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Using Information and Data Capital to Drive the Bottom Line

Using Information and Data Capital to Drive the Bottom Line

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Published by Scott
Today, as in 2003, leading indicators suggest that energy and chemical industry revenues will remain flat--true in other sectors as well. Maintain or increasing profitability through cost containment, therefore, must remain the paramount goal for the next 12 – 18 months. If the top line cannot grow in today’s economy, the bottom line can only improve if the cost of goods sold, the operating expense line items in the income statement, and cost of capital are positively impacted. In order to manage costs while navigating the current economic waters only good, timely information that is acted upon with creativity will provide competitive advantage at good margin.
Moreover, now on the front burner, governance issues orbit the boardroom. With both the CEO and CFO personally responsible for the accuracy of reporting to shareholders and regulatory bodies, information management takes on a materiality that is inconsistent with the back office mindset of past.
The tools are available to structurally change the way organizations do business. One school of thought suggests that MANAGING REVENUE PRODUCING ASSETS MORE EFFECTIVELY WILL HAVE A GREATER IMPACT ON THE FIRM THAN ALL OF THE COST RESTRUCTURING OF THE PAST. To truly be the low cost provider, management will have to make the investment in time, resources, and new tools to better manage the firm of the future.
Organizations that take advantage of the current market malaise, and reposition themselves in their segments will be well positioned to enhance near-term results and become strategically unassailable over the long run.
Today, as in 2003, leading indicators suggest that energy and chemical industry revenues will remain flat--true in other sectors as well. Maintain or increasing profitability through cost containment, therefore, must remain the paramount goal for the next 12 – 18 months. If the top line cannot grow in today’s economy, the bottom line can only improve if the cost of goods sold, the operating expense line items in the income statement, and cost of capital are positively impacted. In order to manage costs while navigating the current economic waters only good, timely information that is acted upon with creativity will provide competitive advantage at good margin.
Moreover, now on the front burner, governance issues orbit the boardroom. With both the CEO and CFO personally responsible for the accuracy of reporting to shareholders and regulatory bodies, information management takes on a materiality that is inconsistent with the back office mindset of past.
The tools are available to structurally change the way organizations do business. One school of thought suggests that MANAGING REVENUE PRODUCING ASSETS MORE EFFECTIVELY WILL HAVE A GREATER IMPACT ON THE FIRM THAN ALL OF THE COST RESTRUCTURING OF THE PAST. To truly be the low cost provider, management will have to make the investment in time, resources, and new tools to better manage the firm of the future.
Organizations that take advantage of the current market malaise, and reposition themselves in their segments will be well positioned to enhance near-term results and become strategically unassailable over the long run.

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Published by: Scott on Mar 19, 2009
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08/31/2010

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Originally published in 2003, and presented at the AIChE 2003 Spring Meeting, the pointsraised may have special relevance in global economy of 2009.
Using Information and Data Capital to Drive the Bottom Line
Dr. Scott M. ShemwellCopyright © Scott M. Shemwell. All rights reserved.April 2003 & March 2009Unpublished
 
Using Information and Data Capital to Drive the Bottom LineDr. Scott M. Shemwell Page 2 of 12
Abstract
Leading indicators suggest that energy and chemical industry revenues will remain flat in 2003.Maintain or increasing profitability through cost containment, therefore, must remain the paramountgoal for the next 12 18 months. If the top line cannot grow in todays economy, the bottom line canonly improve if the
cost of goods sold 
, the
operating expense
line items in the income statement, and
cost of capital 
are positively impacted. In order to manage costs while navigating the current economicwaters only good, timely information that is acted upon with creativity will provide competitiveadvantage at good margin.Moreover, now on the front burner, governance issues orbit the boardroom. With both the CEO andCFO personally responsible for the accuracy of reporting to shareholders and regulatory bodies,information management takes on a
materiality
that is inconsistent with the back office mindset of past.The tools are available to structurally change the way organizations do business. One school of thoughtsuggests that
 
MANAGING REVENUE PRODUCING ASSETS MORE EFFECTIVELY WILL HAVE A GREATER IMPACTON THE FIRM THAN ALL OF THE COST RESTRUCTURING OF THE PAST
. To truly be the low cost provider,management will have to make the investment in time, resources, and new tools to better manage thefirm of the future.Organizations that take advantage of the current market malaise, and reposition themselves in theirsegments will be well positioned to enhance near-term results and become strategically unassailableover the long run.
 
Using Information and Data Capital to Drive the Bottom LineDr. Scott M. Shemwell Page 3 of 12
The vision of the economy as an information system is in sharp contrast to the materialistic vision of theeconomy found in standard economic textbooks.
-- Mark Casson1997
1
 
Introduction
Most firms view information technology as a cost to be managed down as they would any indirectexpenditure. This approach may have been appropriate when economies were based on the flow of goods and services rather than the flow of information. However, it may be time to rethink the role andvalue of information to the organization.As with much of the economic thinking developed during the Depression of the 1930s,
2
the economicsof materiality (the manufacture of goods, and the labor and capital required to produce them andassociated services) has evolved to include intangible components such as information. There is even afield of economic thought focused on the role of asymmetrical information in the negotiation of contracts whereby one economic agent knows something about the transaction or relationship that theother party(ies) does not and uses this information to his or her advantage.
3
The role of information inany economic exchange process has been the subject of research for years. Various models describe orpredict economic behavior based on information and used by economic players.
4
 Some readers may wonder what the relevance of this discussion on economics is to their everydaysituation. These ideas are important, because organizational behavior is a function of beliefs about howtransactions take place and what variables drive economic exchange. Management will subsequentlyrespond based on their training and experience.In much the same way, lay people do not understand chemical reactions and the role of catalysts in theprocess of changing molecular structure, non-IT individuals will respond to the use of information andthose systems that generate data based on their biases and knowledge base.The
tension at the margin
between IT and non-IT people is the subject of recurring discussion and is notthe topic of this commentary. Decision-making processes are a function of available information, andnot a function of information technology expertise.Poor decisions are frequently made by organizations that are not knowledgeable buyers. Knowledgeablein the sense that management has clearly defined the problem(s) that information systems are expectedto solve, and knowledgeable in the sense that IT professionals are aligned with the business processes.Collectively, this group can become a high performance team capable of capitalizing on the bestbusiness process change methodologies and enabling information technology can provide.
5
 The chemical industry is a capital-intensive industry. Physical and skilled human assets provide thecapital base of successful organizations. It is useful to think of the data and subsequent informationderived as capital as well. More an asset than a cost, information can be the asymmetrical competitivedifferentiator. More importantly, information management can be the governance distinction that cancatapult the firm into a new orbit of energy.Economic value can only be realized if changes are made to the organization that allows it to capitalizeon its knowledge driven investments. Real change is not easily accomplished, and can only be achieved

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