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What High Tech can learn from Low Tech

September 30th, 2003 · No Comments

McKinsey Quarterly (via News.com) writes:

During high technology’s boom years in the late 1990s, companies across many sectors tried to emulate their high-tech counterparts. The business models, the creativity and innovation, the speedy decisions, the headlong growth in revenues, profits and shareholder value–slower-growth industries aspired to all these blessings.

But now, with no technology rebound in sight, high-tech vendors must look to the business practices of their former admirers in slower-growth industries such as retailing and banking. There they will find lessons about increasing productivity and using the improvement strategically to expand their market share and improve their financial performance. The challenge goes beyond simple cost cutting; it’s about changing the ratio of inputs to outputs–the value of what companies put into a production process compared with what they get out.

As technology vendors target productivity, they should take a cue from high-performing companies in slow revenue growth sectors such as retailing, whose 5 percent annual productivity growth from 1993 to 2000 was more than twice the rate for U.S. industry as a whole, and wholesaling, which also increased its productivity rapidly during the 1990s. In these sectors, where the demand environment is more mature, companies must perfect the art of raising productivity year after year–not as a one-time event–and exploit that growth for strategic gain. Although they also search for innovative next-generation products and services, they relentlessly identify and close gaps with industry best practices in process efficiency and pursue breakthrough productivity gains by investing in business innovations.

Rather than relying on a “silver bullet,” the productivity leaders have adopted an integrated, end-to-end approach–including process innovation and redesign, the targeted application of IT, carefully crafted outsourcing arrangements and offshoring. They generate gains from a combination of organizational change, targeted investment and the ability to measure the right things. In contrast, companies that bet the farm on major investments such as ERP systems without bothering to improve processes, organizations and strategies may be disappointed. The integrated approach is characterized by short-cycle, well-defined initiatives that are intended to realize year-on-year productivity gains.

Tags: Management

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