A strong IT department can expand your profit margins
IT strategy: Why it matters
Having a business strategy is integral to any CEO’s agenda. It defines what the company is striving for and how it will attain it. It establishes specific goals and timelines for achieving each goal. It sets the tone for how sales will operate and how the rest of the company supports sales.
The more detailed and clearly communicated a company’s strategy, the more successful and profitable it becomes in the long run. No matter what it entails, the ultimate objective of a business strategy is to grow revenues and maximize profits.
More elaborate strategies extend into each major function of the organization: sales, marketing, purchasing, operations, finance, etc., each of which, in turn, develops its own strategic plan that is a direct reflection of the business strategy.
Companies that hit this bull’s-eye also have a strategic plan for IT. Unfortunately, those companies are few and far in between. That’s especially true in distribution.
In many companies IT is an afterthought and has little to no place on the strategic map. The role of IT is viewed entirely as day-to-day support and not much else, and IT expenses must be kept to a minimum regardless of whether or not they provide value beyond just support obligations.
Most of the time, IT does not have a seat at the senior leadership table, which makes it extra challenging to articulate its value-add. This creates a loop that keeps IT mainly in a fire-fighting role and keeps the organization generally dissatisfied with its function. Thus, the business-IT relationship becomes an undesirable one and most companies never invest the effort it takes to make it fundamentally better.
Whether you feel IT should be no more than a support division or it should have a seat at the table, the reality is no company can survive without IT. In markets such as distribution where one-on-one relationships are perhaps more relevant to survival than some others, there is a prevailing belief that sales can go at it alone. Sales can build revenues and grow the business. While in one sense this is true (it is sales’ job to sell, after all!), excluding IT and, for that matter, the rest of the organization from the strategic map simply leaves money on the table — and lots of it over time. Company profit margins therefore won’t be as high as they can be.
Each function within the company can and should contribute to the bottom line in some form or fashion. There always are opportunities to reduce defect, streamline processes and improve efficiency, and IT enables much of this. IT has a unique vantage point because each function uses technology to get its work done. Inventory too high or moving slow? Too many product returns? What about the employee onboarding process manual? DSO too long? Freight bills out of control? IT can help with all these if given a chance. And the best way to start is by getting IT to the table and developing an IT strategy.
Investing in your future
This is not to say that under any circumstance IT can be a beneficial partner. You have to have a business-minded IT leader who can articulate the value of IT and educate the executive team. That leader, in turn, needs to be given the ability to hire the right talent for his/her team. If you have – or put in place – these two ingredients, then having IT at the table makes sense and the IT strategy that’s formed is worth investing in.
Once you have IT at the table and included in your strategy discussions, it will have the opportunity to leverage its existing relationships with other functions within the organization to identify pain points and opportunities, and build a strategic plan that’s in line with the company’s overall business plan.
These functions would most notably include sales. There is no denying the fact business relationships are becoming more virtual, even in distribution. That trend will continue as the younger generation that grew up with technology continues to move into senior-level positions.
For this generation, technology is a natural and expected part of life. Selling to this generation will have to be done with more than just a handshake. Even the traditional customer-facing technologies such as e-commerce and EDI are beginning to no longer be adequate. For example, with the popularity of social media and its role in forging business relationships, and the proven effectiveness of business intelligence in analyzing internal and market opportunities, you will sooner or later need your IT partner to figure out how to leverage technology to support your more traditional business strategy.
Having IT at the table and a sound IT strategy is an investment in your profitability. Initially, it may be a cultural challenge for sure, but the growing pains are worthwhile in the long run.
The bottom line is the purpose of your business strategy won’t change. It will continue to be about growing revenues and maximizing profits.
But the way you attain your strategy will continue to evolve over time to be more technology-centric. And for that, you need IT at your side and an IT strategy that’s an integral part of your competitive map.
Author bio: Navid Gardooni is the founder and managing Partner of ALN Partners, LLC, a global IT advisory firm for growing mid-sized businesses. He advises clients on how to invest properly in IT and how to get the most return on that investment. ALN’s specific services include “state-of-IT” assessment and optimization, ERP selection and implementation, IT outsourcing, and M&A IT due-diligence and integration/carve-out. Contact him at firstname.lastname@example.org, via Twitter @ngardooni, or at 832/704-3346.