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A Fresh Approach To IT Investments


Working closely with providers can create long-term strategic advantages

By James K. Watson Jr.
InformationWeek
June 1, 2001 12:00 AM (From the May 28, 2001 issue)

For all the lip service that companies pay to the strategic nature of their IT investments, too many have a procurement mentality when it comes to nothing more than purchasing decisions. Such a mind-set invariably creates a division between the company and its technology suppliers that can stand in the way of building innovative solutions that deliver clear business value.

A better approach is for companies to look at their technology investments as strategic partnerships with their technology providers. But to make this partnership approach work, it's imperative to keep three principles in mind:

  • Build a partnership that provides flexibility for creativity and innovation. Even with the best-laid plans for a system implementation, the initial vision invariably requires fine-tuning and refinement. Change management has always been resource-intensive for technology providers and their customers. Documenting a requested change, getting buy-in from the company, and agreeing to terms of the change takes time and resources and can lead to problems between parties.

    Companies would be better served by giving their technology providers latitude to think creatively and build innovative solutions. Lincoln National Life Insurance Co., a variable-annuity company in Fort Wayne, Ind., recently partnered with IBM and Xenos Group Inc., a software company that transforms legacy data into E-business applications, to create an innovative way to provide insurance brokers with access to critical client infor-mation while on the road. For IBM, building the offering required the assembly of software components not typically packaged together, including technology from a third-party partner, Xenos. For Lincoln, giving IBM the flexibility to think creatively and work with complementary vendors-rather than dictate the vendors' approaches-resulted in an innovative solution that provided exactly what it needed.

  • Share the wealth. Contractual relationships with rewards and incentives work much better than those with penalties. Just look at road-construction projects that have incentives for completion ahead of schedule and under budget, and you can see that incentives work. For IT projects, companies can provide incentives by sharing the financial benefits of a project, such as a portion of savings realized from a procurement system completed early or a portion of sales garnered through a Web site during a specified period of time.

  • Consider IT spending to be a strategic investment, not just a cost. Viewing IT as an investment will provide the perspective of strategic and financial returns over time. Strong partnerships are based not on cost, but on the premise that both sides will make clear investments in the partnership. Both partners must be clear about their motivations, timing, and expectations. The partners can identify justifiable investments to which they can commit for the benefit of the relationship-investments that are in line with their own motivations. Thinking of a relationship in terms of investments and returns often creates a much clearer vision of what both parties expect over the long term.

    Overall, the closer you work with your providers, the greater the likelihood that you'll be able to create long-term strategic assets. Giving suppliers the flexibility to act creatively, forging incentive-based relationships, and rationalizing expenditures as investments are keys to success. Of course, success in any of these areas depends on trust. If you build trust with your partners, you'll have a much easier time riding out the inevitable bumps.

    When reviewing your technology relationships, be sure to ask yourself if you trust your partner. If not, it's time to rethink your partnering strategies and to consider the above principles in order to strengthen your alliances to gain a long-term strategic advantage.

    James K. Watson Jr. is chairman and CEO of Doculabs, an advisory firm that helps companies choose technologies and strategies for E-business. He can be reached at info@doculabs.com.


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