Evaluate Operational Capabilities Before Investing In High-Tech Businesses
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December 12, 2013 (www.investorideas.com newswire) When investors look at high-tech companies, the most important factors they usually assess are things such as market demand for products, competitive positioning and growth strategies. All of these are absolutely critical, particularly in a high technology landscape that is continually reinventing itself. However, what investors often fail to look at is the operational capability of the company – how well is it able to deliver new products, look after its customers and drive profitability, not just revenue growth.
BlackBerry - formerly RIM - is a case in point. While the company faced a disruptive technology in the form of smartphones from the likes of Apple - and certainly made product stumbles along the way - the biggest single reason that it couldn’t recover is that it was unable to deliver its new BlackBerry 10 operating system in a reasonable amount of time. Worse still, the prospect of BlackBerry 10 created overhung sales of its existing BlackBerry 7 handsets, making the year’s delay that it announced back in June 2012 disastrous. In other words, its inability to deliver - not just create a vision - led in large part to its current dire situation.
While high-tech startups are expected to be scrappy fighters with a good idea, once they go public and reach the sort of size that BlackBerry did, that is no longer enough. At this point, they need to have the same focus on process quality, efficiency and agility as any other company - in fact, they need to be more agile and efficient because of the incredibly fickle nature of the technology business. When investors are evaluating high-tech companies, they should look at these fundamentals just as much as whether a company has innovative products and high market demand.
For example, consider the area of process automation. In order to be a truly efficient organization that delivers high quality products and services at good margins, high-tech businesses need to have repeatable, streamlined business processes. This is particularly true in areas that touch the customer directly - such as customer care - as well as in those that affect product quality, including supply chain and offshore manufacturing.
To achieve this, high-tech companies need to implement workflow management systems such as those from iDatix , in order to drive cost-effective, accurate process flows across their organization. These systems ensure that activities are automatically routed along the entire process chain, making intelligent decisions along the way. They also integrate data from other systems - such as CRM and ERP - so that staff have integrated access to the information they need at every step. This is exactly the sort of capability that increases profitability and customer satisfaction - two of the most important criteria to evaluate when making an investment.
When it comes to actually delivering products and services, high-tech companies have to respond instantaneously to changing customer demands, and must provide a constant stream of enhancements to maintain their competitive edge. The BlackBerry example shows the importance of this for products, but in many ways it is even more important for web-based service providers. Companies such as Google and Facebook roll out new capabilities on a weekly – and sometimes daily – basis, and other web companies must be able to do the same. This leads to a fundamental conflict – how to deliver at an ever-increasing pace while maintaining quality and a superior customer experience.
More progressive high-tech companies are addressing this through something known as DevOps – a compound of development and operations – that tightly integrates these two functions in order to accelerate time-to-market. Capabilities are released quickly in small increments, and then backed up by highly responsive support to minimize the impact of any quality issues. This support requires the level of tight cooperation that DevOps delivers, so it is essential for a company to have a solid DevOps strategy if they are to maintain and grow their market position. DevOps also provides more rapid feedback to development, allowing them to evolve offerings more quickly and change direction when needed. Again, investors should care about this before they invest – does the company have a DevOps strategy, and if so is it successful?
Of course, these are only examples. Investors should also care about how well a company leverages its customer data – including their big data and predictive analytics strategy. High-tech companies that deliver products need to demonstrate that they have distribution capabilities that scale, as well as a supply chain that minimizes inventory costs. There are many more questions to ask, but the overall point is this – the capabilities of a high-tech company are at least as important as its vision when it comes to investing.
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