RSS feedsYou would be hard pushed to find anyone with as good a reputation in the City as Marks & Spencer chief executive Stuart Rose right now. Having successfully fought off one of the most hostile takeover attempts the UK has seen, when he and Sir Philip Green locked horns in 2004, Rose has gone from strength to strength.
His success culminated in Marks & Spencer’s 2006 results announcement, delivered to the City on 22 May. In short, sales were up by 10.1% to £8.6bn; and adjusted pre-tax profits were up by 28.5% to £965.2m. (That’s within touching distance of the magic £1bn profit that M&S reached before it fell into a seemingly terminal decline in the late 1990s). And although the stellar performance was dampened by a rather sombre warning that the retail sector may be about to face a slowdown, spirits remained high.
One of the interesting points to come out of the results announcement was how much capital expenditure Marks & Spencer has committed to technology during the past 12 months. During the 2005/06 financial year, the company committed just £39m to its technology and supply chain; this year, however, it almost trebled this to £114m.
During an interview with Cantos.com, Ian Dyson, Marks & Spencer’s group finance director, said that the spending would carry on. “Our supply chain and information technology is an area that we have under-invested [in] over time,” he said. “We expect to spend a bit more in 2007/08 in those areas.” (Central to the retailer’s technology strategy is the ongoing adoption of Radio Frequency ID tags – tiny chips which can be embedded in product labels and pallets that go on to provide important information to corporate HQ.)
M&S isn’t the only company to be investing heavily in technology. As ever, Tesco is at the forefront. The company is in the midst of an ambitious expansion into America, and technology is seen by the company as the enabler. Chief executive Terry Leahy said as much, again in a results presentation interview with Cantos.com. “Few areas are as important to us as IT and, in expanding internationally, it is important that we are able to transfer this capability,” he said.
Confectionary and drinks giant Cadbury Schweppes also sees technology as being key to the future success of the group, and announced in its latest annual report that it intends to increase its science and technology spend by about half a percent of revenues over the next few years. For a company the size of Cadbury Schweppes this amounts to an extra commitment of around £37m a year.
These are just three examples of large, successful companies putting technology at the pinnacle of their strategy. The problem (as ever, there’s a problem) is that few companies are taking their technology strategies – and just as importantly their budgeting and accounting – as seriously as they should be.
Thankfully, one of these at least seems to be gaining more attention (prepare yourself for a little chest thumping). In March, on this page, I wrote about how little, in general, the average organisation knows about their technology assets – what they have, where it is, what it’s worth and how to account for it on the balance sheet.
It’s an idea that seems to be gaining some serious momentum – and rightly so. FTSE-250 software company Micro Focus recently commissioned KPMG to conduct research into this very area. It found that out of 70 companies across six industry sectors, just six attributed any value to technology assets in their accounts. The conclusion is obvious: not good enough.
As a result, Micro Focus will now be working with Soumitra Dutta, a professor of information systems at Insead, to develop a study into the valuation of critical IT assets. Together they will look at the extent to which companies value IT and work on best practice measures.
Philip Adler, the KPMG director who conducted the initial research, said that if IT assets were more accurately represented, investors would be better informed. Which is one issue. But he also hit on the other, more important, issue. “Businesses may well make different investment decisions when renewing their systems,” he said.
And this is the key – although M&S, Tesco and Cadbury Schweppes should all be applauded for their views of how important technology is, how, exactly, do they reach decisions on how much to invest? Hopefully, the Insead study could help organisations of all sizes to compare and contrast with their peers.
At the height of Rose’s battle with Green, he came out with some cracking comments about how he would turn around the mentality of the company. “If it looks like a duck and quacks like a duck, then it’s a duck, right? That’s how I operate. I’m not going to take the duck’s bloody footprints, send them away for DNA analysis and find 10 weeks later that it’s a duck… It’s analysis-paralysis,” he said.
Perhaps. But I can only assume that M&S did its fair share of analysis before trebling its technology budget during 2006. Because, if not, that would be ducking stupid.
