In the context of global markets, analysts and consultants are calling for the midmarket to modernize and optimize their IT landscapes, and particularly for them to link them to their business strategy. Have midmarket organizations lived up to such expectations in the past?
This question cannot be answered in such general terms, as midmarket enterprises, particularly in Germany, are an extremely heterogeneous bunch. It is true that the IT landscapes in many midmarket businesses, whether they are ERP, CRM, or SCM systems, are now not only obsolete, but they have also become detached from the business strategy. However, in some sectors, such as banks and insurance companies or the telecommunications industry, IT plays a mission-critical role and is therefore central in the implementation of the business strategy.
That said, this issue is in the main dominated by the shortcomings in the midmarket. One reason for this is the investment backlog resulting from the difficult economic situation in recent years. This is compounded by the fact that the most up-to-date versions of solutions weren’t implemented during previous projects, and also that software manufacturers have continued to develop their solutions in the direction of integrated solution portfolios.
You often find that in the past the decision to invest in a new solution was sometimes made from the point of view of the IT department, without an adequate link to the business strategy being established. The logical consequence of a selection and implementation strategy that was restricted to purely technical aspects was that the technical considerations as seen by the IT department came to dominate. In my opinion, however, it is absolutely essential to involve the other departments at the planning stage of a project. This can instill a high level of motivation in these departments, which is necessary in order to map business processes efficiently in the software solution and manage the implementation of a complex software system effectively.
What are the reasons for this inadequate link between IT architecture and business strategy?
To put it crudely, communication only works when two people are speaking the same language. In our experience, this isn’t always the case between IT and the other departments. But if this common communication level is missing, a comprehensive, company-wide business strategy cannot be satisfactorily “transported” to the IT systems. This is why it is essential to intensify communication between the departments during IT projects.
This is particularly important if there is a strict divide between IT and the other departments within the company. This separation has often grown up for historical reasons, but it needs to be broken down, at least for the duration of a selection and implementation project, to improve the communication flow between the departments.
Why is it worth an midmarket organization’s while to invest in new systems?
Ultimately, all companies need to ask a central question, regardless of which particular complex system they want to invest in – namely will this expenditure pay dividends over a certain period of time or not? Midmarket companies should always make sure that the software fits the company. That means that it must fulfill the required tasks, and it shouldn’t be overly complex or simplistic. For instance, it hardly makes sense to implement an entire CRM suite if you only need individual functions such as the Interaction Center (IC) or Marketing and Campaign Management to start with.
Further, state-of-the-art and integrated corporate solutions help companies improve the quality of management information in terms of planning, budgeting, controlling, and reporting. Midmarket enterprises whose new software solution provides them with higher quality and faster information about partners, customers, and suppliers have a de facto competitive advantage. Management has more information at its disposal, enabling it to make well informed and future-oriented decisions. Conversely, companies that only have badly structured or faulty data available are inevitably forced to make business decisions based on a significant degree of uncertainty. And that tends to be the case with systems that have had their day.
And which models do you recommend to companies for calculating the Return on Investment (ROI)?
I have problems with forcing general cost-benefit analysis models on to companies. Cost-benefit analyses only make sense if they are oriented to the individual circumstances within a company, both in terms of processes and software. If an ROI can only be calculated using methodologically complex models, then any midmarket company will have difficulties making an investment decision. Such an investment only makes sense if the cost-benefit analysis is plausible for a project and can be presented in an easily understandable form in a specific business case for the company.
Isn’t the assertion that companies who invest in their IT landscape will at the same time improve processes and lower costs a paradoxical one?
It’s not paradoxical, it’s inevitable. In saying that I’m assuming that the project is being handled professionally and that the implementation of the new software solution is not purely an IT project. As I have already mentioned, individual departments need to work closely with the IT department in the planning phase and draw up corresponding specifications, otherwise they run the very real risk of the company spending the money on a new IT landscape without achieving the possible process improvements and cost reductions. In particular, the departments need to assess the functionality of a software application in terms of their own needs and also the process and cost improvements the solution would achieve.
No IT solution on its own will result in lower costs within a company, let alone more efficient structures or improved processes. Everyone involved in the project needs to work hard during the project to achieve the potential increases in efficiency and effectiveness. An external consultant can play an important role, for instance as a mediator of information between various groups involved in the project.
What should the midmarket do to interlink business and IT strategy to maximize benefits?
In future the integration of applications will play a central role for midmarket enterprises. Let us take the example of midmarket companies involved in the manufacturing industry. Companies may operate and manufacture at different locations around the world, or they may buy up smaller competitors. However, it is often the case that the different branches or acquisitions are poorly integrated into their head office’s business management systems. Heterogeneous systems make it difficult to exchange data and information and result in complex interface landscapes. However, if an small or midsize manufacturing firm maps its individual business sectors in a standardized business management solution, this leads to a clear benefit in terms of transparent data and a far higher quality of information. An ERP system thus enables and facilitates a homogenization of the IT landscape.
However, and I don’t mind repeating myself here, IT, or IT architecture, and business processes should be regarded as a logical unit and always linked to one another. For this to succeed, all departments need to be pulling in the same direction.