The Widget That Wasn't

If your company made widgets and your widget factory operated on just one shift, chances are that if demand exceeded your current output your company would do what it needed to do to increase production. Someone (probably in sales) would be screaming about not being able to fill orders quickly enough to be competitive.

With information technology, however, this kind of dynamic response doesn't happen. Our benchmark research finds that organizations don't fully utilize the IT investments they already have, and we see two reasons why they don't.

One is a gulf between business and IT that has persisted since the dawn of the Information Age. People in business units or finance organizations usually are unaware of their systems' full potential, and IT people usually don't know enough about business needs to point out opportunities to use their systems more fully.

A second factor, especially for complex enterprise systems, is that once software is in place, business people are reluctant to consider changes that are not absolutely necessary because they believe that change is too expensive, time-consuming, or risky. These factors are worth considering, but they do not automatically give you a reason to do nothing.

To help you move beyond this stalemate, we raise the following questions that your organization should be asking to improve your return on information technology (ROIT) and use to further your own strategy.

We think that the first question that senior finance executives ought to be asking is this: “Whose job is it right now to discover how to get a higher return on our IT assets?” The answer in almost all companies is nobody. We believe that the right answer is a group led by a troika of the CEO or COO, CFO, and CIO, whose job it is to uncover gaps between current performance and best practices with regard to the use of the company's IT systems.

The second question is one that the CFO or controller ought to ask: “Is this finance organization fully utilizing end-to-end processes, such as order-to-cash and procure-to-pay?” Our research found that only a minority of companies that have enterprise resource planning (ERP) systems capable of managing such processes actually use these capabilities, even though each of them can cut costs and improve cash flow.

Similarly, finance executives also should ask, “Are we taking full advantage of electronic documentation and electronic signatures?” Managing the paperwork associated with any business is time-consuming, and one measure of a finance department's efficiency is its ability to handle these details. Yet — again — most companies don't take advantage of their ERP system's capabilities, in this case to use scanned documents for invoice matching or in resolving issues with customers' purchase orders. There may be some comfort in using paper documents for these and related tasks, but it is an increasingly expensive and inefficient security blanket.

Many companies have purchased planning and budgeting software over the past few years. If you are one of them, ask whether you are really using this software. We find that most who do use it achieve important benefits in time saved and efficiency by replacing desktop spreadsheets, but here again many are not getting the full benefits. They still take too long to prepare a budget and are unable to replan or rebudget quickly to reflect changes in the business climate. They are unable to integrate the detailed planning activities of all parts of the company into the financial plan on an ongoing basis. They do not explore business scenarios to uncover opportunities and vulnerabilities except at an abstract level (such as assuming that sales are 5 percent lower than the baseline) that has limited practical use. All of these improvements are possible by exploiting the untapped capabilities of a dedicated planning and budgeting system.

Increasing the return on your IT assets will not happen unless people from the key parts of the business are involved and there is support at the senior level. Moreover, “return” shouldn't be measured on efficiency alone; effectiveness counts, too.

Understanding that you can and should do more is just the first step. Deciding to do something about it is the next, equally necessary step to improving your ROIT.