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Science & Technology ... ...
    IT's a knockout
2005-12-19 07:37

For thousands of Chinese enterprises, doing business with multinationals offers huge benefits while also posing great challenges.

For China's manufacturers, supplying foreign giants guarantees higher profits and prompt payment, but their exacting demands and clinical approach to business require an adjustment in attitude.

Michael Shi, sales manager of a cosmetics container manufacturer in South China's Shenzhen, flies to Shanghai every month to meet customers, collect feedback and discuss new products.

Since most of his customers are consumer companies like Procter&Gamble, Amway, and Estee Lauder, whose products often change quickly to meet market demands, a fast response to their requests is vital for the success of Shi's company.

As a result , the company is considering installing a customer relations management (CRM) software system, which connects to customers' computers, allowing Shi to know customer demands as soon as they arise.

A pressing task

With the Chinese economy becoming increasingly integrated with the rest of the world, companies are seeing growing opportunities with foreign partners and challenges from foreign competitors. This situation places heavy demands on information technology (IT) systems, says Mark Lutchen, senior partner of the IT effectiveness practice with the global consulting giant PricewaterhouseCoopers Ltd (PwC).

"The IT application situation in Chinese enterprises can be fragmented, but the companies can also leap-frog the mistakes and legacies of Western companies," says Lutchen.

In China, some companies like computer maker Lenovo Group and home appliance giant Haier have very advanced IT systems to organize internal management and external relations with suppliers and customers.

But the majority of China's 10 million firms only have a few computers, mainly used for Internet access and basic office administration.

However, IT spending in China has been rising.

Some international customers like Wal Mart and Dell require their Chinese suppliers have an IT system connected to their network.

Competition from abroad is also forcing domestic companies to adopt IT systems to improve efficiency and management.

Lenovo Group, which competes intensely with Dell in the computer business, has been trying to build an information exchange channel with its distributors and suppliers to shorten the supply chain and reduce inventory and delivery time.

Market intelligence firm International Data Corp estimates China's IT spending will grow by 14 per cent this year, compared with a world average of 5.9 per cent and 5.6 per cent in the Asia Pacific region.

Lutchen believes that as well as helping Chinese companies win or retain orders from multinationals and compete against their foreign counterparts, an effective IT management system can also help them expand to overseas markets, a goal that many domestic companies struggle to achieve.

"If you cannot manage your systems more efficiently than your competitors, how can you beat them and win customers?" he says.

Another benefit is that they can also carry out reverse integration, bringing successful IT systems back into China and upgrading IT management for the whole corporation.

Return to basics

With increasing spending on IT, the area has also become a focus of criticism.

Chief executive officers (CEO) or chief financial officers (CFO) often see IT investment as unnecessary extra cost.

According to the US research house Aberdeen Group, IT has become one of the top five expenditures for US companies and usually 15 to 20 per cent of that spending is wasted.

Stephen Norman, chief information officer of Merrill Lunch, describes IT as a magic orange, which can be squeezed whenever a CFO wants to wring some extra costs from the company.

Even for some global giants who are advanced in using IT systems, the role of chief information officer (CIO) in the company's management is a very weak position.

Lutchen, a former CIO of PwC in charge of integrating more than 100 of the company's offices into one network, points out that the industry should return to the basics and manage IT as a business.

That means using accepted fiscal, budgetary, organizational, marketing, investment, and performance measurement principals to draft company strategy for IT systems.

CIOs should not try to scare off other colleagues with technological jargon, while CEOs and CFOs should accept IT is an asset to the business, not just a drain on resources.

US research firm Gartner predicts IT departments will see a revolutionary change in the coming few years.

The firm predicts that in six years, 75 per cent of IT organizations will change their role. More than 10 per cent of IT organizations will be dismissed and another 10 per cent merged into other functions of enterprise.

"While a new organization type will grow from an IT base, the primary focus of the new organisation will be business transformation and strategic assets of information and process. When mature, it may no longer be identified as an IT organisation," says John Mahoney, chief of research for IT Services and Management at Gartner.

PwC's Lutchen believes four areas will be critical in the process of managing IT as a business, namely simplification, standardization, sharing, and sourcing.

Enterprises should move from using many different systems to using just a few, simplifying IT management and increasing efficiency.

Standardization means IT management should be based on fixed standards to facilitate both internal and external exchanges. The efficiency of information sharing is a crucial factor for companies looking for a competitive edge.

In the future, an IT organization should think more about strategy planning, so it must outsource some work to other parties.

But, Lutchen warns, companies must keep a clear mind when sourcing from suppliers.

They must know exactly what they want done and should stay fully informed about the whole process.

For Chinese companies, which usually regard IT investment as an unwelcome cost and are not accustomed to managing enterprises based on raw data, evolution requires a change in business culture.

As Lutchen points out, it may be a long and difficult process, but as China integrates into the global economy and Chinese enterprises compete with foreign rivals worldwide, they cannot afford not to change.

(China Daily 12/19/2005 page5)


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