purchase-order functionality
to improve service to its customers. It installed an SAP ERP system with the appropriate hooks to let its
larger customers' production processes directly trigger replenishment actions within OxyChem's order-
fulfillment operation. For customers that couldn't take advantage of direct ERP connectivity, OxyChem
installed sensors at the customer sites in tanks holding raw materials. Those sensors trigger a purchase
order when the quantity of those materials drops below a preset level.

OxyChem also used this platform to integrate its supply chains with those of its customers, in order to
reduce its inventory levels and working capital, increase staff productivity, improve production-scheduling
accuracy, and enhance distribution-planning efficiency. These additional services have also improved
OxyChem's customer relationships. This, in turn, has led to increased "wallet share" and higher levels of
profitability. OxyChem didn't just wait around for customer-centric technology to mature. Instead, it
responded quickly to its customers' needs by adopting new technology with a smart, innovative, business-
driven strategy.

Sprint Corp. is another company that understands the benefits of early IT adoption. Though packet-
switching technology has been around for years, Sprint recently announced plans to become the first
major U.S. telecommunications company to shift to a network architecture based completely on this
technology. Sprint's new system will be more flexible than those depending on traditional circuit switching,
and it should be one-third less expensive to operate. A fully packet-switched network will also enable the
carrier to offer flat-rate plans, in which customers can use either wireless or wired phones. The
technology will let Sprint produce targeted product bundles for customers at reduced cost, and increase
its competitive positioning and margin control.

To overcome the inhibitions to effective early adoption and integration of business and technology
strategies, companies also must change the structure of their business and IT leadership and how those
teams interact with the rest of the company. While companies in our study consistently identified IT as a
key enabler of business strategy, fewer than a third said their IT organization is a fully integrated partner
in business planning.

IT is becoming more fully integrated in the strategy-planning process and CIOs are more accepted as
peers and leaders in the business-planning process. Additionally, there's greater emphasis on business
skills, such as finance and planning, and CIOs have broader backgrounds than in the past. In fact, the
survey shows that the background of the average CIO includes more operations experience and business
expertise. Indeed, nearly 90% of those surveyed said an operations background is critical for CIOs, and
75% percent said a financial background is critical as well. Accordingly, organizational models should
properly place the CIO at the corporate-strategy and-planning table alongside the business-unit heads.

Direct merchant Lands' End Inc., another participant in our study, is a good example of a company that's
optimizing the integration between business and IT organizations. The Lands' End executive team—the
CEO, COO, CIO, and other key senior executives—formulates the company's key business and
technology strategies and initiatives before communicating them to all employees in order to ensure that
everyone understands the overall strategic direction. In addition, an IT steering committee, comprising
business vice presidents and the CIO, prioritizes the company's IT initiatives and approves its technology
blueprint. This blueprint describes how the company will implement the applications and infrastructure
that will best support the Lands' End business strategy.

Lands' End CIO Frank Giannantonio was recruited by the company's COO to lead the IT organization and
sit on the executive team. "The CIO has to be a strategist, a business partner, an architect, and an
executive; you have to be all four," Giannantonio says.

Companies and executives also need to treat IT as a portfolio rather than a loose collection of unrelated

Where Have All The Early Adopters Gone?                                              Page 3   of 5
projects. Ideally, an IT portfolio should focus on three distinct areas, each with its own shareholder-value
proposition: operational excellence, business enablement, and innovation. Managers who segment
technology-related initiatives in this way can vary their approach to sponsorship and measurement, and
define their value expectations depending on the type of project.

The first group of projects in the portfolio are those designed to achieve IT operational excellence—
typically in infrastructure areas such as servers and networks. These are operated with the intent of
achieving high levels of effectiveness and low costs. Balancing cost and service levels is the key to
managing this segment of the portfolio, since there's little opportunity for competitive differentiation here.

Core business enablement is the second category. These projects support and transform core business
processes within the organization. The goal of IT-enabling processes is to take value chains and business
operations to world-class levels. This category includes software packages that improve core functions,
such as accounting, customer-relationship management, and supply-chain coordination. Success is
measured by the improvements made to core business processes or growth. These offer a moderate
opportunity for competitive differentiation.

The final grouping should consist of projects aimed at achieving breakthrough innovation to realize a
competitive edge in the marketplace. These initiatives move far beyond marginal improvements to current
processes; they involve transforming competitive strategies and market dynamics, repositioning the
company against its competitors, and allowing the company to enter new markets. Here the potential for
competitive differentiation is at its highest.

Mining value
Understanding this model and how each of its sections delivers value is key to cultivating a business
organization that supports early IT adoption. While all areas of the IT portfolio offer opportunity, each area
offers different levels of potential value for early adoption and innovation strategies. Identifying where
money can be saved at the operational levels and then redirecting these funds toward more lucrative
portions of the portfolio will allow your company to better segment its IT and embrace opportunities for
early adoption.

Three primary areas of opportunity exist to cut costs in the IT portfolio. First, look for strategic sourcing
improvements in IT support functions and equipment, including servers, PCs, storage, maintenance
services, and contract labor. Second, focus on achieving service and application delivery process
excellence. Consider in-source/outsource assessments, operations process assessments, end-user
service offering-and delivery-model effectiveness, and alternative delivery models, such as hosting or
offshore delivery. Finally, address the applications. Once your application inventory and functional overlap
are defined, you can begin to develop an approach to rationalize applications and reduce redundant
maintenance costs.

The road to these new business models and strategies isn't easily traveled. Nor can it be avoided.
Companies that begin taking their first steps toward strengthening IT and business partnerships and that
move strategically toward tomorrow's more flexible strategies will be favorably positioned for continued
success and growth.

Mark Livingston is VP and Dan Starta and Christian Hagen are principals in A.T. Kearney's Business
Technology Consulting group.

Sidebar: The 90-Day Plan
This plan will move you from conceptual ideal to pilot implementation, and place your company on the
path to generating value from innovative solutions. It begins with integrating your IT portfolio with the
overall business-and strategy-planning process.




Where Have All The Early Adopters Gone?                                               Page 4   of 5
First month: Establish a framework for an early-adoption program

 Create an executive team of business and IT leaders to govern technology adoption. The team should
focus on the CIO's role, formal reporting structures, planning processes, and tools to track and
communicate promising technologies for the business.
 Define a governance model that will lead the evaluation and review process for potential technologies
and assign ownership for the process.
 Set schedules for technology evaluation and vision sessions with the executive team.
 Conduct planning sessions with top business and corporate managers to determine business initiatives
that technology can accelerate.

Second month: Select and plan the implementation of a pilot project

 Propose a pilot focused on business results, technology dependence, strong business support, and
reasonably mature business processes. This will set the trajectory for your early-adoption program.
 Develop an execution plan. Remember, early adoption is not about technology success—it's about
technologies enabling business results.
 To prepare for the long term, categorize your applications into three distinct areas: operational,
business enabling, and innovative. This helps IT and business leaders better understand their
investments.
 Segment your IT portfolio and look for opportunities to redirect cost savings to support early adoption.

Third month: Execute on your pilot and focus on a successful implementation

 Continue to communicate to management and stakeholders on the status and expectations of the pilot.
 Measure results. Don't forget to measure both before and after effects.
 Identify key barriers and enablers to early adoption in your company.

Beyond: Sustain the momentum

 Develop a technology-enabled, business prototype environment focused on demonstrating the value of
evolving technologies. Touching and seeing prototypes in process is one of the best ways to build buy-in.
 Reinforce the governance structure for early-adoption evaluation. Ensure that the CIO and new
technology evaluation areas are effectively integrated with strategic business planning.




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