Knowing when to invest in new systems

As a business evolves, an organisation's needs will outstrip its systems. However, there are warning signs that can tell the IT director when it is time to upgrade

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It may be a cruel myth, but it is said that if you put a frog in a pan of cold water and slowly raise the temperature, the frog will not move - even if the water boils.

 If we think of the frog as a growing organisation and the boiling water as the changing business environment, we have a pretty good picture of one of the challenges thrown up by growth. 

n all of the turmoil that inevitably comes with growth and expansion, it is easy to miss the obvious: that the processes and IT support systems no longer match the new demands of the business.

There are, of course, ways around the problem. Many organisations patch up their ageing processes and systems to try to keep pace and end up with a fragile support infrastructure that needs constant attention. At some point, however, the growing complexity and creeping obsolescence cause the IT infrastructure to collapse, followed, in some cases, by the entire business. 

At best, the organisation is overtaken by more dynamic competitors or new entrants into the market who are not encumbered by old technology. Identifying the best moment to invest in new processes and IT support systems is, therefore,  crucial to the successful transition from a smaller company to a larger one.

The first challenge is to spot the signs that point to the need for wholesale change. The second is to justify what could be a significant investment in new systems. It is not enough just to see the problem. 

In an increasingly cost-conscious business environment, the solution must be backed up with a clear business case to justify the investment.

Long gone are the days when the IT department could call on unlimited budgets and build whatever it liked. Now shareholders want to see real benefits and a quicker return on their investment in IT.

Some of the signs of growth-stimulated change are easy to see and it is easy to justify additional investment. Any project involving the automation of manual processes with associated staff reductions is easy to justify.

Business managers can see the benefits of a lower head count quite clearly. Increasing transaction and data volumes are also obvious signs of growth, and it is a simple exercise to make a quantifiable business case for more investment in processing power and storage. 

Similarly, growth in call centre activity, as a result of a rapidly-expanding customer base, is easy to spot, and again it is easy to justify further investment. Stakeholders in the business can see clear benefits from such investments and will support them.

Another example of easily justifiable investment comes from external market change. If the market in which a company operates changes radically and new systems are needed just to keep in business, it is simple enough to persuade senior management and stakeholders that the investment is necessary. 

The shift to online retail operations is a classic example. In the wake of Amazon, no serious bookseller could survive without an online presence.

The travel industry offers another example. The growth of the independent traveller market, where individuals put their own holiday packages together rather than relying on the services of a travel agent, has changed the business model for travel companies fundamentally.

Like Amazon in the book market, Expedia and Octopus have created a new online model which everyone else must follow to stay in the game. In all these cases, the signs of change are easy to see and new investment is easy to justify.

But there are other signs of change which are less obvious and put businesses in the same position as our unfortunate frog.

The changes either happen very slowly or they are the result of subtle combinations of events,  making them much harder to see.

The business case for investment, therefore, is much harder to make. Nevertheless, growing businesses cannot afford to ignore these more subtle changes that can lead to a complete disconnection of processes and IT systems from new business needs.

Ageing technology might seem an obvious sign, but often it is  not so easy to see. If a system  was installed three years ago, the odds are it will still be current. But if it is 10 years old and applications are written in obsolete code, it is almost certain to need replacing.

The problem is that, if it still works, the business case for replacement is not easy to sell.  It is also often the case that such black and white situations do not exist in reality; the system may not be that old, the language or database may be in decline but not yet obsolete.

In these situations the IT director has the biggest challenge. A large professional services firm, for example, found itself  in difficulties when it made the transition from being a nationally-based organisation to an international one.

Its systems functioned adequately enough, but a combination of out-of-date technology and restrictive IT applications led to a gradual dislocation between the new business needs and the capabilities of the IT support systems. 

 The two "killer" problems were a lack of multi-currency processing - unnecessary in a national environment, but essential in an international one - and the inability to extract management information quickly. The systems were unable to produce adequate performance data across the larger enterprise, which made it hard for senior management to make decisions, and more importantly, hard to motivate staff with appropriate key performance indicators.

If they are unaware of how they are performing and where problems lie, it is difficult for employees to find solutions.

 A retail chain faced similar problems when it grew by acquisition and trebled the number of stores almost overnight. Prior to the takeover, the company was still small enough for the chief executive to manage it intuitively.  Sufficient management information was available to support such a hands-on approach.

The chain had grown gradually with individual stores or distribution centres coming on stream one at a time. But suddenly it was faced with a step change in the size of its business which moved it from being an SME to a major player.

With hindsight, the IT systems and processes were sorely challenged to provide the additional management information necessary in an organisation where sheer size prevented the previous approach being effective. There are doubtless plenty of similar examples in every industry.

In some cases the point where the pain becomes too much is also the time when it is too late to do anything about it. Companies must therefore make sure they do not share the fate of the boiling frog and learn to spot the signs which say: reinvest now.

Five reasons to update your technology 

Ageing systems and obsolescence:  The old adage "if it ain't broke, don't fix it" does not work for IT systems. The world is changing, technology is advancing and competitors are snapping at your heels.

So while everything might seem fine today, it might not be tomorrow. 

Increasing volumes: It is usually pretty obvious when transaction levels and storage requirements are rising.

It is the inevitable result of dynamic growth. Similarly, increased call centre activity is a good sign that a company is growing. Nevertheless, some companies can get caught out. Monitor volume growth and anticipate demand for increased resources. 

Market change: The rapid growth of the online sales channel has turned many markets on their heads and companies have had to move quickly to keep pace with technology changes.

Always look ahead and anticipate structural changes in markets. 

Step change in business: Often the result of a merger or acquisition, sudden exceptional growth or international expansion can sorely test old systems.

However, such changes can be anticipated and plans laid to ensure the minimum disruption. 

Combination of extraordinary events: This is without doubt the most difficult challenge and the hardest  to spot.

The combination of low-cost, high-speed networks and  the simple-to-use web browser,  for example, spawned the  dotcom phenomenon - a massive change in the global economic environment which we are still dealing with.

Chris Digby is head of IT strategy at Deloitte

Read more on IT for small and medium-sized enterprises (SME)

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