E-Business Commentary -- Can IT Weather The Storm?

Dec. 21, 2004
Technology investments can make sense in a downturn.

Common wisdom in a recession, even a mild one, is that manufacturers had best toss everything nonessential overboard, batten the hatches, and tie down the wheel to ride out the storm. In these times, many executives take a dim view of costly software projects that not only tax the organization's strength in a gale, but also tilt the budget 45 degrees to port. That's the common wisdom. There's another camp that makes a pretty good case that manufacturers should take a different tack in stormy economic seas -- maintaining, if not increasing, spending on information technology. Admittedly, some of these folks represent IT consulting firms and software vendors. IBM Corp., for one, is betting that companies will see the light and won't trim spending appreciably in a downturn. Big Blue believes the single best way to save money in today's manufacturing operations is not by cutting people and curtailing plant operations, but by enabling both staff and plant to operate more efficiently. The most effective means to achieve this, IBM executives say, is through software, automation, and the Internet. "We see IT spending continuing at high levels," says Steven M. Ward, general manager, global industrial sector, who is responsible for all of IBM's industrial customers world-wide. "The only way manufacturing companies can operate more efficiently and effectively is through IT, not through brute-force cost-cutting." IT enables companies to increase collaboration with suppliers, cut cycle time, and streamline operations. "The last thing companies want to do now is slow down IT spending," Ward says. Yet another reason manufacturers need to maintain IT investment is to use it to go on the offensive, boosting customer loyalty and tapping new markets via the Internet. "By putting the Internet into your processes and attaching it to your products, you can both serve your existing customers better and get into new markets," he adds. For example, Mobil equips gas-station customers with a radio-frequency-based device that they put on their key chain. It activates the gas pump when the customer is nearby and automatically charges the cost to his or her Mobil account. "In that way, Mobil provides me with a service, while getting more information about me," Ward says. "Here you have an oil company that has built the Internet into their product, suddenly increasing the information content of that product." In another case, Deere & Co. allows buyers of its farm equipment to connect with the company over its Web site, providing them with repair information, service help, and locations of spare parts. In effect, the Internet is helping Deere to tighten the connection with customers. The automotive industry also is using the Web to ensnare customers' loyalty. For instance, Ward says the global positioning system in his car identifies the fastest way home no matter where he's starting from. It also allows one driver to mark the location of where the car was parked, so that another driver can return there -- to a child's soccer game or music lesson, for example. "As car companies start putting more information into the car, they are going to increase the loyalty of customers," Ward points out. "All of a sudden making a change in cars is going to be like changing computers. Manufacturers will enjoy increased loyalty, because switching brands will make it a lot harder than just reprogramming radio stations." In yet another example, Swedish appliance manufacturer AB Electrolux gives customers the option to pay as they go when they wash and dry clothes in machines in their own homes. Customers don't have to worry about the significant upfront capital costs of new appliances, while the company bills them for use via Web connectivity with each machine. IBM itself is no exception. In 2000 the technology firm handled 90 million self-service transactions over the Web; a mere 20 million were handled via other means, including telephone and fax. What's more, ibm.com had sales last year of $9 billion, up 65%. According to Douglas L. Maine, general manager of ibm.com, for every five PCs IBM sold, two were purchased over the Web. "Our cost avoidance last year was $2 billion compared [with] what we'd have spent to handle all this business over the telephone," Maine adds. Concludes Ward, "IT is the way people can stand up and show how they are improving the effectiveness of their company."

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