Company News » IT strategy: Bright spark

David Rae

You 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, 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 “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.