Magazine for Senior Financial Executives: Levers for success – IT Strategy – strategizing information technology investments

Levers for success – IT Strategy – strategizing information technology investments – Brief Article

Given all the pressure on IT budgets, does anyone still think technology can produce competitive differentiation? A team of McKinsey consultants spent two years studying that question and found that IT investments can still separate the leaders from the pack–if companies know which levers to pull.

The key to substantial boosts in productivity, they say, is to direct IT investments toward projects that enhance innovation. And the keys to enhanced innovation are focus and timing.

Instead of looking to improve operations across the board, McKinsey consultants Diana Farrell, Terra Terwilliger, and Allen P. Webb say companies should target those areas where IT spending dovetails with a commitment to improved business processes and existing operational strengths. They should also avoid copying other firms, even those within their own industries that are often held up as best practices. As one example, they point to Wal-Mart, the current gold standard within the retailer industry. Despite its IT-driven success, its focus on low-cost commodities makes it a poor model to follow for, say, Saks Fifth Avenue, which must cope with the seasonality of the fashion business and the need to avoid unloading inventory at end-of-season discounts.

Timing is also key. When an IT investment complements business goals and leads to innovation, or provides an ongoing benefit even if imitated, it makes sense to be out front. Leaders need to be able to implement IT quickly and have a track record of effecting change. Failing that, restraint is best.

COPYRIGHT 2003 CFO Publishing Corp.

COPYRIGHT 2003 Gale Group