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Bain’s Brains: When IT-led growth veers off course

Bain’s Brains: When IT-led growth veers off course
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First Published: Thu, Jun 07 2007. 01 08 PM IST
Updated: Thu, Jun 07 2007. 01 08 PM IST
Can information technology (IT) power a company’s growth? Consider the journey made by Shoppers’ Stop. About seven years ago, the up-and-coming Indian retailer faced a difficult choice of cutting its losses when big investments in leading-edge IT systems fell short, hampering business performance. Instead, the company pushed ahead and persistence paid off. Dynamic auto replenishment systems, for instance, have turned suppliers into stakeholders—they can monitor when the store needs new deliveries. Shoppers’ Stop grew sales by 33% in fiscal 2007 and has increased its investments in IT in part to deliver better customer insights.
Most companies today recognize that IT needs to be a fundamental part of their growth strategies. Still, the IT-powered growth at Shoppers’ Stop is all too rare. Many leaders and managers remain frustrated by the shortcomings of their IT systems in helping deliver growth.
The disconnect between IT and growth is underscored by a recent Bain & Company survey of more than 350 senior business and information technology managers around the globe. More than 70% agreed that spending on IT is essential to deliver growth. Yet, among those IT “believers”, one in three said IT actually inhibits growth in at least one major business, and 29% said IT creates more obstacles to growth than pathways to success.
Why do so many IT-led growth initiatives drift into a tailspin in the first place? Most of the executives we interviewed identified a clear tipping point—a single failed project or cluster of projects—that precipitated the downward spiral of their company’s business-IT relationship.
Two patterns of behaviour are especially common. The first is marked by a breakdown between business and IT, usually originating from a few failed growth-oriented IT initiatives. An IT project veers off course, undermining confidence in the ability of IT to deliver. Spending levels fall and the company’s disappointed business executives delay highly visible IT projects.
The resulting drop in the IT budget leads to fewer new initiatives and deferred upgrades to infrastructure. Eventually, the organization starts to view IT as a hindrance in hitting growth targets and the company’s ability to use IT to sustain growth withers.
In the second pattern, trust between business and IT remains intact and IT spending remains stable. But the company’s business executives resist investing in anything that isn’t connected with their immediate needs for business applications. Systems infrastructure becomes outdated, common databases are not built and legacy systems become increasingly complex and fragile. Projects that rely on IT begin to fail and success comes with longer delivery times, greater risks and higher costs. At that point, initiatives that systemically attack the problem with massive investments usually fall short.
In our experience, the best way to restore trust is to identify a single growth initiative that relies on IT, gain the support of the sponsoring business unit, and focus intensively on making it a success. Three principles can help companies recognize an appropriate project to supply the IT uplift.
First, the project must relate directly to business growth. Investments enabling growth—loyalty initiatives, sharper customer segmentation, expanding from products into services—are vital to the business and, therefore, good candidates for regenerating trust. Second, the executive responsible for the relevant business unit—not the chief information officer—must “own” the project and commit to its success. Third, the project must take no longer than 12 months to complete.
The results can be dramatic. At global brokerage firm Charles Schwab, for example, executives had long viewed technology as a source of competitive advantage. But, while overall IT spending remained strong, pressure to deliver new applications meant less money to refresh infrastructure. By 2003, the firm’s IT efforts had drifted off course. And when a major, two-year initiative to develop a new portfolio management system stalled, trust in IT entered a free fall.
To restore balance, Schwab launched a business-led IT project in 2004, putting in charge the group that stood to gain the most from the project’s successful completion. The business unit and IT team alliance has gone a long way towards restoring trust in IT’s contribution to profitable growth.
Integrating IT more closely with the rest of the business means companies will no longer have to concern themselves as much with tailspins and can focus on soaring. As companies in India prepare for rapid growth, getting IT right can be the difference between being a leader or a follower.
Ashish Singh is managing director of Bain & Company India, based in Delhi. Sri Rajan is a Bain partner and leads the firm’s private equity practice in India. Steve Berez is a Bain partner in Boston and a senior member of Bain’s IT practice.
Send your comments to bainsbrains@livemint.com
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First Published: Thu, Jun 07 2007. 01 08 PM IST
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