| Forget 2002 at your peril. For many, the past year will
be one they would be more than happy to forget. To do so,
however, would be to lose a major opportunity to learn a few
good life lessons.
The first big lesson seems to be that you need to test
and re-test you key assumptions on a regular basis - and
each time, be prepared to throw away some of those assumptions
altogether.
Consider, for example, the plight of any corporation in
1999 that set out on a three year journey to evaluate, select,
plan, implement and then quantify the benefits of a major
CRM (customer relationship management) or ERP (enterprise
resource planning) system. How likely is it that business
assumptions made in the wild summer of 1999 will have a
great deal of relevance in the dying days of 2002?
Many of those companies will have had to significantly
modify what they expected to achieve with their solutions.
If they have restructured, retrenched, or re-focussed (and
there are few companies that have not done so during that
period), then the solution will have had to evolve to recognize
that fact. Otherwise you would be in the absurd position
of having a solution that perfectly met the needs of what
your company used to be - and had little relevance for the
company it has since become.
So the key message here lies in the notion that technology-based
business solutions must be flexible, responsive to changing
business conditions, and be capable of delivering business
value incrementally (so that a business doesn't have to
shell out cash constantly for three years before seeing
benefit).
Unless solution providers hear and understand this message,
they will find it much harder to melt the freeze on capital
spending that exists at many customer sites.
One senior executive at a Canadian tech company, for example,
told me recently that his firm is only succeeding in making
sales in institutions where the cost savings is achieved
by the solution in its first year will entirely fund its
purchase, implementation and adoption. Unless that's the
case, customers are not interested.
Another vital lesson from the ashes of 2002 is that providers
of IT solutions need to have some elements of their business
that live outside of their customer's capital budget. That
is why many software and hardware companies are putting
more effort into their professional services organizations.
Consulting services also help IT companies to stay in touch
with the ongoing needs of their customers. It is no longer
acceptable to "load and leave." Customers increasingly
expect higher levels of service - and they reward that service
with continuing business.
The other important thing to remember is that consulting
services can carry higher margins than simply selling hardware
or software licenses. Most companies don't make a lot of
margin on hardware - and the selling of simple "per
seat" software licenses is also getting increasingly
competitive. And that is why solution providers can deliver
the greatest profit margins to themselves - and fully contribute
the value of their experience to their customers through
consulting services.
The final moral of the 2002 fable is that you can no longer
count on anyone else to subsidize you until you reach profitability.
Public markets are all tapped out. Meanwhile, private investors
will now typically want to wait until you have a dividend
to share with them before they start writing cheques.
Any slowdown on the road to profitability is severely punished
by the markets. Although it would be nice to think that
a business should operate without respect to the vagaries
of the stock market, the fact is that a low market valuation
can undermine the confidence of the customers as well as
investors.
You only have to look at the recent turmoil suffered by
Corel Corp. to see the way this scenario operates.
Despite the company's relatively strong cash position -
and a range of upcoming new products - Corel's share price
has dwindled to around the $1 mark. As a result, the company
had to make some bold moves on November 6, by announcing
a reduction of its workforce as part of a plan to streamline
operations and increase efficiencies.
Corel said that its action represented "a significant
step forward in the company's goal to profitability and
[to] generate positive cash flow despite the persistently
soft economy and weak spending in the IT sector."
The company slashed its global workforce by 220 employees
- or approximately 22 per cent.
"Corel has made a commitment to run the business profitably
regardless of the prevailing economic conditions and the
measures we have implemented today position us to achieve
that goal." said Derek Burney, president and CEO of
Corel, in a statement.
"[These] actions are necessary for us to realize the
company's ongoing strategy to build long-term value for
our shareholders and continually improve the experiences
of our customers."
At the risk of bringing down a curse on the entire industry,
it's probably fair to say that things can't get much worse
than they were in 2002. Spending cannot stay frozen forever
- and there isn't a whole lot of room left for many of the
biggest losers to fall. It may turn out to be tough, but
at least 2003 will start with an understanding by many that
they have learned lessons in 2002 that will help them through
any future challenges.
Geof Wheelwright is a West Vancouver
freelance writer, author and consultant. He can be reached
at geofw@writeofway.com
This article originally appeared in ComputerWorld Canada,
November 29, 2002
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