Investing now for the upturn later

Companies that successfully emerge from the current economic slump will be those that focus on technologies such as Web services and "adaptive" supply chain networks and closely align their IT managers with business unit and marketing leaders, said analysts at Forrester Research Inc.'s Executive Strategy Forum here this week.

According to Forrester Chairman George F. Colony and his research team, forward-looking organizations should begin to invest in four technologies and strategies now to better position their organizations for financial success once the economy rebounds.

Those strategies include:

Web services to help companies create tighter links with customers and suppliers and run internal operations more efficiently.

"Right channeling" -- companies that recover the fastest will take the right customer to the right channel with the right product at the right time.

"Organic IT" -- making use of information systems where data can be easily shared between applications.

Adaptive supply chain networks.

American Express Co. is one of those companies that's trying to position itself for sustainable growth, regardless of economic conditions. Two years ago, the New York-based financial services giant began expanding its distribution channels and focusing on improving its operational efficiencies. The company's Web-based initiatives have played a key role in both strategies, said Kenneth I. Chenault, the company's chairman and CEO.

American Express' use of online services has enabled the company to lower its transaction processing fees to customers by between 50 percent and 70 percent, while also enabling it to lower airline ticket costs and hotel costs for corporate customers by 15 percent to 20 percent and 8 percent to 10 percent, respectively, said Chenault.

"We expect the Internet to generate [profit] margin improvements for us over the near to moderate term," said Chenault, who said the company has increased its marketing and technology spending year-over-year. But "I don't think you should plan strategies on hopes" of an economic recovery, he said.

In other cases, a business requirement can be so acute that an IT project doesn't need to be cost-justified. That was true at Aramark Corp., which earlier this year had a customer in Ohio that had trouble keeping track of the 14,000 uniforms provided by Aramark. So Aramark built a Web interface to its inventory system for the customer that tracks where the uniforms are and how many are issued at a given time.

The system enabled Aramark to land a contract extension with the customer, and "that was a case where nobody asked me where the money came from, it was just, 'Bob, go do it'," said Robert D. McCormack, senior vice president and CIO at Aramark.

In other research presented at the forum, Forrester detailed how it tried to quantify what many IT managers and industry pundits have long suspected: that the best-performing companies don't necessarily spend the most on IT.

According to a Forrester study, the top-performing companies in terms of revenue, return on assets and cash-flow growth spend less on IT, on average, than other companies.

"There's no direct link between how much you spend on IT and financial performance," said Christopher Mines, a research director at the Cambridge, Mass.-based market research firm.

Forrester found, for instance, that "frugal" IT infrastructure investments correlate with better return on assets, that a higher proportion of top-performing companies are holding the line on infrastructure spending compared with other companies, that Web services adopters perform better financially, that supply chain software adopters get a higher return-on-assets and that the IT organizations of top-performing companies tend to be less centralized.

The research firm also found that top-performing companies are more likely to roll out technology from start-ups and are 25 percent more likely to roll out "unproven" technologies relative to other companies that were studied.

As IT professionals might expect, the best-performing companies have both the right technologies and effective alignment of IT with business requirements and business processes, said Mines.

"When it comes to IT spending, more is not better -- better is better," he said.

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