Will Your Next Big Technology Investment Pay Off?
Pet suppliers, fashion designers, even happy homemakers are buying into the technology boom. Can the return be measured in dollars and cents?
Just the thought of buying new information technology (IT) can be terrifying. Will it be outdated before you plug it in? Will it cost too much or not be powerful enough? Will it take too long to get up and running? And -- perhaps the most difficult question of all -- will it be worth the trouble and expense?
According to the U.S. Bureau of Economic Analysis, in 1993 U.S. businesses spent $115.1 billion on hardware alone. Add in software, networks, and consultants -- not to mention maintenance and upgrades -- and the figure quickly increases. The return, on the other hand, may be simply that a company is more productive with fewer people. Or it may be as intangible as access to new clients and markets or enhanced marketability of products or services.
We asked business owners, computer-industry experts, and even a well-known homemaker to tell us about the most exciting new technology they plan to buy and what they expect the payoff to be. The plans ran the gamut, from accounting systems to multimedia employee-training software to a satellite hookup. As for the justification for their investment, that had less to do with formulas than with plain old common sense.* * *
CEO of Wild Birds Unlimited, a 180-store franchise headquartered in Indianapolis, Ind., specializing in bird-feeding supplies
We want to have systemwide E-mail, so we can pull the accounting and point-of-sales information from all our stores, which are spread through 39 states. We want to be able to bring that information to headquarters, where we'll collate and number-crunch it to see more closely what's happening out there. We want to have better communication from store to store and from headquarters to stores. We also want to be able to take advantages of opportunities. For instance, we stock a brand of imported birdseed. If the boat carrying it catches fire in a harbor somewhere, the entire supply of that seed for the next two months is lost. With systemwide E-mail we could tell our stores that the price of that seed is going up and that they should buy it now, even if their inventory isn't low. For fun, we could even use E-mail to help us be better naturalists, by electronically tracking a bird's migration.
If I don't automate, somebody I don't even know today who does will be a competitor of mine two, three, or four years down the road. And he or she will have a huge jump-start on me because I sat on my butt. Even if it doesn't gain you a dollar today or even if it costs you, I think it's absolutely necessary that you do it. You will make mistakes and waste money, but if you don't automate now, you will be doing it in three years -- if you haven't already been kicked out of the marketplace by somebody who did it earlier.
The retail-department-store standard for IT expenditures as a percentage of sales ranges from .56% to 1.6%. I'd like to use that as a benchmark for us over a three- to five-year period. I don't want our costs to be more than anyone else's. Initially, it will feel as if we're spending a lot more. Right now, I think 1% sounds low -- I see us more at 2%. So I'd like to figure out a way to get our expenditures to 1%.
I also hope I get at least a 5% savings in labor, cost of goods sold, and advertising. I might even save on occupancy costs because I'll be turning over inventory faster and therefore will need less space for storage.* * *
CEO of $5-million Teubner & Associates, a software-development company in Stillwater, Okla.
We are a very small company, but we have products that cater to large companies. It's crucial that we stay in touch with our customers, our marketplace, and what's happening in the world. I've been trying to figure out how we can stay better connected. The answer is not necessarily getting another trade journal, reading another magazine, or subscribing to a newsletter. We all perpetually have a three-foot stack of unread stuff in our corner.
We are getting ready to implement a new service that is being offered by only a handful of companies: a direct satellite connection from various trade publications and news magazines. Using a satellite mounted on the building, we will gather information, then download it to a central computer system on our premises. That computer system will sort the information and distribute it to the appropriate people.
Employees who have access to the service will enter search profiles into the central computer to tell it what they're looking for. For example, if I'm interested in tracking issues x, y, and z, I would have key words identifying those issues stored in my search profile. Whenever information about those issues comes across the wires, the computer will wrap it up in the form of a personal-mail message and shoot it over to me on my desktop system.
With a data broker like the one we're using, the sources of information determine the cost. So the costs might be very low, like $50 a month. At the other end, they might be as high as $500 a month, depending on the services we want and the number of users we'll be supporting.
Payoff is really an intuitive thing. I know there is a payoff, but to calculate it I would have to figure out how much time I spend looking for relevant information without this system versus how much I spend with it.* * *
President of Mothers Work, an apparel manufacturer and retailer in Philadelphia with $59 million in sales
We would like our designers to design on screen. As it is now, only the pattern makers work on screen. To design on screen, you have to have the technology that allows you to see the "drape' of the fabric, that is, how it reacts with the pattern -- how it folds, its weight and thickness, and so forth. For instance, if you're designing a dress from a heavy piece of wool, it's going to look very different from a dress designed from a very thin piece of silk because of the drape of the fabric.
To get the computer to read the drape of the fabric, engineers place an actual piece of the fabric the designer is working with in a little box, and somehow the computer reads the qualities of that fabric and digitizes them. That means the designer can scoop out the neck and then hit a switch and see how those lines drape on the form. Unfortunately, as it stands now, we have not found a system that functions adequately. There are several out there, but nothing that we consider worth it because they are still very clumsy.
The real benefit of using technology is not that it reduces the cost of pattern making but how it affects time to market. It takes us about a week to design a garment. Designing on screen would allow us to cut that down to a day, which is quite significant. Eventually, it will save us the whole step of repeatedly making up the pattern and sewing it up. Further down the road, we will do everything on screen, even the next step -- computer-generated cutting. Soon a garment will be taken from conception right to production using one computer system.* * *
CEO of Wastren Inc., a 100-employee environmental-consulting firm in Idaho Falls, Idaho
We are in the process of integrating a new software system that allows us to manage large projects. Our current accounting system generates weekly reports every Wednesday. So we are generally three or four days behind real time, and in today's consulting world that's not a particularly good position to be in, especially if you are a small, growing company.
As a small company, we deal primarily with large numbers of smaller contracts, and we have to make sure we stick to the budget or the client will be very upset. That can be difficult to manage under a weekly reporting system.
We're implementing a software program that operates as a time-card entry system. At the end of the day all employees at each of our nine sites will enter their billable hours into the system. If funds are not available in the account you're billing time to, your hours won't even be accepted. At about 5 p.m. our system at the corporate office will automatically dial the site offices and pick up all the information that was entered. The information will be integrated into the company accounting system, and then the computer will redial the sites and update their systems. All this will take place before 8 a.m. So when you arrive in the morning, you'll be able to see what your costs were as of yesterday.
The system will allow us to make sure that only authorized people charge on a contract, and project managers will be able to see all charges to their projects every 15 hours. We'll have a lot of control. The payoff will be high performance on our projects in terms of cost control and consumption of all the funds that are available without overrunning the contracts. Our physical cost for the whole thing -- for the system and integration -- will be about $18,000.* * *
Director of MIS, Genzyme Corporation, a biotechnology firm in Cambridge, Mass.
We have recently had a fair number of acquisitions, and given the state of the biotechnology industry -- the way it's going in terms of the entire market and certain companies' capitalization and existing revenues -- there will likely be more consolidation in the industry. Using an international network as your backbone to link various acquisitions, or even pending acquisitions, gives you the ability to join and unjoin those entities very quickly and very dynamically. It gives you a little more flexibility, which is really necessary in today's business environment. Going to AT&T or NYNEX and saying, "Please connect us to this company in California,' takes a little more time than giving the researchers or the businesspeople of a certain entity your Internet address and saying, "OK. Let's exchange these documents.'
One of the things we are considering doing is improving our access to the Internet. We have a connection through a dial-out basis, and we have left it at that point for security reasons. We feel we have done a pretty good job of addressing internal security, but when you start to connect yourself to a broader global network, you open yourself up to external threats.* * *
Vice-president of $15-million Pet Ventures, a pet supplier headquartered in Arlington, Va.
We're considering looking into multi-media for employee training. In training for retail there is a lot of role playing, and I think you might be able to systematize and make more consistent the training you provide by using interactive technology.
Success in customer service is a qualitative measure and very difficult to calculate in terms of ROI. One thing a business like ours might look at is employee tenure. If people are learning what they need to learn to be successful in their jobs, then they're likely to stay longer, as opposed to people who are not properly trained and are frustrated by their lack of knowledge. Another thing to consider is the average transaction in terms of units and dollars. If salespeople are well trained, they're more likely to be able to persuade customers to go to a higher-quality product, which means higher dollars. Or they will be knowledgeable enough about a product to recognize that it should go together with others, and that increases items and dollars. Add-on sales in retail are what it's all about. They're the best way to increase revenues without the expense of increasing traffic.
The payoff in the longer term is that salespeople who are better trained provide better customer service and help create more loyal, long-term customers. So the ultimate payoff is survival.
We have found that in retail a lot of technology focuses on efficiency and on control of areas like inventory, assets, or cash, and that's important. But I think that using technology to improve the efficiency and capability of the people who form the company could prove to be just as monumental an application as one concerned with the "things' side of the equation.* * *
CEO of $28-million Assessment Systems Inc., in Bala Cynwyd, Penn.
Our focus is to bring technology to state governments. We do what state governments should do but can't afford to do or don't know how to do. We literally become the service bureau, or backbone, of a regulatory agency, and we deliver its exams and manage its records.
We are going to be investing heavily in a network of CD-ROM delivery mechanisms. They will allow, say, social workers to take their licensing exams electronically, on a computer with full-motion video and sound, as opposed to taking written tests. That will be a major investment for us. The cost depends on implementation strategy. If we do it all at once, it will probably cost in the neighborhood of $6 million or $7 million.
Our return on the investment in CD-ROM will be something like 10% to 20%, based on utilization rates. Utilization is simply the number of people who sit in front of the machine and take a test. The more people who use it, the higher the ROI.
We will also be investing in interactive voice-response technology (IVR). Our service lends itself to license-renewal processing. To use an example outside our area of interest: Imagine renewing your driver's license over the phone, as opposed to filling out a form. You could do it using IVR. It would save time and money, and prevent hassles. Just think, you wouldn't have to deal with bureaucracy.
HOME IS WHERE THE DUO-DOCK IS
Martha Stewart, homemaking guru and queen of cuisine, may be trading in her spatula for a spreadsheet
It's like crazy. You'd be horrified at my office. I work in total chaos. Organized chaos. I have to deal with ribbons, tea, cats and dogs, technology, candle making, cooking, ordering manure -- all in the same five minutes. Do you know how long it takes me to find my birth certificate? Everything, every record of importance, I would like to have in my files. When I tear a recipe out of the newspaper, I want to scan it right into my files. I want to really have it easy. What I'm trying to do for myself, and ultimately for others, is to create some sort of technology that works for me, the homemaker.
So this is what I really want to have at my fingertips. An Audiovisual Power Mac -- this would be in my kitchen, where I work all the time. Ideally with duo-docking capabilities. I have a Powerbook, and right now I can't insert my Powerbook into my docking system. I want an extended keyboard. The Audiovisual Mac with duo-docking capabilities is about $5,000. The extended keyboard is about $150. I would also like an optical-character-recognition-capable scanner with the ability to process items such as forms, records, recipes, and possibly graphics. I want it to scan items quickly. That item costs about $1,000. I want a speedy black-and-white printer, which costs anywhere from $1,500 to $2,000. I want an affordable, decent-quality, reasonably fast color printer, and that's not here yet; color printers are too expensive right now. I want a high-speed fax modem, so when I write something I can fax a hard copy right away. I don't care about getting my faxes on this thing because I don't want to be using up my time receiving faxes. So I only want to send from it. That costs about $200 or $300. I want a Quicktake digital camera, which costs about $700 to $900. It will feed right into my computer so I can walk around my house and document my antiques, my art -- everything -- and have my records right in there. And then I'll take my disks right to the bank and put them in the safe-deposit box.
I would love to take all this stuff out of the boxes, plug it in, and have it work. So you see, I want to really organize my life. And I think everyone else would want to do that, if I could help them. And right now it's too expensive for everybody. We have to find out how to do it more cheaply.* * *