Using IT Strategies At An Operational Level To Generate More Profit
In today’s economy, organisations need to use IT to deliver timely information and cost-effective operations, yet most businesses fail to derive enough value from IT. It is time to recognise that if IT is not a strategic operational asset in your company, it becomes a liability.
It is interesting to look at the research. A report by London Economics said that 50 per cent of productivity growth can be explained by IT investment. According to IT Savvy, by Peter Weill and Jeanne Ross, IT savvy businesses are 20 per cent more profitable than their competitors, and also better positioned to take advantage of opportunities as they arise. Being IT savvy is also good for the economy – according to Mark Toomey in Waltzing with the Elephant, the improved use of IT could lift GNP by 3.1 per cent.
Unfortunately a lot of people can quickly see the limitations of rusty old equipment, but cannot see the limitations of rusty old IT systems. As a result, many still use small business software installed a decade or more ago, patched up with spreadsheets. Even though since then their business has probably tripled in size and become far more complex.
It is possible that up to 10 per cent of your business’ turnover could be trapped within inefficient IT systems, which is $200,000 for a $2 million turnover business. While most of this is in balance sheet items (like excess debtors and stock), the impact on net profit (via reduced cost of sales and expenses, plus increased sales) is well above the IT savvy 20 per cent figure.
IT direction, value and strategic vision must be driven by the business’ leaders, and the use of IT must be closely governed and always reassessed. Here are some guidelines:
- Do not abdicate IT responsibility to your office manager or anyone else – take charge like you do with other key operational strategies
- Use IT to define an operating model that brings integration and standardisation, empowers staff and improves customer satisfaction
- Do not try to do too much, too soon – focus first on the basics, like debtors, stock and expense reduction, and increasing sales
- Understand that a good IT partner can take the IT journey with you, but they cannot take the journey for you
- Understand that IT savvy businesses run more efficiently – and they also know that if they failed to do what they have done, they would not be in the game today.
ISO 38500 International Standard for Corporate Governance of IT also provides guidelines that can assist business owners and directors. It warns against focusing on Supply (technical details). Focus should be on Demand (define and justify the business purpose for IT just like any other major investment). It provides six principles which I have summarised below:
Responsibility – you must take overall IT responsibility and be sure those who perform IT tasks have the authority, time and skill
Strategy – you must ensure that your IT serves you now and in the future, considering developments in your industry and the market generally
Acquisition – the right amount of ongoing IT operational spending and ensure the investment in new IT will deliver well-defined business outcomes
Performance – ensure your IT handles the workload, provides the right results, helps you compete in your market, and the investment is worthwhile
Conformance – follow the rules including tax payments, work place regulations, security, record keeping and staff follow your own rules regarding IT
Human Behaviour – take people into account as you develop your IT plans.
Most people in business understand that their business depends on IT for their day-to-day operations, but recently it was revealed that 80 per cent of them want more IT guidance, in a language that they can understand.
Mike Rich, an accountant and IT veteran, has helped over 30,000 SMEs improve their operational performance through more efficient use of IT. Mike is co-author of the Business Improvement Guide which contains 700 tactics to assist those trying to grow from a small to a medium sized organisation. To obtain a free copy of the Guide contact us