IT's new value proposition

Johannesburg — 06 Aug 2003 — The last few years have not only been a lesson in how to make it through tough times, but also a lesson in value for the IT industry. For those prepared to listen, Rick Parry, MD of Progress Software SA, says the recession has served to teach IT what its real role in business is.

In the space of the last five years the business world has undergone a metamorphosis. Far from the anything-goes attitude of the boom years, there has been a sharp jolt back to reality as CEOs relearned to count their pennies and demand returns from investments - that is, those CEOs who are still in their jobs.

Today, it's not only competitors that threaten the future of a company. Additional threats have appeared from increased risks of operating in the global arena where a great idea can become a commodity, manufactured and distributed in the East at a fraction of the cost and time of the West; threats of terrorism and deadly diseases hang over a decision to make a simple trip to New York; and a great debt of trust has been created between business leaders and their IT suppliers.

And if that were not enough, a nagging global recession that won't go away despite the valiant attempts of analysts and gurus to create a positive vibe has made business even tougher and more cutthroat.

While there is little individual companies can do to overcome recessions or diseases, the IT problems the industry has created for itself are addressable.

In the years since the Y2K conversion and bursting dot-com bubble, business executives have developed a new approach to IT, making their suppliers sit up and take notice of what IT is about from a customer point of view.

This may seem like a strange attitude to take right now, but over the 26 years of my IT career, few, if any IT companies have actually bothered to take a critical look at what IT has done for business in terms of the value delivered.

And we're talking real value here: measurable, quantifiable return on investment (ROI). Unfortunately, value, when not defined as Gigahertz or Gigabytes, is hard to find. Corporations across the globe have spent billions on failed projects, software upgrades, crossgrades and conversions that underperform or fail to perform at all.

Chasing your tail

People chasing technology for its own sake always find themselves in the same situation. A new product is released with bug fixes and improvements over the older version, but the new version has its own bugs and problems, apart from additional requirements for more memory or faster processors - which requires more spending on hardware to experience all the joys of the new bugs and shortcomings of the software. While this is of tremendous value for the software company, which now has an annuity income for many years, the business value is minimal.

How many executives have examined how much of their installed IT they actually use and what value they derive? How much more value is a typist delivering after being repeatedly upgraded from a word processor on a 486 machine running Windows 3.11, to the latest Pentium machine with the latest software and operating system on it?

Of course this does not apply to IT companies. IT must still be the driver in IT companies to ensure research and development continues to enable these companies to create and deliver solutions delivering business value. But they should not use their clients as guinea pigs or sell products as complete solutions when they are still incomplete.

What is value?

The question often thrown into the value debate by IT companies wanting to obfuscate the issues is: How can one define value?

Turning a simple question into a complex philosophical debate assists in hiding the fact that precious little value is delivered by IT. Value, for a business, means either saving money or enabling the business to make more money. Nothing complicated in that.

Perhaps this is an over-simplified definition, but the fierce reduction in IT spending is a result of non-IT executives stopping the spending steam train and asking what value their technology investments have delivered over the years. The question asked before signing cheques these days is not what is the newest or fastest or most widely used, but: "What value will the company attain by purchasing this technology?"

Nobody would deny that technology has played a major role in business and we can now hardly function without it. But just because we now depend on technology does not mean we continually derive value from spending money on it. In fact, the numbers show that far too much has been spent on technology that could not be tracked to any real value.

Surely any business leader who is asked to allocate between 3% and 7% of their annual budgets (or in some cases more) to IT, should be assured that the investment will deliver value. For example, if technology does in fact make us more efficient, we should see a corroborating reduction in operational costs.

But what has IT accomplished? Y2K and the dot-bomb helped companies realise that it has, in fact, delivered very little.

Grudge buys

CEOs and financial directors are clearly aware of the importance of IT in their companies, but they now grudgingly authorise spending. IT managers are now measured by their contribution to the business fundamentals of reduced cost and increased value (in terms of efficiency and productivity, for example). This has resulted in the attitude of demanding demonstrable value from the latest and greatest before money changes hands.

Unfortunately for IT companies, this means that business will make use of existing technology and spend money on squeezing value out of its current infrastructure before any new purchases are made.

But all is not lost for IT companies. Those that focus on driving down costs and driving up returns will be the companies that succeed and turn the industry around through the delivery of value and measurable ROI.

This means IT firms will have to prove value delivery before seeing a penny. To prove to their clients that they have the ability to deliver, they will have to go in with risk-reward proposals. In other words, proof of concept will have to be developed and implemented in cooperation with the client, and these will have to deliver quantitative returns before any orders are signed, let alone money paid.

IT has a credibility problem at the moment, and new technology and the latest operating system will not solve it. The only solution will come through technology companies doing what they say they can do and delivering the returns they say they can deliver - all the time. If these suppliers come up with innovative solutions delivering real value to their customers' businesses, they will succeed.

The most valuable investments IT can make will be in the time and effort necessary to get close to customers, understanding what their requirements are and putting together a meaningful and manageable proof of concept. There is no easy sale, and there is no easy money in IT any more.

About the Progress Company

The Progress Company simplifies the development, deployment, integration, and management of the world's best business applications. Progress and its 2,000 Application Partners offer more than 5,000 Progress-based business applications that precisely fit customer needs and deliver competitive advantage. Customers purchase more than $5 billion annually in cost-effective software and services from Progress and its partners.

Progress® OpenEdge® platform enables its partners to deliver lowest cost-of-ownership applications that are rapidly implemented and easily integrated within and across the extended enterprise. The Progress Company is an operating unit of Progress Software Corporation (NASDAQ: PRGS) headquartered in Bedford, Mass., and may be reached at www.progress.com or +1-781-280-4000.

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