Organizations are shifting their investments from internal applications to outward-facing applications.
Posted Feb 19, 2004
Although IT budgets are being squeezed, organizations are shifting their investments from internal applications to outward-facing applications, according to analyst firm Yankee Group. The results of a survey of roughly 400 North American IT decision-makers maintains that 34 percent of IT budgets are going toward what Yankee Group analysts call edge-of-the-enterprise applications, which combine CRM with supply chain-management initiatives.
"We've seen over the past couple of years companies hunker down after the dotcom bubble burst. As growth slowed down, companies turned inward and said, 'We need to reduce internal costs and leverage the existing [technology] we purchased over the past couple of years. After a couple of years of doing that the only way we can see improving is by looking beyond the four walls of our company and get better at collaboration and information flow around the supply chain,' " says Mike Dominy, Yankee Group senior analyst and author of the report.
These outward-facing initiatives are done with good reason, according to Yankee Group, which maintains that U.S. companies can reduce monthly inventories $117 billion to $293 billion and increase sales $83 billion to $166 billion by improving and extending processes beyond the edges of the enterprise.
Companies can look to Walmart for an example of how a business can marry CRM with SCM applications. Through the use of radio frequency-identification technology, which works much in the same way EZ-Pass is used at tollbooths, Walmart is requiring each of its suppliers to place a chip that provides pertinent product and order-tracking information on the box of each product. When the products are delivered, an electronic reader records the merchandise, obviating the need for the extra labor required to manually scan the merchandise. The information recorded enables Walmart to track and manage inventory levels more cost effectively, and make more real-time decisions on supply and demand forecasting.
"When you can link [traditional CRM] to back-office [applications] and have a more responsive supply chain, then you start improving customer service, lower costs, and get better visibility into supply and demand," Dominy says. This, he adds, enables organizations to "respond better" to customer inventory queries.
Not surprisingly, when broken down by vertical markets the consumer packaged goods industry leads the way, with roughly 40 percent of overall IT budgets dedicated to edge-of-the-enterprise applications in 2004. The retail and distribution industries closely follow with nearly 40 percent dedicated to this IT investment, according to Dominy, who also says that the vendors leading this merger of CRM and SCM applications are IBM, Microsoft, and Oracle--mostly because of their investments in database technology.
According to the firm's recent Edge of the Enterprise Survey, spending on financial, human resources, sales automation, and other internally focused solutions is expected to grow only 0.4 percent this year, whereas externally facing applications will grow more than 7 percent.
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