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Investments in technology hinge on risk, resources

When designing bike frames that match female cyclists’ proportions or deciding how best to market her products, Georgena Terry often considers how investments in new technology will benefit Macedon-based Terry Precision Bicycles Inc. Some decisions are clear-cut, while others involve intangibles, like increased flexibility and freedom.
Experts say Terry’s experiences reflect those of many entrepreneurs. The rationale behind some technology investments fits neatly into a spreadsheet, while other decisions hinge on resources, risk, company culture and identity.
Even with profitability and future innovation efforts on the line, research shows that technology investments often deliver rewards.
In a 2008 survey of 555 small and midsize firms, Illinois-based information technology solutions provider CDW Corp. found that 68 percent of respondents who consider IT a strategic investment reported 10 percent or more average annual revenue growth over the past five years.
Only 36 percent of respondents who described approaching technology investments conservatively realized similar revenue growth.
Lauren McCadney, CDW’s senior segment manager for small business, maintains that the time is ripe for small firms to evaluate technology investments. The survey’s findings suggest “that the first step toward success is simply to pay attention to technology and understand what tools are available,” she says.
When faced with the decision to adopt new technology in 2007, Fairport-based Vanteon Corp. adopted a new design tool that eliminated much of the manual work associated with printed circuit boards, its core product. Vanteon president and CEO David Wagner says customer expectations partly drove the decision to go with the upgrade, which cost $75,000 for five “seats” or workstations of the tool.
“Time-to-market in the consumer electronics business is key,” says Wagner, whose firm employs 87 and also develops software for the printed circuit boards. “Most of our customers need us to be as efficient as possible and do these designs in a pretty quick turn.”
With its printed circuit boards in products ranging from DVD players to aerospace devices, Wagner and his colleagues instinctually felt that there were new markets to tap.
“So it really wasn’t something we could measure on a spreadsheet,” he says. “It was more that we understood we could be more competitive.”
Wagner says input from various sources has proved critical when assessing potential investments’ merit. That give-and-take at Vanteon happens through a committee of roughly seven staffers, who meet monthly to debate capital expenditures.
“We look at possible purchases and say, ‘Is this something that we really need or is it just something we want?'” he says.
Vanteon’s tradition of profit sharing makes the conversations even more candid, Wagner says.
“When we’re purchasing capital assets like that, (staffers) are much more finicky about the money,” he says.
Research and references, Wagner notes, serve as important guideposts when assessing a technology’s benefits.
“Adopting a leading-edge technology can be pretty risky,” he says. “We usually like to adopt something that has been proven for a period of time-in other words, it’s actually being used in the marketplace,” he says.
“We like leading-edge (technology), but we don’t like to be the first to find out all the problems.”
Rochester Institute of Technology’s Richard DeMartino says most small firms must carefully weigh technology investments because of their limited resources.
Most small companies “are inherently conservative,” says DeMartino, associate professor of management at RIT’s E. Philip Saunders College of Business and director of the Albert J. Simone Center for Innovation and Entrepreneurship.
Wagner understands that avoiding new technology would be foolish.
“You have to look at new technology, and you have to evaluate what benefits they’re going to bring to you, whether they’re tangible or intangible,” he says. “Gut feel is, a lot of times, what we use.”
Wagner says managers should consider that new technology may spark some resistance in staffers. A few Vanteon engineers showed a touch of resistance when the firm first adopted its new design tool, but it quickly faded when they witnessed the time and effort savings.
I.C. Shah, president of ICS Telecom Inc., says when his firm first installed global positioning systems in technicians’ cars five years ago, some staffers wondered if the company was prying into how fast they were driving. That soon changed when the benefits of instantly knowing which technician to send to a service call became clear.
“In our company, the climate is that if we try it, and if it doesn’t work, (staffers) know I’ll have no problem pulling the plug,” he says.
ICS, which has 35 employees in Rochester and provides voice, data and network services, now is planning to upgrade the GPS devices so that technicians can find the shortest routes between service calls from their cars. The price of gas has prompted the plan, Shah says.
“We had to look at the cost-benefit factors” of the changes, says Shah, who recently equipped all technicians with PDAs to ease communication. “But these are not the kinds of things which transfer into profit in a direct way.”
The primary benefits are increased customer satisfaction and reduced costs, he says.
Terry Precision Bicycles’ Terry says her recent decision to add an in-house programmer with expertise in php and SQL computer languages boiled down to a cost comparison between hiring and outsourcing. Terry Precision Bicycles, which employs 23, says the decision has freed the firm from being dependent on a contractor’s schedule.
Rand Henke, entrepreneur-in-residence at High Tech Rochester Inc., urges firms not to back off from continually reassessing their products and the technology that underpins them.
Government regulations, market conditions, environmental issues and changing customer needs are among the variables to consider carefully. To underscore how quickly variables can change, Henke points to ethanol, now linked to rising food costs.
“You have to be on your radar scope, monitoring constantly, so you know how to be adaptive,” he says.
Sheila Livadas is a Rochester-area freelance writer.

Investing in technology

In a survey of 555 small and midsize firms, Illinois-based IT solutions provider CDW Corp. found:
–68 percent of respondents who consider IT a strategic investment reported 10 percent or more average annual revenue growth over the past five years.
–66 percent agree or strongly agree that IT is a key contributor to success.
–26 percent regret not taking full advantage of technology they already own.
–13 percent regard managing IT a significant challenge.
–13 percent regard creating and executing an effective Web strategy a significant challenge.
Source: The 2008 CDW Small Business Driver’s Seat Report

06/20/2008 (C) Rochester Business Journal


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