Dr Freddie Acosta, Senior Lecturer of Information Systems Management, SBS

 

Where ever there is a shining business success, IT is cited as having helped. But the same IT is on the stage of many other stories without the same happy ending. Somewhere comes a magic extra, which then sees the IT take a business far ahead of its peers.

Globally, Apple, with its iPod, had that extra.  In Kenya, Equity Bank’s transformatory IT, likewise, owed the scale of its success to the strategy it was harnessed to. For Apple pulled off a business miracle with the iPod, where two previous companies had already, and largely unsuccessfully, tried to bring digital music players to the world. In 1998, Diamond Multimedia launched the Rio, and in 2000 Best Data rolled out the Cabo. Yet it was the iPod that was hailed as a generational change.

Locally, Equity Bank has enjoyed a meteoric stock price rise, up 210.8 per cent over 2007 – just two years after it converted to a commercial bank and in only the second year of phasing in its core banking system – outperforming both the NSE 20 Index (which was down 9.3 per cent) and its peer group, and being credited for revolutionizing the face of Kenyan banking. It may now be the leader in microfinance, but it was very far from being the first to market.

Moreover, there are many notable Kenyan companies that have also implemented the best Enterprise Resource Planning (ERP) Systems, but failed to harvest the promised benefits of IT investment. Yet with global businesses still spending $3 trillion a year on IT, the need to know why one project succeeds where another fails is urgent.

One of the most important studies into this dividing line was the CHAOS report, by the Standish Group; which ranked the top needs for a successful IT projects as clear requirements, user involvement and management support.

A look at the table (position) shows that a lot can go wrong for the very worst projects. Some companies find no-one needs or wants the systems, resources run out, the system no longer looks necessary for the direction the business is taking, or it just doesn’t look able to do what people wanted it to do. Many such projects get abandoned.

But the more common problem is that the IT projects goes ahead, even to completion, without fuelling any step-change in the business. Factors in this can be changing requirements as the project unfolds, which has typically been the case in the software implementation inside many of Kenya’s banks. Just as significantly, IT projects have been implemented but the businesses themselves have not been realigned to operate or behave differently thanks to the new IT capacities. The IT only sits within the same systems as were, making progress close to negligible.

In our own research in Kenya, we are finding that the critical success factors for SAP (a leading ERP system) come up, consistently, as the support of top management; effective project management; and business process reengineering. 

This ties in with another Standish report in 2004, which showed one-fifth of IT projects are cancelled fore completion; and less than a third finished on time, within budget with the expected functionality.

Where only large, and therefore riskier, projects were counted – excluding all routine software upgrades – the cancellation rate was more than twice as high. This makes starting any IT project a matter that should be thoroughly viewed for the risk in entails, and for its own risks of failure.

But even beyond competency in planning and execution, the real heart of the matter seems to be the business model.

Business model has been a buzz word for many executives in recent years. Surveys by the Economist Intelligence Unit in 2005 and IBM in 2008 revealed that almost all CEOs surveyed believed there is a need to adopt a better business model, especially in these tough economic times.

But what exactly is meant by business model, and how does it relate to the implementation of new technology?

Linda Applegate in her article Crafting Business Models defined the business model as the way an organization constructs a unique strategy to attract resources and build capabilities that create value for all stakeholders.

In other words, a sound business model delivers something customers want with profit for the organization embedded into its structure.

At this level, it starts to become clear how Equity Bank was different from the other banks in Kenya that were also driving through new banking software. When Equity Bank converted to a commercial bank in 2005, it saw the potential of Kenya’s unbanked population.

Its strategy was premised on providing easily available, accessible and affordable banking services and lending, which saw it design a high volume low-margin model.

It invested in the recruitment, training and retention of high caliber banking staff, and in infrastructure, guided by a single strategic goal of becoming the preferred micro-finance provider in Africa.

Snehal Shah of Kestrel Capital recently declared that Equity Bank’s strength has been built through its strategy and underlying infrastructure – in the form of a sound IT system and an increasing range of service channels. As a combining strategy and IT, the sum was a game-changing business model that forced other big banks to re-examine their own.

Likewise, the success of Apply with the iPod was a product of its unique strategy. It “gave away” the low-margin iTunes music to lock in purchase of the high-margin iPod.

Effectively, the company took a good technology and wrapped it in a great business model by making downloading digital music easy and convenient.

In reality, it was the model, rather than the technology itself, that defined value in a new way and provided game changing convenience to the consumer. In just three years, the iPod/iTunes product combination was worth close to $10bn contributing almost half of the company’s revenues.

The company’s capitalization climbed from some $1bn in 2003 to over $150bn by 2007. And from being a computer company, it is now the world’s biggest music retailer. All from a technology it did not even invent!

 

The point was that the new business model was technology-enabled.

 

Likewise , in Kenya, Hilton Hotel, Nairobi Hospital and Gertrude Children’s Hospital have gained an edge in the market by competing on technology-enabled processes – carefully examining their working methods, overhauling them in interesting ways, and using readily available enterprise software and networking technologies to spread these process changes to far-flung locations so they are executed the same every time.

Investing in IT does not automatically generate success. There can be wide variations in the returns from these investments.

But getting the business model right is a must. Many firms fail to adopt the business model that would suit the new technology, or seek to preserve an old business model that is doomed by the new technology.

Ari Bousbib, the CEO of Otis Elevator, concluded that implementing Information Technology with broken or inefficient processes would be a very costly mistake.

The facts are that a magic formula is indeed necessary to really get value from an IT investment. Where the technology is harnessed to create a new type of business, a new way of doing business, new ways of managing a new organizational culture, or new training, it then achieves superior returns.

And there lies challenge as you contemplate that “must-have” IT system.  Are you getting it to make something new possible? Have you spent enough time and money on the whole of that new business to ensure the IT delivers for you?

Do you have the right business model, and the right culture to deliver it? Do your people work well together, and do they have the incentive to make your investment work? And will decisions be made quickly, and where they matter?

These are the things that will make or break your new IT system.

 

Previously published at The Edge: e-Kenya, Business Daily, October 2, 2009 (pp. 14-15)