It’s a Long Way to Business Value

Basic data
Basic data

E-business initiatives are increasingly becoming an integral part of the information technology landscape within companies. Completely unaffected by the spectacular rises and falls on the stock exchange, the proportion of e-business investments has increased slowly but continuously over recent years – a trend that will continue. In 2004, enterprises are planning to increase their investments in e-business projects by around 2.5 percent. Companies that already invest more than 20 percent of their IT budget in e-business are predicting even higher increases. As A.T. Kearney and the market research institute Line56 Media discovered from 150 IT managers of globally operating companies, the motto of the day is “business as usual.” The types of e-business initiatives are perfectly ordinary, and determined by everyday business. Almost half of the projects are launched to optimize the value chain, both internally and externally. External initiatives directed towards customers or clients, such as portals or electronic marketplaces, do not even make up one third of the initiatives. While at the height of the new economy wave, projects were sometimes set up simply for their own sake, the e-business initiatives of today are mainly geared towards cost reductions within the company. Sales-oriented projects and growth initiatives still remain the exception.

ERP programs leading the field

“Traditional” projects and initiatives aimed at increasing business intelligence make up the largest proportion of the budget. The leaders among the e-business applications are still ERP programs, on which 21 percent of all funds are spent. They are followed by portal software (18 percent), applications for supply chain management (SCM) and customer relationship management (CRM), each with 16 percent. Despite extensive coverage in the media and public attention, mobile technology solutions and electronic marketplaces are last on the investment list, with five and eight percent respectively.
The expenditure on e-business tools is similarly unspectacular: top of this list are content management (16 percent), document management (15 percent) and tools for business analysis (13 percent), while search engines (7 percent) and tools for personalization (4 percent) come last. Finally, investments in e-business networks and infrastructures show that company decision-making takes little account of trends: server hardware (20 percent) and server software (14 percent) head the list, with web services and middleware, each with 7 percent, at the bottom.
Overall, the trend in all areas shows an increase: while companies spent an average of 17.5 percent of their IT budget on e-business solutions in 2001 (2002: 19.3 percent), this had already risen to 20.3 percent by 2003.

Deficiencies in implementation

Despite careful preparation and integration in the enterprise strategy, e-business projects often do not go to plan. The A.T. Kearney study reveals a few deficits in this area. 38 percent of the IT managers polled stated that the investments lagged behind to user expectations. 36 percent believed that the investments were made in good time, and 26 percent thought that their companies had approved investment before user demand had been determined.
One problem was brought to light here: in many companies, there is still an unbridged gap between strategic planning and its implementation at IT level. The effects of this on business success should not be underestimated. In order to increase a company’s value over the long term, investments in e-business must be made that are clearly directed towards sales and growth. However, this can only happen if IT planning is an integral part of business planning and corporate strategy.
IT planning can only contribute to a return on investment if it is integrated into a company’s business strategy. This is essential to ensure that the necessary resources for implementing the business strategy are available and to fully exploit value and achieve a fast ROI. The integration of IT planning in business planning accelerates strategy-oriented implementations and quickly increases the competitiveness which is also an aim of such measures. It guarantees an optimum cost-to-benefit ratio for IT investments.

Strategy-oriented investments

IT investments should be inextricably linked with the corporate strategy. In another study conducted by A.T. Kearney and the US market research institute Harris Interactive, 90 percent of the companies polled were of this opinion. But only 32 percent make their IT planning completely dependent on the company’s strategic planning. In 43 percent of the companies, IT planning is carried out independently, and is in no way based on strategic enterprise goals. All too often, the consequence is poor innovation management.
According to the study, most of the IT investments are driven by the requirements of operative IT – that is to say, by day-to-day business. Only around half of all IT investments are fully or largely based on strategic considerations. In order to avoid these investments being dictated by day-to-day business, and ensure that IT planning becomes an integral element in business planning, it is first necessary to determine what part of the IT budget should be used to secure the continuity of operative business. Experience has shown that this is the largest cost block in an IT budget. It generates a cost spiral, because if new IT investments and solutions are used in day-to-day business, they also require funds for operation and maintenance, which in turn are deducted from the funds set aside for the development of new projects. As a result, in many cases, an ever smaller proportion of the IT budget is available for strategic tasks. But the development of new projects, which give the company a considerable competitive advantage, is precisely what the budget was intended for.
In this area, it is necessary to look closely at which applications still bring the company a competitive advantage. Costs for solutions that do not meet this requirement must be systematically reduced. In most cases, outsourcing and bundling offer a considerable opportunity to improve the situation in this respect. The remaining available or freed-up IT budget must then be used 100 percent in accordance with business planning.

Dr. Dirk Buchta
Dr. Dirk Buchta