Forget focusing on cost savings when it comes to information technology projects. These days, the thinking goes that it’s all about strategic business results.
Nowhere is that more relevant than at fashion companies, which whether out of inclination or necessity, typically spend fewer dollars on technology and have less experience with it than companies in other industries.
In particular, fashion companies should focus on projects that will improve sales, margins and inventory, said consultants and large companies from inside and outside the fashion business.
For example, take product life cycle management software, which is being widely adopted in the fashion world. It’s best to justify the software by focusing on top-line growth, not cost cutting, said David Bassuk, principal with Kurt Salmon Associates of New York.
Generally, however, he has found that companies tend to focus on the latter.
“What’s easy to quantify is head-count savings and cost savings,” he said. “They’re nice and will frequently pay for a project or system, but they’re not really the transformational [projects], the greatest area where benefit can come from.”
One company Bassuk worked with was able to take 12 weeks out of its calendar by adopting product life cycle software. Because the shortened time to market enabled it to be more on trend, it was able to take its full-price sell-through to 72 percent from 60 percent, thus realizing a real improvement in margins.
“After realizing the real benefit and opportunities lie much more in margin, they’ve reallocated their use of people,” said Bassuk. “They’re not cutting head count, they’re focusing more people in creative design activities. They’re getting a very positive return on investment and tracking it.”
It can be a bad idea to justify a new system by claiming it will reduce the time employees spend on specific tasks, experts said. For one thing, more efficient printing or faster Internet surfing may not translate into business metrics that make a difference to the bottom line, such as the time it takes to close a sale, said Barbara Gomolski, an analyst with Gartner Group of Stamford, Conn. Also, lightening everyone’s workload by an hour or two a day won’t cut costs unless the company reduces head count, which may not be appropriate or desirable, said Bassuk.
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As an example, he cited merchandise and financial planning systems. “You can quantify a lot of time savings from having a tool to be able to run your baseline plans,” Bassuk said. “Lots of companies do that and look for head-count savings. What they’re not factoring in is that they’ve freed people up to analyze the business more effectively. Rather than laying them off, it would be ideal to have them spend a greater amount of their time analyzing the business and using their time more effectively.”
The type of project a company is considering may determine the evaluation criteria it uses. At Federal Express, for example, the information technology department divides proposals into three categories: those that are required (such as safety and regulatory projects like Sarbanes-Oxley compliance), those that deliver a return on investment (or cost avoidance) of at least 30 percent and strategic projects whose benefit cannot be quantified but are in line with how FedEx wants to run its business. Giving customers the ability to track their packages online was one such project and it helped differentiate FedEx from the competition, said Winn Stephenson, who recently retired as the company’s vice president of network computing.
Too much focus on projects with a high return on investment can be a mistake, said retail executive Marc Saffer. Saffer, a consultant who was previously chief information officer at Columbia House and Footstar, started his career at Estée Lauder before becoming vice president of IT at Macy’s East.
“I find nowadays that a lot of projects have a high ROI on paper, but they may not be strategic, and the money they save you may not be worth getting derailed from the corporate strategy,” he said. “If you do too many projects like that, it will take all your resources. While it might be saving money, you may be forsaking bigger, more essential game-changing projects because the ROI on productivity projects looks bigger, at least in the short term, but they may be diverting resources away from strategic company initiatives.”
To avoid having projects derail, firms should make their process as transparent as possible and involve as many stakeholders as they can, he said.
“There will always be people trying to back-channel, to go over your head to get a project done, to go to the chief executive officer. It’s very easy if you have face time with the ceo to say, ‘This is the greatest project since sliced bread,’ and then the ceo will say, ‘Why aren’t you doing this project?'”
The decision-makers should disclose as much information as they can about what their priorities are, how they made decisions, the criteria they used and the benefits of chosen projects, Saffer said.
“The more information you have, the easier it is to convince people you’re doing the right thing,” he said.
At Columbia House, the technology department uses a scorecard system to evaluate projects. Each proposal is evaluated on six criteria, including impact on customers, the likelihood of success and the relevance of the project to Columbia House’s business strategy. The categories are weighted according to importance, which means some receive a higher point score than others.
At VF Corp., the IT group solicits feedback from the business groups and carefully tests each project before a request for funding is submitted to the company’s chief financial officer, said Ellen Martin, corporate vice president of supply chain systems in VF Corp.’s Shared Services department.
The first step in evaluating a need or project is to put together a cross-functional team made up of business users and IT people who are very familiar with the topic at hand, she said. Then the group narrows its selection through careful research.
To increase the chances of success, keep projects short and sweet, said Gomolski. “Shorter duration and scope makes it easier to get it right. Avoid the monster three-year, $50 million project. It’s almost guaranteed to end your career,” she said.