Econo-Metrics:  Estimating Value; Measuring Results

12/06/01

If you read the computer or the business press you’ve probably noticed how many articles appear about reducing expenses and saving money.  Some of these articles are about the specific problems of financially troubled companies who must reduce their expenses to survive; in many cases, deep (and possibly painful and unwise) cuts are being made now to offset foolhardy and luxurious expenditures made over the past few years. 

But most of these comments refer to ordinary firms, large or small, who are troubled mainly by the uncertainty of the times rather than by particular problems caused by past management sins or seemingly uncontrollable economic events or acts of God or man.  Nearly any survey on the mood of business you may read reports that businessmen and women are concerned about

	Their customers’ inability to make decisions as quickly (or, in some cases, at all)
	Their suppliers’ inability to deliver promised merchandise against anticipated deadlines
	Disruptions caused by undeclared wars, terrorist acts and threats, and the security precautions we’ve taken as a result.  For example, a simple one-day business trip now may require two or three days given extended travel time for security, (adding typically two hours to each flight), fewer flights and less scheduling flexibility, and nervous travelers who have made their own precautionary rules.  (We’ve heard colleagues mention that they won’t travel to or through certain airports or that they won’t use particular airlines or types of planes, for example.)

Focus On IT Savings 

What are such companies doing in their IT departments?  For the most part they’re focused on saving money.  That seems to mean several quite different things.

1. Don’t spend money, even budgeted dollars for the current year, if you don’t have to. 

This means a lot of “soft” projects have been put on the back burner.  What’s soft varies from company to company but all soft projects share certain common aspects:  they don’t solve important, mission critical problems; they don’t have a high-ranking organizational sponsor; and they often have science project aspects (they’re early in their life cycle, with unproven results or uncertainties in their implementation cycles). 

2. Be conservative in your spending plans for 2002.  

Most surveys indicate that IT management spending plans are flat or up in single digits for next year.  For a few companies, they’re actually down, usually because the company is making substantial cuts elsewhere, as the result of a major restructuring.

3. Demand a quantifiable ROI and a short-term payoff everywhere. 

It’s really hard to get any support for projects, however interesting in the long run, that won’t produce a Return On Investment within six to 12 months.  IT Managers who are sitting on diminished or slower growing budgets want to be certain they can prove results for what they do spend.  Again, this puts lots of pressure on soft projects, experiments, new and unproven technology, and other concepts that could lead to impressive future breakthroughs but which are unlikely to be funded next year.

Advice For Technophiles And Technology Sellers

It’s just as well to understand the problems and plan for them.  There are some projects that will be funded without question this year and many will simply turn their efforts in those directions.  We’d look to:

Security Anything

Companies who were lucky enough to get through September 11 unscathed want to make sure they’re ready for anything.  Vendors of High Availability Systems, Back-Up Software and Systems, and Disaster Recovery Schemes are doing really well right now and will continue to do so for at least a little while.  We’d add to this Network and Systems Security schemes designed to keep hackers out.  So far, viruses and hacker attacks have been more annoying than actually destructive, but the terrorists may yet hire someone’s very smart and disgruntled systems programmer.  

WebConferencing Many firms are now substituting on-line meetings for travel.  It’s a triple – saves money on travel while protecting employees by keeping them safely in their normal workplace, and saving travel hours to increase productivity.  Companies can buy webconferencing systems, but most will take advantage of this technology by simply buying time on existing services like Webex (www.webex.com) and Placeware (www.placeware.com).

Distance Learning Virtual classrooms were already on the way up the ramp this year.  The need to save money and discourage travel makes the concept even more appealing.  Distance learning takes longer to sell and implement for companies that want their own platforms and custom courseware, but many companies can get up and running quickly by using xSP-provided platforms and courseware from rapidly expanding libraries on many subjects.  For example, at www.dlcoursefinder.com/ you can find more than 50,000 on-line courses.

Look For That ROI  

Increase Revenue   Most IT organizations are also interested in anything that they can prove will offer a measurable (and substantial) ROI.  Especially popular are projects like Customer Relationship Management (CRM), which are expected to increase customer satisfaction and thereby increase the Revenue per Customer available to the firm.  Other Hot Areas are Collaborative Commerce, supporting communication and faster cycles times between business partners, and Supply Chain Management (often related).

Reduce Costs   Many IT organizations look at Intranet-focused Portals for their employees as a good way to save dollars on support and infrastructure.  Here, the trick is to use centralization, integration, and economies of scale as a way to reduce costs while continuing to offer employees as good or better service, access to data and computing services, and corporate information and communication.  Personalization (often a non-starter in earlier corporate systems) can be readily supported via directory-based schemes and simple tools supporting user preferences.

There Are Still A Few Brave Souls

We do expect to see fewer new, big projects started next year, particularly from-scratch, all-custom ones.  It’s just piling too much uncertainty on top of uncertainty.  On the other hand, for the gutsy IT Executive or company that is willing to take on the risk, the opportunity to get ahead of the competitive is very appealing.  Lots of firms will be just coasting for a while, doing only what they must; a firm that makes significant investments in important technology differentiators, guesses right, and implements well, could come out of this slow period way ahead.  

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