Good Business Sense
- 11 November, 2002 11:15
When people think of the transportation and logistics industry, they usually think of trucks, trains, planes and ships before technology, but the industry has been completely transformed by information technology. My company, Schneider National, was the first company to deploy satellite tracking technology on its trucks nearly 15 years ago, and technology has always been the key enabler in our ability to compete effectively for the privilege of managing our customers' freight and logistics operations.
During the past six months, Schneider executives have spent a lot of time on the strategic planning cycle designed to drive our company's three-year business plan. As part of that work, we reviewed and discussed the vital linkage between business strategy and IT strategy. It should come as no surprise to readers of this magazine that business and IT strategies are inseparable. My goal here is to shed some light on how to successfully connect the two within the strategic planning process.
While it may seem painfully obvious to CIOs, many companies still do not recognise the full potential to be gained from integrating IT decision making with overall business planning. The integration should begin with a clear idea of the business goals and key operating metrics that are the source of competitive advantage for the company. This process, in turn, drives the long-term vision for IT infrastructure and application development, which should be treated as key platforms that drive long-term positioning of the company. As such, business unit leaders must work together to formulate IT plans that support their individual groups, then roll up those plans into the overall corporate operating plan for IT.
Ideally, business managers should be deeply involved in establishing the case for IT investment, and they must prove that the technology is not only needed but will provide a sufficient ROI through lower costs or increased revenue. However, in most companies, the business units invariably want more technology than the IT department can reasonably design, build and deploy in a given year, and their wish lists usually cost more than the company can afford. So the methods that drive prioritisation and funding are critical to reaching the end state of having the right IT projects to support the company's growth strategy. In most cases, the factors for these decisions are not technological, but strategic and financial.
The linkage to business strategy demands that IT investments meet at least one of the following four criteria if they are to be part of a long-term IT strategy and worthy of capital investment.
Improve cost position. There is constant pressure in every company to reduce costs and increase productivity, as measured by revenue per employee. Technology plays an important role in speeding communication, filling and tracking orders, and trimming SG&A costs by reducing dependence on person-to-person interactions. But proving the case for IT investments can sometimes be challenging. In many companies, there is often an assumption that automating a process with technology will somehow magically improve the process - or at the very least make it more efficient. That won't happen without focusing on the underlying business process. Since technology is merely the enabler, any plan for IT investment tied to productivity improvement should be connected from the outset to measurable improvements in operating and financial metrics.
Increase profit opportunities. The profit potential in transportation, as with other asset-based businesses like airlines and hotels, is derived from our ability to run more revenue over a fixed set of assets. Technology provides the raw computational power to help Schneider associates monitor the status and location of 14,000 truck tractors and 40,000 trailers across tens of thousands of locations throughout North America. To improve the real-time decision support capabilities of our customer service associates, we are deploying a technology application we call Network Value Engine (NVE), which is designed to help manage the inherent complexity of determining when, where and how to shift trucks into a market depending on our customers' immediate and long-term shipping requirements.
Create new revenue streams. In most nontechnology businesses, the IT department is not generally mandated with creating new software applications that can generate standalone revenue. However, many companies - including American Airlines with Sabre, its reservations technology (Sabre was spun off in 2000), and Cendant with its reservations technology spinoff, Apollo - have created successful businesses based on technology that was pioneered for use in-house. These opportunities should not be overlooked. During the past 10 years, Schneider developed a suite of transportation and supply chain management applications used by our logistics group to manage outsourced freight operations and collaborate with customers' suppliers. By offering these same applications to customers, and even to some traditional competitors in third-party logistics, on a hosted basis via the Internet, we have created a new market opportunity and revenue stream for what was once merely viewed as a necessary IT cost.
Enhance the customers' ease of doing business. From initial contact through ordering, confirmation, service delivery, billing and payment to third parties, technology is the cornerstone of customer service that simplifies the process and delivers measurable value to the customer. Every day, our 600 customer service associates manage thousands of pick-ups and deliveries for customers - a process that is deeply dependent on technology. Our customers judge us on each and every interaction. Because customers tend to gravitate toward those partners with whom it is easiest to do business, technology plays an important role in developing and maintaining our relationship with them. While EDI remains a widely deployed communications standard, for many small companies it's costly and complex to implement and maintain. The Internet now allows us to expand the power of our network by facilitating fast, low-cost connections to our trading partners.
For many years, IT was viewed as a back-office function and attracted little management attention. In today's environment, poor IT decisions can have a significant and long-lasting impact on a company's market position. While some companies still view IT solely as a cost centre, many others are beginning to recognise that IT can be the source of competitive advantage. It's not only an enabler of current business processes but also an engine for capturing new markets and business opportunities. The responsibility for making the right IT decisions should not fall to the CIO alone. Every member of the management team must be engaged in the process and willing to spend the time necessary to understand, support and ultimately drive the development of the right IT strategy.
Chris Lofgren is president and CEO of Schneider National, a $US2.4 billion provider of transportation and logistics solutions.