By Dave Kelly
In today’s e-business environment, keeping up with the competition just isn’t good enough. In a world where every company has established a presence through its Web site, and many companies offer the same basic goods and services, being “just like the other guy” is a recipe for failure.
By next year, business success will be predicated on “effectiveness”—how quickly and successfully companies can customize their applications and IT infrastructure to provide higher-value interactions with customers and prospects. To measure and evaluate that effectiveness, and the IT investments required to achieve it, companies must also shift from a traditional “carbon world” focus on return on investment, to a “wired world” focus on return on opportunity.
This article originally appeared in Wiesner Publishing’s Software Magazine and appears on TechRepublic under a special arrangement with the publisher.
Traditionally, companies such as McDonald’s gained competitive advantage by focusing on efficiency and location. But neither of these historic best practices holds up in today’s e-business world. Today, competitors selling the same products are just a click away in customers’ Web browsers. Companies must now balance the traditional drive toward efficiency with the new requirement for increased effectiveness. Simply said, efficiency provides competitive parity while effectiveness delivers competitive advantage.
Although increasing efficiency through integration, consolidation, and automation is critical to a company’s success, most companies will achieve competitive advantage through customized, adaptable, intelligent applications and IT infrastructure. As a “brick-and-mortar” company moves to a Web-based business, customization and intelligence capabilities will play a critical role in enabling increased effectiveness as measured by revenues, profitability, market capitalization, and customer loyalty.
For example, many financial institutions give customers the ability to trade stocks and follow the market online. The capabilities for account management and basic transactional functionality (buying and selling stocks, mutual funds, or options) are basically the same across different competing financial institutions. How will these businesses define and differentiate themselves moving forward? Hurwitz Group believes that the ability to offer differentiation on top of basic transactional capabilities—providing, say, the capability to set up complex, programmed trading—will be the key to success, creating a stronger customer base that is less likely to switch to a competitor.
To create these customized, adaptable applications, companies must balance traditional, IT-oriented efficiency with new, Internet-style effectiveness.
The flip side
This is a clear change in metric. For the past 10 years, IT and business management have focused primarily on efficiency when evaluating technology investments. Efficiency achieved through streamlining business processes, automating tasks, and reducing headcount was a critical focus of IT investment in the late 1970s, 1980s, and early 1990s. In the mid-1990s, the epitome of efficient IT investments became large, enterprise-oriented packaged applications like SAP, PeopleSoft, and Oracle Financials. Such investments were critical for keeping up with competitors and being able to run complex and distributed operations. Increasing efficiency and its associated benefits—decreasing costs, reducing time-to-market, integrating resources, and standardizing procedures—continues to be critical.
Effectiveness, the flip side of the efficiency coin, means increasing the potential value or value delivered to existing and potential customers and prospects. Amazon.com is a good example of a company that delivers a high level of effectiveness through the use of customization and personalization. Its ability to deliver appropriate, user-specific recommendations for other potential book choices (through its “Instant Recommendations” section) is one of the keys to its success in hooking and keeping the interest of customers.
Today, there are several ways to increase effectiveness, including: Investing in infrastructure. The ability to adapt a technical infrastructure to changing business processes will enable organizations to meet more new customer demands. Deploying advanced application features. These features include techniques such as visualization for quicker, more effective use of data; artificial intelligence capabilities to automatically identify potential opportunities; and complex algorithms for specific vertical markets.
Integration of business process and systems. MCI’s ability to roll out its Friends and Family promotion was a result of leveraging multiple core systems and creating new packaging and billing processes.
When opportunity knocks
How can companies measure their effectiveness in this new e-world? Hurwitz Group has developed a Return on Opportunity (ROO) Assessment model to help organizations focus on top-line opportunities, including increasing revenue and market capitalization, expanding the customer base, and encouraging customer loyalty.
For years, companies have used both total cost of ownership (TCO) and return on investment (ROI) calculations to compute the impact of purchasing software or hardware on their IT budgets. Although useful, they fall short in assessing the potential for new revenue that software investments can create.
Whereas ROI is defined in financial terms, ROO is defined in business terms. The ability to seize opportunity for competitive advantage requires reducing the amount of time needed to implement a solution. Minimizing time-to-market requires being able to adapt quickly to change by maximizing the reuse of existing resources. The Hurwitz Group ROO model measures the adaptability of an organization’s technical architecture, application architecture, and business processes, and the company’s ability to leverage existing resources, including people, applications, and technical resources.
In today’s world, identifying opportunity (or ROO) is more critical than identifying areas for savings (or ROI). Successful businesses will use ROO metrics to move from functioning reactively to functioning as proactive, competitive machines.
One category of products that is well suited to ROO assessment is enterprise application integration (EAI). EAI solutions combine middleware technologies (such as data translation, data transformation, and message queuing) that allow companies to connect enterprise applications at both the data level and the application level.
For example, a company might use an EAI product to build a connection so that every time a new customer places an order in an SAP system, a customer record is created in the help desk package automatically.
While EAI-type solutions will (most likely) increase a company’s efficiency, since data doesn’t have to be re-entered, their true potential value comes from the flexibility and adaptability that they can provide. Since data and application events can be shared across systems, business managers are free to define new types of business applications and processes that will maximize revenue opportunities without being overly concerned with the limitations of any package.
Now, more than ever, organizations must plan for change and create business, technical, and organizational infrastructures that will adapt to change over time and be proactively adjusted as new business needs arise. The EAI ROO measures the adaptability in an organization’s technical architecture, application architecture, and business processes, and the ability to leverage existing resources, including people, applications, and technology.
The EAI ROO assessment allows users to determine the scale of ROO from an EAI engagement by ranking a series of factors on a scale of 1 to 10. Examples of these factors include:
- Rate of Change in Business Environment
- Adaptability of Application Architecture
- Adaptability of Technical Architecture
- Adaptability to Changing Business Processes
- Leverage of Existing Resource
Hurwitz Group believes that companies should use ROO to prioritize the potential benefits from new technology solutions such as e-business applications or EAI. This will allow companies to plan their businesses, IT architectures, and applications around the increasing importance of effectiveness. To succeed in e-business, Hurwitz Group is convinced that all companies must proactively work to balance efficiency and effectiveness.
Dave Kelly is the vice president of the Application Strategies Service, Hurwitz Group, Framingham, MA. E-mail him at email@example.com.
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