Part IV: A Framework For IT Value




Last week, we discussed the cost dimension of IT Value. This week, we will discuss the time to market dimension.

Time to market:

One of the more obvious and pronounced benefits of IT has been to make process execution faster through automation. IT has been credited with increasing efficiencies through automation. Unfortunately, often, the credit stops there. However, automation has both efficiency and effectiveness capabilities.

A company that gets products faster to market makes money faster. Money is not made till someone buys a product – the quicker we make it the quicker someone buys and pays for it. Here are some steps along the journey from concept to value recognition:

  1. Generating product ideas or concepts
  2. Converting concepts into prototypes
  3. Getting feedback on prototypes and ensuring their marketability i.e. do customers want it and if so, what are they willing to pay for it
  4. Converting prototypes into mass production
  5. Distributing manufactured products to customer “outlets”
  6. Taking customer orders
  7. Collecting payment from the customer

The efficiency rationale is simple. If it takes the company, 100 days to get from concept to payment, then the investment it has made along the way does not produce results for those 100 days. For every day that is reduced from this cycle time, the company makes more money without doing anything additional i.e. not investing a single dollar more.

  1. Time value of money:
    1. A customer payment that is with you a day earlier means you have that money to “invest” for one additional day
    2. Your investment is now paid for a day less
  2. Reduced overhead: one also eliminates the cost of keeping the product for one additional day

Is there an effectiveness pay off as well? Absolutely!

Here are the four ways it does so.

Right-size Resource Levels

Reducing overhead through reduced inventory seems like a good idea. However, in the instant gratification world that we live in, often, out of stock means out of luck. The customer will go somewhere else. The idea is to keep the “right” amount of inventory.

Improve Product Lifecycle

In an increasingly competitive world, people are demanding newer and better products. The average product lifecycle – from concept to sunset – has been reduced dramatically over the past decade. How would you like to buy a car model that is 2 years old? Car manufacturers must refresh their models every year to stay competitive. When Chrysler integrated their engineering, design and manufacturing processes in the early 90s they saw an immediate up tick in business.

Reduce Product Failure

Then there is the concept of product failures. How many new products pass the muster once they get to market? Less than 20%! This means that 80% of a company’s investment goes to waste! So, faster time to market is a virtue in the context of a product being marketable. Quickly delivering undesirable products is a disastrous strategy for any organization.

But there is an even more powerful capability that creates value: product innovation. Time to market must also be balanced, indeed coordinated, with product innovation.

Sustain Product Innovation

The concept of invention is distinct from innovation. The former refers to ideas and products etc. that are “new to the world”. The latter refers to ideas and products that are “new to you.”

Inventions are very costly business and usually it is someone else who makes money from yours! For example, take the television set. It was invented in the US but perfected by the Japanese. How many American television sets are there in the market today?

Well, what goes around comes around. The Japanese domination in this area has eroded thanks to the outsourcing they did to the Taiwanese and South Korean manufacturers. Now, it is the Chinese who are increasingly dominant in this space.

Innovation is a powerful tool to generate value. Usually, they require tweaking and converging existing ideas/products to suit a customer demand; not creating a product from scratch. This tweaking and receiving customer feedback happens in a virtuous cycle that creates value all along. A product is created and marketed till it needs a refresh. Then through feedback generated from the market, the company tweaks it and the “new and improved” version hits the market.

Proctor and Gamble perfected this strategy in the consumer goods arena. Technology companies have used this strategy to generate value while creating a winning product. Software versioning is an extremely powerful tool to generate value.

Microsoft is often accused of marketing “half cooked” products and letting their customers do the testing. While it is fashionable to bash Microsoft, why is it still in business?

The fact of the matter is that till the product, in Microsoft’s case software, is used, there is no way to tell if it got all the functions that a user wants or if they will work with the various configurations that different computer users have on their computers. There is no way out but to introduce the product and see what happens.

IT Can Help Improve “meaningful” Time to Market

IT can and does help identify the right amount of raw material and finished goods inventory. It also helps identify and automate inventory reorder points. Integrated, optimized and automated processes result in generating value not just reducing costs.

IT can create value by helping “filter” bad product ideas before they hit the market. More importantly, it can do so while reducing time to market! Decision support, not automation, helps in this endeavor. A data warehouse with effective analytics can spot customer demand and trends that the company can leverage. It can also spot the market reception and forewarn product managers of impending disasters.

IT can help create the product innovation virtuous cycle. Integrated, optimized and automated processes are critical to the success of innovation. But we also need excellent customer support and service that makes sure customers do not leave because of “glitches” in the product. More importantly, to collect their feedback and integrate those requirements in the next release of the product!

Next week, we will look at the productivity dimension.


Follow the Series:

  1. Part I: A Framework for IT Value
  2. Part II: A Framework for IT Value
    In Part 1, we lay the foundation for a discussion on IT Value. This week, we look at specific areas where IT creates value.
  3. Part III: A Framework for IT Value
    In Part 2, we focused on revenues. This week, we look at the costs in the IT value equation.
  4. Part IV: A Framework For IT Value
    In Part 3, we discussed the cost dimension of IT Value. This week, we will discuss the time to market dimension.
  5. Part V: A Framework for IT Value
    In Part 4, we discussed the time to market dimension of IT Value. This week, we will discuss the quality dimension.
  6. Part VI: A Framework for IT Value
    In Part 5, we focused on quality and its impact on IT Value. This week, we will take a look at productivity and its impact on IT Value
  7. Part VII: A Framework for IT Value
    In Part 6, we focused on productivity and its impact on IT Value. This week, we will take a look at customer satisfaction and its impact on IT Value
  8. Part VIII: A Framework for IT Value (Risk Dimension)
    In Part 7, we discussed customer satisfaction. This week we will look at the risk dimension of IT Value.

 

Sourabh Hajela is a management consultant and trainer with over 20 years of experience creating shareholder value for his Fortune 50 clients. His consulting practice is focused on IT strategy, alignment and ROI. For more information, please visit http://www.startsmarts.com/


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