Technology in Small Businesses

By Julio Bucatinsky

In many small companies, technology often becomes more of a problem than a solution and its costs are not in line with business priorities. Everyone is using his or her own favorite software, redundancies are rampant, and access to files is seldom in the realm of all persons who need it. Here's a look at some of factors that have led to this situation and an approach that may solve the problem. While the author directs his attention to partners in small and medium-sized accounting firms, the conditions and solutions equally apply to all small and medium-sized enterprises including nonprofit organizations.

The managing partner of a medium-sized firm walks into the weekly management meeting, where the review of hot management issues is about to begin. The partners are gathered around the conference table. There is tension in the air. All through the previous week there had been computer problems. First, the network crashed, leaving everyone stalled or severely disabled. Clients would call with questions that could not be answered. There was embarrassment in admitting the organization could not function until the computer problem was fixed.

In addition, there were data losses when one of the PC's hard disks failed. The backup procedure--to copy every day's work to duplicate files on a different machine--had not taken place.

When the meeting started, adding fuel to the fire, one partner complained that for all the money spent on computers over the last two years, she still could not have access to client tax data on the same PC she used to keep track of client appointments. She wanted to know if it would not make sense to have access to the client's accounting and tax data, and to the related notes and reminders, while on the telephone with a client.

The partner responsible for computer operations--a job he got by default because he was something of a personal computer aficionado--had been on the spot many times because of computer problems. His time with clients had been impacted by computer crisis. He was tired of it too. Perhaps it was time for the firm to hire a full-time systems manager. Or to outsource the operation to a third party.

The managing partner wanted to review, one more time, how the firm had been making computer decisions, and why, after spending close to $120,000, technology was not supporting the practice, was making clients unhappy, and was not capable of supporting the development of new and additional business. After a brief but heated discussion the following facts were brought to light:

* Each computer expenditure had been cost-justified on the basis of specific needs, as each need arouse: word processing, data base, calendar and time management, accounting, tax planning, estate planning, and others.

* There was, however, no plan to connect the partners and their support staff with a view of sharing work as well as information. This connectivity would have required that isolated computer applications be shared by partners and staff, while still maintaining privacy. The servers on the LAN supported only a handful of functions, like printer sharing and multiple partner calendar support.

* There was no formal backup plan that would enable the firm to continue operating even when one or more computers failed, or even when the entire network was down.

* There was no plan to accommodate new technology as the needs of the firm changed.

The meeting ended in frustration, because there was no remedy to the immediate problem. Eventually the problem was solved by hiring a consultant who helped the firm fix the network reliability problem, and, for the long run--three to five years--developed a technology strategy and an implementation plan.

The problem at this firm was not unique. As widely reported, after spending a trillion dollars in computer technology over the last ten years, U.S. companies have not fully utilized all the power they have purchased.

The microchip revolution brought enormous power to the desks of millions of users. They were able to bypass what were called the "glass houses" of mainframes and minicomputers. Computer users were at liberty to install whatever software packages they wanted on their desktops, from word processing and data base to spreadsheet and contact managers. In firms with some degree of planning and discipline, the decision of what was to be installed on those machines was centralized, allowing a level of standardization. Centralization facilitated sharing computer files. At a minimum, standardization allowed sharing files by copying and exchanging computer diskettes. At more advanced installations, sharing was accomplished by connecting the PCs to servers on a common local area network.

A consequence of the new freedom from the mainframe was the proliferation of well-justified PC applications, each brought in to solve a specific problem, or to carry out a specific set of tasks. However, proliferation created new problems. First, there is seldom an integration of individual software applications on people's desks with the company's "back office" software: the software that keeps track of administration, personnel, financial, and other firmwide functions. Result: duplication of effort and data, inefficiency, and errors.

Second, these applications installed throughout the company are like islands of automation, surrounded by a sea of paper, verbal communications, unwritten rules, and undocumented conversations and commitments. Because of this phenomenon, computer spending has addressed only in part the complex, and sometimes unstructured, process of managing and operating a business.

Impact of Technology on the
Bottom Line

While the dispersion of computer power from centralized mainframe to desktop computers has been taking place, a socioeconomic transformation has been changing how people work and what they work on. Measuring the impact on productivity, or on profitability, is more difficult today than in years past. In our era of "knowledge work," making and moving physical objects is at best 20% of the country's economic activity.

The difficulties in measuring the impact of technology on the bottom line were evident at a 1995 conference on the impact of R&D on profitability sponsored by The Conference Board. The conference touched heavily on the topic of computer technology. Here are some of the suggested action points for users of technology that came out of the conference:

* Develop a strategic vision of the enterprise that integrates the technology plan with the business direction.

In an accounting firm, the strategic direction might be to expand the practice to provide management consulting in addition to tax and auditing services. The technology plan must include a new set of complex applications and connectivity.

* Explicitly identify the company's
barriers to achieving its goals and
position technology to help overcome those barriers.

An accounting firm planning to expand into management consulting might find one of the barriers is the high cost of acquiring industry data. Technology can lower this cost by providing access to either free or fee-based private or public networks.

* Make sure the technology plan is based on understanding the company's goals, markets, competitors, customers, and products. Ensure that it focuses on satisfying customers' needs. Ensure that the implementation plan focuses on accountability, and on tracking costs. Establish criteria of evaluation and quantitative measures of success up front of a new project. Later, do not hesitate to kill a project going nowhere.

* Leverage technology resources external to the company: suppliers, customers, consultants, business services providers.

* Maintain in-house technology core competencies that are vital to day-to-day operations as well as to long-term strategy. In an accounting firm, technology core competencies are primarily tax and auditing software tools that improve productivity.

Getting Maximum Returns
From Technology

In developing an approach to facilitate the assessment of benefits from spending in technology, three questions should be answered:

* How much is the company currently spending in technology?

* How close is the company's total spending in technology in alignment with its business strategies?

* What is the impact of technological trends on the company's strategic
initiatives?

The first question seems simple but it often is not. Computer related spending may appear under categories buried in departmental budgets, from human resources, to marketing, to operations.

The second question has its own difficulties. One is that many companies do not have a set of explicit and clearly articulated strategies. Another difficulty is that most business strategies cut across multiple departmental budgets, where technology spending may not be immediately visible. Adding up all the dollars may require careful digging and, often, a lot of estimating by approximation.

The third question may be answered
by carefully mapping selected new
technologies to each of the company's strategic initiatives, and assessing the
likely outcome of migrating processes
and people to them.

Diagnostic Analysis Plan

One approach to technology assessment is to develop a diagnostic analysis plan. This can be accomplished with three worksheets, or with computer spreadsheets, if the level of detail and complexity require computer models.

The first worksheet is illustrated in Table 1. Row and column labels depend upon the company organization and type of industry. This illustration shows a functional organization. A similar analysis may be carried out for a geographic organization, or for both functional and
geographic.

Hardware includes computers as well as all peripheral equipment attached to them. For the purpose of this analysis, it also includes equipment and devices connected via telecommunications lines.

Software includes off-the-shelf commercial packages and custom programs purchased from third-parties as well as staff costs incurred in developing custom programs inhouse.

Telecommunications expenses are paid to telephone companies and other entities for delivery of products and services. Costs of software and hardware related to computer telephony are included here, except for computer functions that exist primarily in a central computer system. Deciding how to split costs between telephone and computers in a computer telephony application will often be a matter of judgment. Also included in this category are payments to third parties for specialized consulting or other services, as well as costs of maintaining a specialized in-house staff.

Support and maintenance costs are primarily people costs, be it external or internal. Hardware and software support are included, from annual maintenance contracts to parts, repairs, trouble shooting, and software fixes. Also included are contracts for disaster recovery facilities and services.

Outsourcing may include installation management services, where a third party brings in its own people, on-site, on a permanent basis, to manage the equipment owned by the firm. It should include payments made for computer processing to business service vendors. A typical example of a business service often outsourced is payroll processing.

The second step in developing the diagnostic analysis plan is to understand what trade-offs are possible between different expense categories. The subtotals and percentages by category in Table 1 can be used for this purpose.

In this step a review is made for possible clues to areas where there may be opportunity for short term improvements. Some of the clues are--

* hardware spending is low but maintenance and support is high.

* software spending is high because of emphasis on developing applications in-house, rather that buying available
packages.

* high computer consulting expenses because of constant problems with the installed system.

* high outsourcing expense when payroll processing is included in this table.

The third step is to understand how effectively the existing computer and telecommunications installation supports the business. We want to know how well it supports and promotes customer satisfaction, manages the business, and supports strategic initiatives undertaken by the company.

An examination of the alignment of technology (with strategic initiatives) used by many small but growing companies may illustrate the process as they address--

* improving productivity.

* improving quality.

* introducing new products or services.

* expanding the marketplace for existing products or services.

We use a worksheet similar to the one shown on Table 2, where spending data comes from step one and investment dollars are estimated for capital projects. A company may discover, as a result of this analysis, that "other" has the lowest priority but the highest level of spending.

Imbalances between priority and spending or investing are good indicators of opportunity to redesign the business processes that are part of the imbalance.

How to Anticipate the Impact of New Technology

The fourth and last step of the diagnostic analysis plan relates to anticipating the impact of future technology.

Consider the following: Fourteen million enterprises in the U.S. with less than one hundred employees have some computer installed. On average, nine million of them upgrade their computer systems every year. They face a frightening
fact: New technology replaces existing technology approximately every
three years.

The impact of misjudging a trend on small and mid-sized companies can be particularly severe. Much of the change in the way we do business is coming, and will come, from new capabilities in networking computers and telephone equipment. To assess the impact on small businesses, trends in the following categories should be followed:

Computer Telephony. This technology can have a significant impact (positive or negative) on customer satisfaction. If computer telephony can provide answers fast, and if the caller can speak to a person without having to wait forever, satisfaction will be high.

One of the frequent uses of computer telephony is to answer, over the telephone, routine questions customers ask. If they can punch in an account number using the telephone keypad, the computer telephony application, using voice responses, can provide information stored in a data base. This is done automatically, without the need for a staff person to look the information up and then give the customer the answer. More advanced systems can deliver documents on demand, via fax or e-mail, also automatically.

Of particular impact in the very near future will be the implementation of voice recognition systems. A system that automatically recognizes the subscriber's voice, gives and takes messages, and routes them to the subscriber at a telephone anywhere, is already available. This is definitely a technology to watch.

Internet. This technology can be very effective for small firms willing and able to offer products and services globally. For less than a couple of thousand dollars, any company can become a global merchant overnight.

A specialized bookseller can offer rare books on the Internet, suddenly finding a global marketplace accessible from the local store. Or from the kitchen table. A local producer of home-made salsa can advertise its product globally.

Real estate professionals are using the Internet to show property pictures and data to prospective customers. The Internet is the fastest growing sales tool, with more than 7,000 Web sites. However, it is still early for the technology to have an impact. A small fraction of the four million houses for sale in the U.S. are advertised on the Internet.

A professional firm, for example, in engineering, law, accounting, health care, or financial services, uses the Internet to speed up initial research on any topic, on behalf of a client, before moving on to more expensive research sources. In addition, professional firms can be instantly connected with counterparts anywhere in the world, facilitating joint work on behalf of clients who operate internationally.

Intranet is the implementation of public Internet technology in a private computer network. It improves the ability to link suppliers and customers electronically with small and mid-size companies.

Intranets can deliver productivity improvements quickly by giving access to employees of company information on the network. An example is giving instant access to product catalogues, brochures, and personnel policies that are typically spread over different departments and kept in big paper binders. Computer access to this type of information permits fast retrieval right at the employee's desk, with pictures, sound, and video, if necessary.

In addition to linking employees, an Intranet can provide access to customers, thereby cutting people costs and satisfying customer needs faster. Customers could look up prices, product characteristics, contract terms and conditions, and other documentation directly from their own desks.

Electronic Banking. This technology is beginning to make inroads among small and mid-size companies. It can significantly lower costs of paying and being paid and of other financial transactions. Banks are making substantial investments in developing online networks because it is enormously cheaper for them to deliver banking functions electronically than by conventional, face-to-face, operations. Eliminating check processing is, for the banking industry, a pot of gold worth pursuing.

Electronic business banking goes beyond bill paying. Online banking enables the user to open and close accounts, transfer among all accounts, wire transfers anywhere in the world, see all debits and credits for the previous 90 days, and work with escrow accounts.

Mapping Technology to
Strategic Initiative

Firms can begin to evaluate technology in the context of specific strategic initiatives by mapping technologies to strategies, as illustrated in Table 3

This simple table can become very powerful. Each dot on the chart stands for a set of qualitative and quantitative assessment criteria. Criteria include cost and benefit estimates, explicit value judgments, risk assessments, and many other factors.

By moving vertically from dot to dot, all of the benefits and costs can be tallied across all of the strategic initiatives. A scoring system can be devised to quickly show the relative numeric value of each technology, based on an index.

Horizontally, the cost/benefit ratio of a mix of technologies can be assessed for each of the strategic initiatives. The exercise also helps raise questions about interaction and integration of the participating technologies. In this illustration, for example, a technology view shows that computer telephony will have a significant impact on three strategic initiatives:

* Increasing overall company
productivity.

* Improving quality.

* Introducing new products.

On the other hand, a strategic view will show that under increased productivity, there are three technologies that will have a significant impact:

* Computer telephony.

* Intranet.

* Electronic banking.

The diagnostic analysis plan approach allows users to tailor the worksheets discussed in this article to fit the needs of the firm or its clients. The process should be followed step by step. What may be discovered are many examples of "doing better and better what should not be done at all." *