Aarni's Blog

IT investments have a greater impact on companies' profits than comparable spending on either advertising or R&D. That is the conclusion that a group of professors draw from their recent study. However, investing in IT to cut cost is not worthwhile, they say.

Sunil Mithas, Ali Tafti, Indranil Bardhan, and Jie Mein Goh used data from 400 global companies from 1998 to 2003.  They found that information technologies deployed since 1995 have a significant positive impact on profitability.  Even though IT investments gave a better yield than advertising or R&D there was more variability in their effects.

Another interesting find was that certain kinds of IT investments appeared to improve profitability more than others. Smart use of technology can enhance profits in two ways: through cost reduction and through revenue increase. The study showed that IT investments were more effective in improving profitability by increasing revenue than by decreasing operating expenses.

The authors claim that a $1 increase in IT expenditures per employee was associated with $12.22 increase in sales per employee in the study group. When IT spending was increased in order to reduce overall operating expenses the effect in the sample of companies was negligible.

The third interesting conclusion of the study was that as industries become more competitive, the effect of IT on profitability increases. Furthermore, IT investments had a greater effect on profitability in the service sector than in manufacturing.

The study "Information Technology and Firm Profitability: Mechanisms and Empirical Evidence" was published in MIS Quarterly 36, no. 1 (March 2012) and an article based on the study in MIT Sloan Management Review Vol 53 no. 3, Spring 2012.

Photo: iStockphoto

Most designers offer their services through short-term projects, which means that the client-designer relationship is often temporary. What are the other types of designer-client relationships and how are they best managed?

The relationship quadrants

Two aspects are important when characterizing client-designer relationships:

1) The scope of the service

2) The role of the designer in the client's process

The scope of the service can be either a project or an ongoing process. In both cases, the role of the designer can be either assistive or participative. In order to compare the two types of scope and the two alternative roles, we can visualize a matrix with four relationship types (see diagram, below).

Each type has different goals, opportunities, risks, and competitive strategies associated with it. Here is a short characterization of the four relationship types:

A) An assistive role in a project – The Project Supplier

• Driver: Client’s need to get a solution to a single, well defined problem.
• Duration: Short-term agreements.
• Designer's goal: To be awarded the supplier’s contract.
• Competitive factors: Price or service performance.
• Critical success factor: Price-quality ratio.
• Designer should know: Decision-makers and their criteria for providers; customers’ needs; ways to improve your own productivity

A project can be the start of a successful designer-client relationship. However, many clients feel that they have to tender each project, which makes this kind of relationship potentially transitory.

B) An assistive role in an ongoing process – The Outsourced Process Provider

• Driver: Client's determination to focus on core business.
• Duration: Long-term, ongoing service.
• Designer's goal: To allow the client to focus on their core business.
• Competitive factors: Provision of cost-effective services.
• Critical success factor: Integration into the client’s processes.
• Designer should know: The right service scope and the client’s own cost for providing the same service level.

It is naturally good business practice for a client to focus on their core business. Therefore, many companies want to outsource processes that they consider complementary. This provides a design company with the opportunity to build a long-lasting relationship with the client. Clients are very cost-conscious in outsourcing deals, so the designer must be able to provide a high-quality service cost-effectively.

C) A participative role in a project - The Consultant

• Driver: A strategically important issue that requires a solution.
• Duration: An ongoing relationship with recurrent projects.
• Designer’s goal: To create and maintain a trusted relationship.
• Competitive factors: Strategic thinking; understanding the client-s business.
• Critical success factor: Ability to improve the client’s competitive position.
• Designer should know: The client’s strategy.

The difference between a type-A relationship and a Type-C one is that, in the latter, the designer contributes more directly to the competitiveness of the client. The designer can be, for example, taking part in a new product or process design that improves the client's core business. A designer is a trusted advisor, even though the relationship is formed around projects.

D) A participative role in a process – The Strategic Partner

• Driver: New business value that can be derived from working together.
• Duration: Long-term relationships.
• Designer’s goal: Shared business goals with the client.
• Competitive factors: Ability to provide unique value to the client.
• Critical success factor: Partnership-management competence.
• Designer should know: Strategic fit with the clients is key; risks related to working together.

This relationship type is the most mature and the most demanding. It is similar to a joint venture, where the client and designer share a vision and a strategy. They also share the business risk to a certain extent. David Lewis certainly had a strategic relationship with Bang & Olufsen. The work of Lewis’s company played a crucial role in B&O's success.

Which relationships to pursue?

All of the four designer-client relationship types have their pros and cons. Some designers are perfectly happy taking on projects that have a limited life span. Some strive to build long-term relationships. Whichever your strategy, it’s advisable not to rely on one single relationship model. By developing a range of models, your company increases its chances of success in a business world where uncertainty has become the norm.

Is there life outside of meetings? A manager is either in a meeting or on the way to a meeting. You can always ask if all the appointments are necessary, but one thing is sure: it is a pain to schedule a meeting.

A typical scenario is that one person sends emails to the attendees from different companies and organizations. The message contains a list of possible dates and times. Gradually people respond and a date and time that seems to suits everyone is about to emerge. Finally one person, probably one whose attendance is very important, sends a message saying that none of those dates is possible. He or she may suggest another date and the messaging starts all over again.

On the day of the meeting everything seems to be all right, but not quite. The person who wanted to change the date does not show up, because of an urgency elsewhere.

I don’t know if anyone has calculated how much time and money is wasted because of these kinds of incidents. I think that one cure is to radically reduce the number of large face-to-face meetings.  You should really think if a meeting is necessary and if there are other ways to work together and discuss. This is also a learning issue. People should take time and some effort to learn new ways to communicate and collaborate. Tools for that are already there.