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E-Biz Investments: Forget the Slowdown

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DQI Bureau
New Update

Walk into any conference or party and the hot topic of the hour is the

"US slowdown". Ranging from industry people to hopeful aspirants,

everyone is discussing the impact of the slowdown. Forget all the doomsdayers,

here’s some good news–e-business investments will continue their strong

performance, slowdown or no slowdown.

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At least that’s what major IT research firms Gartner and AMR Research would

have us believe. And to go a step further, they are predicting that e-business

investments will actually pick up with focus on critical areas like SCM, CRM,

which have been showing definite tangible benefits.

According to the Gartner survey, almost two-thirds of respondents expect to

increase IT budgets by 13.3% in 2001. However, the slowdown catch–CIOs are

putting a fine point on the vendor selection process in order to drive maximum

competitive advantage in their technology procurements. Project teams have

intensified efforts to identify rigorous methodologies for selecting equipment,

software, and services to be purchased.

Jim Lebinski, vice-president and research director at Gartner Measurement’s

vendor selection service, says: "In addition to addressing the challenges

inherent in IT decisions, project teams must now counter the inevitable

lengthening of purchasing cycles because of talk of an economic slowdown."

He adds, "Now, more than ever, IT executives and the project teams they

sponsor must be absolutely sure that the technology selections they make meet

comprehensively defined requirements exactly."

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Now for the bad news: the lengthening of sales cycles will affect the cash

flow of IT vendors and many IT majors, ranging from Dell to H-P, have already

announced profit and revenue warnings. Despite the resource constraints, it’s

clear that CIOs too agree that in the current competitive situation, the

advantage will continue to accrue to companies that can install and implement

optimal IT infrastructure for their businesses before their competitors. Again,

this is a clear trend that e-biz investments will continue to move ahead.

No bottomline, no investment

An AMR survey on the impact of a recession on e-business investments showed

that most firms were in the early stages of e-biz investments and cited

streamlining/reducing costs, improving customer relations, and increasing

company revenue as the primary drivers for their investments. If the slowdown

continues, it would only accelerate the need to show return on these

investments.

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In terms of areas not contributing to the bottomline directly, like the

internal systems of HR, accounting and other administrative operations,

investments remain low on the priority list. About 29% of respondents said they

would decrease spending on technology for internal processes and infrastructure

like the above areas. AMR’s survey does show that investments that do not

directly link to either top-line growth or cost savings will be most negatively

affected by the downturn, with 29% of respondents cutting spending on technology

for processes that don’t touch customers or suppliers.

These findings are backed by recently reported slowdowns in spending for

personal computers and other associated sectors like system software and

semiconductors. The survey results make it clear that achieving sell-side and

buy-side transaction efficiencies continues to be important, and it may become

more vital because of economic pressures. Companies are expected to maintain or

even expedite this fast return on investment. Also, even during an economic

downturn only 14% of companies would decrease spending on e-business

initiatives. In contrast, 23% of companies would increase spending in selected

areas (sales and customer management in financial services and supplier

management in manufacturing) irrespective of the downturn.

Key areas of strategic investment

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The surveys point to one key element, if the area can contribute directly to

the bottomline, companies are more than willing to invest in the same. So areas

like customer management, SCM and marketplaces are taking precedence over

investments.

  • Customer Management: 87% of

    respondents surveyed will sustain or increase their budget initiatives on

    sales and customer management. In a recession, customer acquisition and

    retention will be an even greater challenge.

  • Supplier

    Management: 84% of respondents will sustain or increase their supplier

    management initiatives. Streamlining the supply chain will offer the most

    opportunities to improve Return on Capital.

  • Marketplaces: In

    all, 94% of respondents will sustain or increase their B2B marketplace

    initiatives. As a key element of both supplier and customer management

    strategies, further development of e-business marketplaces is essential.

Who benefits?

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Obviously, it is companies with expertise in supply chain management and

procurement, trading exchange infrastructure, and sales and channel management

software sectors that will continue to gain. According to the survey

international software services companies like Ariba, Commerce One, i2

Technologies, Oracle, Peoplesoft, SAP, and Siebel, are well positioned to remain

successful in 2001.

While the Internet boom is well a thing of the past, e-business continues to

remains an important driver of new value creation for companies. Companies that

invest wisely to improve supply chain performance through customer and supply

chain management initiatives will benefit and gain competitive advantage. The

best companies know this, and they will continue to invest accordingly in

products and solutions that promise a fast ROI. The leading vendors in these

categories will thus continue to perform in spite of the larger downturn in

spending and the longer-term impact of Internet investments within traditional

industry and to the economy overall will be profound. This is not a time to play

wait and see.

Amit Sarkar New Delhi

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