IBM Business Consulting Services

March 2003

Understanding the Business Impact

of Technology – A Board Room
Imperative
Dr Mark Behrsin, Partner, Technology Strategy and Management
Bill Twibill, Managing Consultant, Technology Strategy Consulting.

Key topics
• Illustrates how pioneering companies have used technology to create an
improved market position and in doing so redefined their business sector
• Introduces a model for determining how emerging technologies will
impact your business
• Outlines a practical strategy for reducing technology overheads to fund
innovation
• Defines a new model of strategic consultancy that enables companies to
anticipate technology and business trends.

Introduction
If you had a crystal ball to reveal the future for your business, how would it
affect your strategy today?

Imagine if you could have accurately predicted the impact of e-business five
years before it emerged? Just think of the competitive pre-eminence you
could now be enjoying.

Some companies seem to have been able to do just that, deploying new
technology that has resulted in implementations so innovative and successful
they have dictated how competitors, and entire sectors, conduct business.
Their visionary use of technology, coupled with the astounding impact
the Web has had on modern commerce, has ensured that Information
Technology (IT) has fully emerged from the back-office to play an integral role
in enabling companies to define and consolidate a competitive edge.
 IBM Business Consulting Services

Despite its proven capability as a competitive driver should now be a constant consideration at the boardroom
and strategic enabler, companies today are becoming table. This is highlighted through the fact that 60 percent of
increasingly reluctant to deploy new technology. The hype technology investment is now influenced, controlled and
that has permeated the IT industry for so many years has determined not by the central IT function but by business
left many with a jaundiced view of whether technology executives, and it is true to say the fortunes of modern
ever delivers its promise. The current economic downturn companies now rise and fall on their wise, or flawed,
also means many organisations feel they simply can’t fund technology choices.
innovation. But few feel comfortable in this state of inertia,
knowing that investment in new technology is a major
Percentage of worldwide IT spend controlled
component to creating competitive advantage.
by IT vs. non-IT executives
80%
Companies can’t get a crystal ball, and even if they
70% 68%
could it wouldn’t be enough. Knowing what revolutionary
60%
60% 57%
technology is around the corner is only part of the puzzle
– establishing whether it will be right for your business; 50%
43%
40%
making it run in parallel with a winning competitive strategy, 40%
32%
and financing its deployment, is where the magic lies. This 30%
Point of View examines how companies can address these
20%
crucial challenges using a set of practical strategies that
10%
have been tried and tested in the real world.
0%
1997 2000 2004
Out of the back office, into the boardroom Line-of-business/
CIO and IT executives
Back in the early days, the use of technology within an Non-IT executives

organisation was the preserve of technically-skilled Source: GMV

professionals, relegated to the basement and struggling

to validate their contribution to the companies’ bottom Why has this shift occurred? With technology’s penetration

line. But that has all changed. With decades of technology into every business function executives have seen first-

innovation we can now see that the use of technology is hand how it gives them access to well-organised, quality

much more pervasive across all parts of the business and information they can use to make better decisions, and

the dependency on technology to perform has increased. how it now fundamentally supports the day-to-day running

The advent of e-business has shown that technology of their business. Not surprisingly, they now appreciate
that the right choice of technology, coupled with its timely
deployment, not only holds the power to solve business
problems but improve a company’s competitive position.

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IBM Business Consulting Services
Technology – business’s superhero…
Visionaries such as retail giant Wal-Mart and shipment
1
pioneer FedEx2 have used technology not only to solve
logistical problems, but to seize new opportunities, open
new channels to market and create new business models
they have forced their competitors to adopt. Wal-Mart
looked to technology to improve supply chain management
and steal a competitive edge. FedEx looked to the
opportunities technology offered to manage the extent
of its growth without finding a way to automate business
processes. At the time its SuperTracker application cost
a massive $100 million to develop but the investment has
paid off many times over. As well as immediately reducing
the number of additional dispatchers the company had to
hire, the SuperTracker formed the basis of the now famed
FedEx application that enables customers to track their
packages online.
What is interesting about both these examples is that these
companies bet their investment on entirely new technology.
Neither were these innovations undertaken in overly cash-
rich times – even in a buoyant economy, FedEx’s $100
million project represented a bold investment.
Today, however, few companies are prepared to embark
on such ambitious initiatives. There are many reasons for
this. One is the economic climate. When times are hard it is
understandable for companies to focus on cutting costs to
ensure short-term survival. Another reason is the fear of the
risk involved in deploying new and innovative technology.
4
…Or the villain?
It is understandable that businesses have come to distrust
technology. There are almost constant reports detailing the
number of technology-related projects that have failed to
meet expectations. Recent research from KPMG† suggests
that 56 percent of publicly-listed firms have had to write off
at least one technology project in the last five years as a
failure.
†
KPMG survey, November 2002
There are numerous reasons why IT projects fail
– inadequate planning, poor scope management and
lack of effective communication between the IT function
and the business, to name a few – but it is rare that IT can
be blamed on the actual failure of technology itself. Most
solutions do exactly what they say on the tin. Companies
can often expect too much when the think technology
will single-handedly transform their business or create
commercial value. That can only happen when it is mapped
closely to a broader and clearly defined business strategy.
The dot.com crash of the late 90s clearly demonstrates
this requirement for holistic planning. The well-publicised
Internet failures didn’t falter because the Web doesn’t
create a viable commercial channel – the many that
continue to thrive today disprove that – with the benefit
of hindsight how thorough was the original business
planning?

Those that successfully leveraged the Web as a
business channel did so by following time-honoured
business principles and sound and proven management
methods that had been tested in the traditional business
environment. They recruited the right skills and
competencies, closely targeted their products and created
a complementary culture. Most importantly, they grasped
the Web’s potential and value to their business. They
analysed whether the online availability of their product
and service would add genuine value to their customers,
and developed a clear strategy for leveraging this new
technology within a profitable business model.
The money trap
What these Web winners avoided was the trap of deploying
‘flavour of the month’ technology without giving adequate
consideration to whether it was actually right for their
business. Those that fall prey to this find it a hard cycle
to break. Once in they are left funding often expensive,
‘me-too’, deployments, and continually upgrading them to
keep pace with their relentless development.
Companies in this situation are literally stuck between
a rock and a hard place. They feel they can’t take on
new technology and simultaneously fund existing
infrastructures. Yet they can’t escape the truth that creating
competitive advantage today often requires the use of
technology. They can’t simply focus on cost-cutting
because they know they must invest in technology to grow.
Neither can they wait until the inevitable economic upturn
to start re-investing – it is the actions they take now that will
determine whether they lead the way, or are left playing
catch-up, when the market improves.
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IBM Business Consulting Services
There is a way out of this maze however. In most
organisations, there are plenty of opportunities to
reduce existing technology costs. By knowing when
they can dispense with technology that has outserved
its usefulness, or replace it with a more cost-efficient or
efficacious alternative, companies can release funding for
new initiatives that actively create value. That way they can
ensure the technology they deploy remains focused on
the needs of the business, and is evolving alongside the
company’s long-term corporate strategy.
What is critical here is to shift the emphasis from non-
discretionary spending – covering maintenance and
ongoing costs – to discretionary spending that can be used
to fund innovation. Currently the ratio of non-discretionary
to discretionary spending in a typical organisation is
approximately 3:1. By looking at ways to reduce their non-
discretionary spend, companies can reallocate these
funds to invest in those technologies that are going to
be crucial to the development of their business and the
evolution of their industry.
Tomorrow’s world
What companies need to know, then, is which technologies
are likely to deliver the greatest business benefit for their
organisation today and tomorrow.
There is no mystic that can accurately foretell technology’s
future but it is possible for companies to chart short,
medium and long-term technology trends, and to plan for
the potential impact on their industry and the value they are
likely to bring to their business. But it is only possible when
organisations consider the wider picture, looking at how
technology will interact with business objectives, trends in
the market and their customers’ evolving requirements.
IBM Business Consulting Services

To identify what these objectives should be, companies A pillar to support the business
need to address questions such as: Currently the levels of non-discretionary spend are so
high that they do not facilitate identifying spend on new
• How do we grow business in a stagnant and uncertain technology for innovation and business benefit. Reducing
economy, and in a marketplace where ‘customers pick non-discretionary spend allows the organisation to focus
us’, not the other way round? on creating new value.
• How do we maximise return on past and future
investments in technology, processes and people? Creation of Creation of Process
new IT BIT new IT
• How do we determine the rate and timing of funding for value 20%* value 60%*
Organisation
new initiatives, while still cutting costs?

IT alue
v
co m
st an
• How can we ensure our strategies can be

sa a
Maintain New customers

nd ge
and service
implemented, and that our implementations achieve
m
current IT

en
t
New product
what we set out to accomplish?
• How do we build flexible organisations and capabilities New technology

that can compete successfully in a future that requires Alignment to

the business
us to constantly adapt?
* As percentage
of spend

By understanding the issues they face in the short, medium

and long-term, companies can seek out technology that
will enable them to address and resolve these crucial
challenges successfully. When business and technology
are closely aligned in this way the resulting technology
deployments add fundamental value to the business,
and enable a strategic transformation that solidifies a
company’s competitive stance and direction.
The fusion of technology and business
If there is one key lesson to learn from successful
business innovators like Wal-Mart, FedEx and Tesco3 it
is that companies need to apply ‘joined-up thinking’ to
developments in the technology landscape. Increasingly,
value will be created at the points where business and
technology meets. Therefore the companies that are able to
coordinate a wealth of business and technology expertise
and resources will be in a strong position to succeed.

6

Many organisations will need to look externally to find the
necessary expertise to fuse their business and technology
strategies. This is why there is a growing need for a new
model of strategic consultancy that brings together the
right mix of competencies under one roof. Businesses
urgently need partners that can deliver solutions to address
every point of the value chain; partners with the breadth
and scale to measure up to the huge, complex challenges
companies now face.
This brand of strategic consultancy will need to combine
an understanding of the wider economic climate; specific
business and industry knowledge; technological expertise;
advice on boosting discretionary technology spend to
finance new investment, and predictive forecasting of
technology trends. Excellence in each of these categories
will be crucial to ensure organisations are able to:
• Harness technology within a sound business model
• Identify the impact of existing and emerging
technology on their business and industry
• Create a coherent strategy and full roadmap
for the adoption and successful deployment of
transformational technologies
• Prioritise the stages of investment to achieve the stated
goal
• Undertake business value modelling to determine
quantifiable and measurable return on investment.
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IBM Business Consulting Services
In essence, this model of strategic consultancy should
leverage best practice from a wide range of industries
and broader business disciplines to help companies
establish where they want to be in three years time, when
we are likely to be at the top of the economic cycle. It looks
ahead to identify what technologies will realistically be
around at that time and which will most successfully drive
the business strategy forward. It then ensures that there
is a clear plan for how the technology will continue to be
developed around that strategy, the company’s structure,
and in response to what is happening in their industry.
It ensures the necessary capital is released to enable
proactive investment in technology that will ensure it is that
organisation that leads the way when market conditions
improve.
Summary
“We’re convinced wireless will be important. Will it be in the
next five years? Who knows? Our objective is to know what
we can do most effectively by experiencing it, not reading
about it.”
Geoff Penney, CIO, Charles Schwab4
As we work our way through the economic downturn,
companies need to learn from past successes and failures
in business transformation. Companies that have truly
revolutionised their industries haven’t followed the herd
or waited to see which technologies seem safe to adopt.
They’ve defined a ground-breaking business strategy
and sourced emerging technology to support it. These
innovators didn’t want to read about how their competitors
had made it happen. They wanted to write the rule book, not
follow it.
IBM Business Consulting Services

The good news for companies today is they have the
knowledge and insight at their disposal to minimise
the risks those pioneers had to take. It is now possible,
through a new model of strategic consultancy, to address
business issues, strategy and technology in a focused,
co-ordinated manner so that they work in parallel with
each other. It is possible to identify and predict what
emerging technologies will be right for your business, and
fund that proactive innovation with prudent reallocation
of technology spend whilst still in the current economic
downturn.
By calling upon proven competencies that span research
and consultancy, knowledge of emerging technology
and understanding of its impact on individual businesses
and industry sectors, companies can now fundamentally
fuse business and technology behind a single, coherent
and proactive business vision – and as they do, like
the visionaries before them, they will transform their
competitive position.

Technology that changed the world: SABRE 5

It was American Airlines, working with IBM, which first looked at using computers to automate the process of reserving
airline seats. Their brainchild, the Semi-Automatic Business Research Environment (SABRE) pioneered e-commerce
30 years before the Web, and made air travel accessible to the average person by making it possible to track growing
numbers of flights and fares.

Before SABRE, processing a round-trip reservation between New York and Buffalo, using computer cards and
teletypes, required 12 people, at least 15 procedural steps and took up to three hours. Today it is done without manual
intervention within minutes.

By 1998 the SABRE system had evolved into a global distribution system for travel information, reservations and
transactions, connecting more than 30,000 travel agents and three million online customers with 400 airlines,
50 car-rental companies, 35,000 hotels and dozens of railways, tour companies, ferries and cruise lines. Now an
operational necessity, SABRE redefined the air travel industry, enabling airlines to manage their inventory of seats
faster and more accurately, with lower bookkeeping costs and faster payment through electronic settlement of
ticket purchases.

SABRE bred technology that has benefited companies across all business sectors. It spurred the development of the
IBM Transaction Processing Facility, an operating system that processes high volumes of transactions in real time that
still powers many online systems today.

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 IBM Business Consulting Services

FedEx
It was back in 1980 that FedEx launched a proprietary wireless data network called Digitally Assisted Dispatch System
(DADS). This then-revolutionary application enabled dispatchers to use text messages to change drivers’ routes and
pick up requests. DADS, which is still in use today, led to a 30 percent increase in couriers’ productivity the first day it
was used.

In 1986, the company extended the system with the adoption of wireless hand-helds called SuperTrackers. These
devices, still used by its drivers, capture package data via a bar-code scan. When couriers return to their trucks
they insert the SuperTracker into their DADS unit, and the information is downloaded to the company’s proprietary
package-tracking system, the Customer Oriented Service and Management Operating System (COSMOS).

Competitors were forced to play catch-up.

The pioneers: Wal-Mart 6

By investing early and heavily in cutting-edge technology to identify and track sales on individual items, Wal-Mart
created an technology infrastructure that has been studied and copied by companies around the world.

The company’s ground-breaking inventory and supply chain management system enabled it to share data with
suppliers and reduce carrying costs for both the retailer and its suppliers. As a result the cost of goods for Wal-Mart
is five percent to ten percent less than most of its competitors, which enables the company to maintain its low-price
leadership.

Wal-Mart continues to push the limits of supply chain management. The company is testing emerging Radio
Frequency Identification (RFID) smart-tag systems to replace bar codes and security tags with a more efficient
product-tracking mechanism that will cost less money.

The company’s success with supply chain management has extended beyond the retail sector. Mattel’s Eckroth has
stated that he studied Wal-Mart’s supply chain best practices when he worked at a manufacturing division of General
Electric Co. “They’re a benchmark company,” he says.

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IBM Business Consulting Services
Wireless technology: better for customers, simpler for staff,
cheaper for Tesco 7
Supermarkets, with their ever-expanding displays of goods,
are becoming increasingly daunting for both customers
and staff. But a solution could lie in the convenience of
wireless technology. Tesco and IBM have been testing a
wireless system that equips staff with hand-held devices.
The solution provides staff with instant stockroom and
shop-floor data on goods’ availability both on shelves and
in the storeroom. Tesco says there have been immediate
productivity gains, with staff no longer needing to trek back
and forth to check availability of items. Other intangible
benefits have also been seen – giving shop-floor staff
better stock information and in turn, more confidence when
dealing with customers, has resulted in overall improved
customer service.
The pilot has been so successful, with positive feedback
from staff complementing productivity gains, that Tesco is
finalising plans to deploy the system in its 710 stores across
Britain.
“The Tesco trial is a great demonstration about how
wireless, this new medium, is a great way of improving core
services.”
Richard Lanyon-Hogg, IBM
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About the authors
Dr Mark P Behrsin is a partner in IBM Business Consulting
Services and is the global leader of the Technology
Strategy and Management practice. His team works
with IBM clients on the Business Impact of Technology,
IT Value Creation techniques, Enterprise Architecture,
and IT Management. Mark’s own client involvement is
extensive, and he continues to work at board level in a
range of leading organisations on issues in the intersection
of business and IT strategy. Mark is the co-author of a
book on the relationship between business strategy and IT
architecture, and he has taught and consulted extensively
in that area worldwide. Mark has been with IBM for 25
years, originally as an IBM Systems Engineer, moving to
consulting in 1989. Before joining IBM, Mark researched
theoretical physics in the UK.
Bill Twibill is a managing consultant in the Technology
Strategy and Management practice. Bill is responsible
for advising clients in developing strategic advantage for
organisations through the innovative use of technology
and leads the global development and deployment of
Business Impact of Technology. Bill has helped customers
in a broad range of industries including the Travel and
Transportation, Public Sector, Finance and Retail sectors.
Bill has instructed in the development and application of
strategy in high pressure and fast moving environments.
Prior to consulting in IBM, Bill was an operations manager
and responsible for developing strategic initiatives in the
public sector and services industry. Bill holds an MBA
from Manchester Business School and the University of
British Columbia where he specialised in Strategy and
Technology management.
 IBM Business Consulting Services

For more information References

To find out more about IBM Global Services contact your 1
Computerworld, September 2002, ‘A New Supply
IBM sales representative or visit: Chain Forged.’
2
Computerworld, September 2002, ‘Signed, Sealed and
ibm.com/services Delivered.’
3
The Times, 26th March, 2002, ‘In-store wireless project
To learn more about Understanding the Business Impact of is a success.’
Technology visit: 4
Computerworld, 30th September, 2002, ‘Banking on
Technology.’
ibm.com/services/bis/consulting.html 5
Computerworld, September 2002, ‘Technology Takes
Flight.’
Contacts 6
Computerworld, September 2002, ‘A New Supply
Global and Europe, Middle East and Africa Chain Forged.’
Mark Behrsin 7
The Times, 26th March, 2002, ‘In-store wireless project
E-mail: mark_behrsin@uk.ibm.com is a success.’
Telephone: +44 (0)161 905 6677

Bill Twibill
E-mail: bill_twibill@uk.ibm.com
Telephone : +44 (0)20 8818 4717

Americas Group
Doug Watters
E-mail: douglas.e.watters@us.ibm.com
Telephone: +1 (646) 598 5660

Sharon Mertz
E-mail: smertz@us.ibm.com
Telephone: +1 (603) 472-4226

Asia Pacific
Hideaki Nakayama
E-mail: NAKAYAMH@jp.ibm.com
Telephone: +81 -3- 3808-6870

11
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