Turning Business Strategy into IT Action

By Michael Hugos

Somewhere between high business strategy and the tactical details inherent in any particular IT project lies that place where the CIO must choose which projects to pursue from among the many possible projects that could be pursued. This is a place where the CIO learns to assess business opportunities and risks as they arise; to see different options for applying IT; and to develop an appreciation for the potential impact each option can have.

Developing a sense of which projects to pick and when to initiate those projects has been called learning the operational art. Mastering the operational art is described as “knowing when a tactical move can deliver strategic results”(1). Astute CIOs find opportunities to employ readily available IT to achieve results that advance their company’s business interests. Where others see obstacles, masters of the operational art see openings.

Let me illustrate; assume you are the CIO of a company that has just won a contract with an important new customer. But to get the contract your company lowered its prices and agreed to a short-term contract instead of the longer term contract it usually requests. It also got only a portion of the customer’s business because another portion of the business has been awarded to a competitor. By playing your company off against a competitor, the new customer will see how well both companies perform before awarding a longer term exclusive contract to one or the other.

At a senior management meeting one day you hear that this new customer is showing up on the slow pay list. They had agreed to pay within 15 days, but were actually taking from 45 to 60 days in some cases. You know they are not a credit risk, so why are they taking so long to pay? The slow pay negatively impacts your company’s cash flow, increases borrowing costs, ties up collections staff, and further lowers profitability on the account.

Upon hearing of this the CFO declares that the customer has violated the terms of their contract and they must either pay all of their past due amounts immediately or he will put them on credit hold and your company will not ship them any more product. The VP of Sales jumps up and protests the harshness of this position and begins arguing for extended credit terms.

The VP of Sales says part of the problem is that the customer’s line managers who order the products have to personally review the company’s paper invoices and type them into their accounts payable system before they can be paid. Many of the customer’s managers are so busy handling their rapidly growing business that they sometimes have to work evenings and weekends just to complete administrative tasks like approving invoices.

As the CIO hearing this exchange what business opportunities do you see and what options can you think of for using IT to seize these opportunities? Here’s what I did in a similar circumstance.

I saw an opportunity to use my company’s existing IT capabilities to help the customer streamline their ordering, receiving, and payment process. I saw how this could increase the productivity of the customer’s managers; differentiate us from our competitor; and help us win all of the customer’s business without having to further lower our prices.

I teamed up with the controller of my company and we paid a visit to the customer’s headquarters. We met with people in accounts payable and people in their IT group. From that meeting a pilot project was put into action. We used our EDI system to send electronic invoices that arrived before our delivery trucks and the invoices were formatted to the customer’s specifications. The customer used its EDI system to import our invoices into their accounts payable system.

Customer managers could then call up our invoices on their accounts payables system and check the invoice against our product shipment. If all products arrived as ordered, the press of a key released our invoice for payment. If there were problems, we learned about them sooner and could fix them faster. Once this new receiving process was in place we agreed to move on and provide the customer’s managers with our web-based product catalog and order entry system to speed up their ordering process and further reduce errors.

Implementing this project cost me no more money than what was already in my operating budget. We worked with the customer’s IT group and had a pilot program up and running within 60 days. They began to see us as a true business partner and not just an anonymous supplier. The project reduced their cost of doing business with us and we got paid faster. This put us ahead of our competitor in the contest to win the entire account without us having to sell our products at lower prices than our competitor.

This is a relatively simple example of the operational art. The project did not cost a lot of money and did not take long to complete yet it had potential to increase revenue by tens of millions of dollars without the company having to reduce its profit margin on that revenue. This is the kind of action that earns the CIO respect in the eyes of the business.

[original post: http://blogs.cio.com]