IT emerges as a critical weapon for business

4 Mar 2005

IT will emerge as a critical, competitive weapon over the next five years as companies rely increasingly on new business models rather than new product lines to succeed, a survey of business leaders by the Economist Intelligence Unit (EIU) reveals.

Commissioned by enterprise resource planning giant SAP, the research asked business leaders of more than 4,000 companies in 23 countries to describe how business will change over the next five years.

Speed of execution on strategy and innovation was identified as the key management challenge facing companies over the next five years and more than four fifths of respondents said that technology will be critical to their company’s ability to adapt their business models and implement strategy. Nearly three fifths said IT is increasingly becoming a competitive tool rather than simply a driver of cost efficiency.

Worldwide more than 60pc of executives surveyed said they expect their company to continue to focus primarily on existing product lines rather than diversify into new products or services. Some 54pc said their companies are shifting their focus to innovative business models rather than new products to achieve competitive advantage.

The survey revealed that companies will increasingly turn to IT as a competitive tool for better predicting customer behaviour. Respondents cited changes in customers’ needs and behaviour as the single most significant challenge to product and service innovation that companies will face over the next five years. Nearly 40pc said they expect to invest in improved customer relationship management (CRM) capabilities to help meet that challenge.

Some 61pc of respondents said IT will prove most critical in improving customer relationships and customer service over the next five years. The remainder saw IT’s most critical role in new product and service development (31pc) and supply chain management (30pc).

“Predictions of the commoditisation of IT are premature,” said Erik Brynjolfsson, Schussel Professor of Management at the Massachusetts Institute of Technology (MIT) Sloan School and director of the MIT Center for eBusiness. “In fact, the next five years will probably witness more innovation in the use of IT to drive competitive advantage than any previous period. The new EUI and SAP study of 4,000 managers matches our own research at the MIT Center for eBusiness highlighting the growing role of IT in creating new business models and driving customer focus. As data and computing become ever cheaper, the potential for IT-enabled innovation is only increasing.”

Many of the competitive benefits of IT flow from its ability to capture, communicate and analyse information, the survey indicates. Respondents said that between 2005 and 2010, they hoped to see the most improvement in access to the right information at the right time.

Asked to evaluate emerging technologies, the majority of respondents said that new data management and analytical tools will have the greatest impact on their companies’ ability to innovate over the next five years.

Today’s focus on innovative business models and the emergence of business ecosystems underpins SAP’s own growth strategy for the next five years, according to SAP CEO Henning Kagermann. “To succeed in 2010, companies will need to adapt faster to changing customer demands.

“As companies increasingly focus on their core business, they will be ever more dependent on an integrated network of partners and suppliers to meet customers’ requirements of flexibility and convenience. IT will play a strategic role in helping companies efficiently and cost-effectively build and swiftly adapt to customer demand. We are entering the next wave of computing where IT is aligned with business and used as a driver of competitive advantage rather than simply a tool to drive down costs,” Kagermann said.

By John Kennedy