Sitting on a fortune

Feature

Sitting on a fortune

When customers refuse to buy, it is sometimes a good idea to abandon the hard sell and encourage firms to review and refresh the systems they already own

At an IT conference for business managers in Florida this summer, one presentation attracted particular interest from the more technically minded delegates. Entitled Giving Your HR Management System Its 60,000-Mile Tune-up, the session focused on how to extend the life of existing systems. Although the conference was aimed at Human Resources professionals, the message it gave out has relevance across the board: in the middle of recession, the best thing users can do is exploit the technology they've already invested in.

For resellers and services companies, these kinds of efforts to extend the life of existing systems are a double-edged sword. On the one hand, it's hardly in the interests of either hardware or software providers to encourage users to stave off new IT purchases. On the other, many users that take a detailed look at the way they're running their systems will still turn to third parties for help. That may come in the form of consultancy dollars - inhouse IT departments may not be familiar with all the techniques required to maximise their existing systems, for example - or it may involve software and hardware purchases.

While users are less inclined to throw out their core IT systems in a downturn, an in-depth review of their existing IT set-up may demonstrate that smaller, tactical purchases are required. By recognising economic realities and helping users to postpone major purchases, third parties at the very least generate goodwill and at best create additional revenue.

A closer look
But anyone preparing to go down this route needs to be aware of a few harsh realities. To begin with, third-party service providers must to be able to offer specific, specialised skills and demonstrate that the projects they're proposing are supported by a solid business case. Even if the IT department can see the benefits of fine-tuning their systems, business managers will require evidence that this is a 'must have' investment rather than a minor luxury.

Although some of the benefits of system overhauls fall to the bottom line, others are designed to improve efficiency - and that must be seen to matter to more than just the technical purists. As Kevin Lucas, senior analyst at AMR Research, points out: "Resellers have it tough. They can try some of the arguments - for example, to sell upgrades - but they're going to find it tough because people don't want to be signing cheques. They've got to expect to fail in those arguments."

In addition, organisations that streamline their systems
may find they can cut their IT bills - perhaps by reducing ongoing maintenance fees - which can also adversely affect vendor and services communities.

Nevertheless, John Kaplan, business development specialist at US-based JAT Computer Consulting and presenter of the 60,000-Mile Tune-up presentation in Florida, offers some encouragement to third-party service providers. He advises user organisations to address a range of IT and business process issues which directly or indirectly provide potential revenue streams for third parties.

To begin with, many systems are simply run inefficiently. A lot of databases contain old or inaccurate records that clutter the system and would be better deleted or archived. Likewise, large companies often have duplicate Web sites that can be rationalised, cutting down on maintenance resources and, in some cases, bringing better marketing and brand consistency.

Many organisations could benefit from reviewing their internal security access procedures. Kaplan says most security systems are put in place during new software implementations or upgrades and cater for whatever business structures and procedures are in place at the time. But as individuals change jobs and organisations evolve, companies tend to build 'workarounds' which over time create unnecessary complexity.

Similarly, many IT departments fail to keep up to speed with maintenance upgrades. For live applications, this can cause major problems - vendors will object to handling support calls from a user that hasn't kept its applications up-to-date.

But it's an issue that can also affect shelfware. Individual software modules are frequently left untouched when users roll out applications, either because they want to focus on core applications or the software isn't relevant to their needs. Maintaining those modules is important if there's any possibility that they'll be implemented in the future.

Claiming benefits
These kinds of issues, while important, are mostly related to IT housekeeping. Lucas asks: "If you're just tweaking systems, will anyone really notice?" The biggest benefits that organisations

can gain from a system overhaul are those that directly affect the business. Not only are these easier to sell to business managers at the outset, but they also provide tangible results on completion.

At their most basic, these business benefits take the shape of cost savings. When they review their licensing arrangements, for example, users may discover they're paying for applications they no longer use or need, particularly where they've downsized or left particular markets. Sometimes this is simply due to excessive caution or inefficiency in the IT department - firms often carry on running old systems when replacement applications are installed and decommissioning these frees up resources and cuts maintenance.

But the ramifications from system overhauls go much further and it's here that services companies need to be able to offer business processes as well as technology consultancy. Poor data quality, for example, isn't simply a headache for database managers - it can also distort management reporting and decision-making. With managers demanding in-depth business intelligence on all aspects of their business, from financial reporting to workforce planning and modelling, the quality of the data held in central repositories becomes increasingly important.

Similarly, it makes sense for IT and business managers to review what management reports are issued and how useful they are from a business perspective. Are reports going to the managers who need them and in a format that's accessible and comprehensible? In an environment where every item of expenditure comes under close scrutiny, this kind of process management can provide tangible improvements.

Priority report
Kaplan also recommends that users reassess how closely their IT systems are aligned with their business objectives. Although it's notoriously hard to calculate ROI for complex IT projects, most purchases are backed by some kind of business case explaining what corporate objectives will be met. It's worth reassessing how effective these objectives have been.

This isn't just a case of checking to see what goals were missed: where projects have largely hit their corporate objectives, this kind of assessment provides hard evidence of IT competency that can help justify new investments further down the line. As well as reviewing the original business case, it's also important to assess how effectively a system meets evolving needs.

This alignment between IT and business needs is an area that Lucas also hones in on. "I favour things that affect the bottom line and position IT and the business well for what's coming next. Lots of users don't understand their business processes. In order to gain credibility for their department and get business cases past the board, IT directors have to prove their business credentials. So for some of them, now is a very good time to understand what their businesses are up to," he claims.

This isn't just an educational issue for internal IT departments. JAT Computer Consulting specifically recommends that users turn to third parties to provide independent audits of the efficiency of their business processes.

Lucas adds that tough economic conditions allow companies to reprioritise their projects and timetables. Initiatives that were sidelined during the boom years because they weren't seen to be drivers of growth can force their way up the agenda at a time when expenditure is capped - particularly in areas such as user training, which can often be carried out internally with no direct costs, or administrative activities such as documenting business processes.

But Lucas warns that many of these initiatives are major undertakings and organisations need to be prepared to abandon them if the economy picks up. "When the economy changes, the business wants to crack on with new initiatives, but IT is hamstrung with other projects that never had strong priority. So, if you do something big, make sure you can stop doing it without letting a lot of people down," he says.

Waste disposal
Ironically, the most tangible benefits that third parties can bring to businesses may come in the form of software audits aimed at finding out what applications have been left sitting on the shelf and where additional products can be usefully installed.

The first task isn't always the easiest to carry out - even if you weren't the reseller that sold the original applications, pointing out how companies have paid for technology that they're not using doesn't reflect particularly well on either the customer or the IT industry as a whole.

But the reality is that users leave modules uninstalled and there will be times when they simply aren't aware of what they own. The advantage of rolling out these modules is that they're effectively free and where they're part of a software suite, they're likely to be well integrated with existing installed applications.

Bolt-on applications - whether from the core application developer or third parties - are obviously more lucrative for resellers. Tactical in nature, these kinds of purchases tend to be directed at a specific business issue or 'pain point' and the business justification for investment is usually easier to map out than a full-blown system implementation. Sometimes the simplest approach can generate the best response - some add-ons will be products developed by the user's existing suppliers since the initial application was installed. These bolt-on purchases aren't restricted to software - memory, for example, is cheap right now and can bring about tangible performance improvements.

The bigger picture
Finally, third parties should think laterally about revenue-generating opportunities. User group meetings may produce new leads - companies attend not just to keep up to speed with new developments at their core vendor, but also to see what customisation work other users are undertaking and check whether it's relevant to their own organisation.

Much of this work will be oriented towards specific vertical markets and third-party developers with expertise in those sectors could find that bespoke work can be replicated relatively easily for new customers, or that bespoke projects that are prohibitively expensive for a single user get the go-ahead when costs are shared.

Lucas argues that resellers should focus on sectors where economic downturns prompt a requirement for IT investment. The removals business, for example, benefits from changing economic conditions: in an upturn, companies expand into larger premises. In a downturn, they move to cheaper offices.

Above all and as much as possible, resellers should be taking a long-term view. Preparing for an upturn may seem premature at a time when the IT industry is suffering the biggest recession for two decades, but it's useful to do so from a practical and relationship management perspective. Practically speaking, users need to be identifying their future needs in order to ensure that they can map out a business case for investment when the economy recovers, especially as the software selection process can be lengthy in sectors such as local government.

In terms of customer relationships, resellers and services companies that respond to user needs in a downturn - by helping them get the most out of their existing investments - will have favoured status going forward when spending restarts.

That may be little comfort today, but if third-party providers can make it through the downturn, they can position themselves more effectively to take advantage of the recovery.

Dealer opportunity checklist
Technical consultancy services

  • Overhaul security procedures

  • Clean data

  • Ensure maintenance releases are up-to-date

  • Decommission old systems

  • Stop paying maintenance on unused applications

  • Streamline where possible (e.g. rationalise Web sites)


Business consultancy services
  • Audit business processes

  • Check how well IT implementations meet original business objectives and review against ongoing needs

  • Consolidate management reporting


New implementations
  • Audit 'shelfware' and where appropriate, implement modules that have already been paid for

  • Review third-party bolt-on applications

  • Review new applications released by incumbent vendors since existing systems were installed

  • Link with user groups to foster joint customisation projects

  • Prepare a business case and project plan for possible future investment during upturns


Source: JAT Computer Consulting/AMR Research

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This was first published in October 2002

 

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