E-Commentary -- Getting Down To Business Problems

Dec. 21, 2004
Investing in technology for technology's sake isn't the fix manufacturers need.

Software's disconnect with business is nothing new. During the 1990s, this misalignment often resulted in manufacturers spending on technology for technology's sake. In fact, when you asked a manufacturing CIO why his company was installing an ERP system, the typical response was that "our systems were getting old, and we had islands of information that couldn't communicate with each other." Back then, that kind of answer was good enough. In those days, business applications software packages flew off the shelf like hatboxes in a hurricane. The only problem was, many of those multi-million-dollar applications didn't do a heck of a lot for business. As one leading venture capitalist put it, companies in the late 1990s "spent an incredible amount of money chasing their tails." Things are different today. Manufacturers can't afford to pay for any slack -- let alone a complete disconnect -- between technology and business. They need technology that can demonstrate its value in the form of a real business improvement, either in management or operations. If anything, now is the time for manufacturers to demand that software companies either stand and deliver real business benefits -- or take a hike. A marketing executive in an overseas office of a Dow Jones 30 industrials firm privately shared with me the story of how his firm decided to spend upwards of a million dollars on a software package in the current environment. Initially his company had passed on a pitch from a vendor of sales incentive software. The executive had more specific needs than the software firm's vanilla package was geared up to handle. Even so, he decided it was worth following up. He called them back to see if they'd be willing to tailor a package to meet his needs. Headquartered in Silicon Valley, the software developer was so eager for business, it dispatched a team of people to work with the Dow 30 member company's unit. When the project was completed, the software company delivered a custom-fitted application that contained a special set of sales reporting and incentive tracking capabilities that the industrial firm wanted. The Dow 30 company is betting that by giving sales reps a daily fix on their incentive pay and the level of sales they need to maintain it, the new incentive system will more than pay for itself in increased sales. Of course, the marketing executive admitted to me he had no way to measure the results except in improved sales, but he wasn't going to let that stop him from trying to dig his spurs into the flanks of the business. Automotive parts manufacturer Thyssen Krupp Budd Co. was able to discover a more economical means of moving materials by using the simulation capability of a product lifecycle management system from EDS. The Troy, Mich.-based company learned that using a single forklift to deliver parts within the plant was more cost-effective than using a small train of cars filled with parts. In another example, Hewlett Packard Co. needed detailed data on the configuration and sales of its Unix Division servers in order to make better-informed decisions about pricing and to avoid having some models "cannibalize" the sales of others. Using a package from Rapt, the computer manufacturer is able to better understand how customers make trade-offs between various classes of servers based on price and capabilities. The point here is that manufacturers need to fix real problems. They can't afford anymore to invest the time or the money on technology for technology's sake. Manufacturers would be wise to treat software companies as potential problem-solvers that can help them find solutions to business issues. Doug Bartholomew is a former IndustryWeek Senior Technology Editor. He is based in San Francisco.

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