Spyder Active Sports, maker of popular skiwear, is a small company that has benefited from careful IT planning and large market exposure. However, many small businesses make the mistake of not investing in the IT functionality that will enable their companies to thrive. Still others make the investment in IT only to have systems fail. Industry experts contend that the key for successful IT operations for small-to-midsize businesses (SMBs) is to concentrate on how IT can help companies succeed against competitors. It is also important to understand that some required IT spending will not pay off immediately. In addition, it is critical to begin by defining the objectives for technology investment as part of a business strategy. And while it can be tempting to put off investing in IT, SMBs that wait too long miss out on the productivity benefits of new systems. Open source and modular systems are better options than the older closed IT systems, because companies can start small and easily expand IT operations in the future.

As Published In August 2006

Growing for the Gold
By Ann Logue

SMBs balance growth with close attention to customers.

Winter Olympics watchers saw skiers rocketing down Sestriere's slopes wearing what looked like Spider-Man costumes. Superheroes? Perhaps, but their ski outfits were made by Spyder Active Sports, located in Boulder, Colorado. Spyder outfits the U.S., Canadian, and Austrian Olympic ski teams and dresses serious skiers—and those who look better than they ski—from the skin out to jackets, ski pants, and accessories.

Spyder's designers know that not all of these people shop in small ski shops in resort towns. Leading sports equipment retailer Dick's Sporting Goods, for example, expects all of its vendors, no matter how small or specialized, to have electronic data interchange (EDI) capabilities in place. Olympic skiers Bode Miller and Tommy Moe wear Spyder gear, but "at the end of the day, you are dealing with the retailers," says Kevin Smith, Spyder's director of information systems. "Those are our customers. We're a relatively small company with relatively large market exposure."

The Competitive Edge

Snapshot Spyder Active Sports www.spyder.com Annual revenue: US$100 million Number of employees: 125 Oracle products and services: Oracle's JD Edwards EnterpriseOne, Oracle9i Database Other products and services: Lectra's Gallery PDM solution; Sterling Commerce's Gentran Server; ICS' rfsmart wireless data collection; AMX International's IQ business intelligence solution; OneNeck IT Services; Deloitte Consulting; MSS Technologies; Amadeus Consulting

"When we implemented [Oracle's] JD Edwards six years ago, we were a [US]$15 million company in revenues. We're now a $100 million company," Smith says. "It was a conscious management decision to put in a good system that would enable us to grow. Management buy-in was there from the very beginning." That investment decision supported Spyder through a world-record revenue growth pace, helping the company move its products to shoppers at Dick's Sporting Goods, Sports Chalet, Federated Stores, and Marshall Field's, as well as giving its traditional specialty shop buyers even better service.

Customers have an affinity for small businesses, because they can often see themselves in the proprietor's place, says Rahul Bhaskar, associate professor of information systems and decision sciences at California State University, Fullerton. They like the attention they get from small businesses, but they also want the services that big companies can offer, often because of their investment in information technology. And, the management teams at small-to-midsize businesses (SMBs) need good information at their disposal if they're going to conquer their markets. Even a single-location restaurant may have hundreds of employees, once all of the part-time shift workers are taken into consideration. It has inventory to control. It has suppliers to work with. Even a small business needs a good IT system to support its operations. And IT demands grow with the revenue.

And yet, too many small businesses are trying to do things with PCs, even though their businesses have grown beyond them. With careful planning, smart implementation that includes outsourcing and effective staff training, and a system that can grow with the business, SMBs can have big-company IT functionality that will take their business to the next level.

For every growing business still pulling management information from a spreadsheet, though, there's a horror story about a company that dropped big bucks on an IT system that crashed before it was turned on. How does an SMB justify and manage its IT purchases so that they lead to gold medal performance, rather than an easy win for the competition?

Looking to the Future

The key, says Stephen R. Crawford, vice president of information technology at Amarr Garage Doors in Winston-Salem, North Carolina, is to concentrate on where you want the business to go, because some of the necessary spending won't pay off right away. "Most organizations sell IT based on ROI [return on investment]," Crawford says. "We sell it based on how it will help us drive past the competition."

Garage door manufacturing is a high-tech, design-intensive business. Americans are spending money on their houses, and the garage is no exception. In most neighborhoods, the garage is right out front where everyone can see it, so homeowners want it to look as nice as the rest of the house. And that's why they are turning to Amarr's custom wood and steel carriage house doors. "IT is absolutely essential for us to manage our growth," says Crawford. "It drives the bottom line in our organization."

For most of its 55-year history, Amarr's products were sold through company-owned door centers. In the past, contractors and installers would have visited the door center to pick up a standard model for their customers. But now, homeowners are more savvy. They do their own research online and often visit the showroom with a special style in mind. Architects specify garage doors that are in harmony with the rest of the design rather than delegate that decision to a contractor. And in many cases, the door will be bought through a large retail store like Lowe's. "This has changed our thinking, not only about the applications we use, but also the infrastructure basis," Crawford says.

Planning to Succeed

At Spyder, Smith says, the company opted for a vanilla implementation of a high-end system. That allowed Spyder to offer the information services that its vendors and customers expected without getting stuck with the high costs of a custom version, a luxury few small companies have. It also allowed Spyder's new system to explode out of the gate, without limiting future expansion possibilities. To keep control of the implementation costs, Spyder negotiated a fixed-cost contract from Deloitte Consulting.

"The easiest thing is to say, 'I have this one very specific problem, let me invest in something that will solve just it,'" says Ray Boggs, vice president of SMB and home office research at IDC, an analyst firm based in Framingham, Massachusetts. But what these managers need to do is take the next step and think of that problem in the broader scheme of where the business is going. Otherwise, they make the real mistake of buying one-off pieces that duplicate effort but don't communicate with each other, making IT a headache rather than a help.

The owner and senior managers need to take the time to come up with a plan for the business as a whole. "Then they should ask, 'On the road to accomplishing this, what will I need?'" Boggs says. In his research, Boggs has found that having a business plan is the single thing that separates companies that will last from those that won't, no matter how fast the companies are growing right now. It's hard to make the time in the press of everyday business, but that's what managers do. "Provide your business with some adult supervision," he says.

Michael Fritsch, CEO of Prometheus Performance Systems, which offers training and consulting on financial information systems to small businesses, says that a business should start by defining the goals for the technology investment as part of its business strategy. Is it to make the company look bigger, improve operating efficiency, or add staff without renting more office space? Each of these will lead to a different type of investment. "Figure out what you want before you go out for bids," he says. "Keep the wish list in functional terms. That way, the vendors can show you what their approach would be, leading to more creative thinking all around."

Boggs suggests that SMBs do some careful research before making a commitment. "You don't want to be the last person to adopt something, but you don't want to be the first," he says. As with so much of business life, he recommends networking, something entrepreneurs tend to be good at anyway. Business owners should ask questions at conferences, do online research, and ask peers about what systems are out there and what features make a difference in that industry. "Businesspeople in the local community who are not direct competitors are often great sources of information," he says. "You can learn a lot from them."

Making the Commitment

As much as a company's owners know that the business needs a technology infusion, writing the check is a killer. "There's always an argument for delay," Boggs says. "That's the scary part. Next year it will be cheaper and easier to use." However, he says, by waiting a year, the business loses the productivity benefits of the system, while it concedes some superiority to the competition.

Professor Bhaskar says that the reluctance to invest in IT may have been justified when systems were closed, because companies could get locked into a system that would not meet their needs in the long term. But thanks to open source and modular systems, companies can start small and get bigger later on, he says. In Orange County, where he is based, he has noticed that several small manufacturing companies have been able to run with just-in-time inventory, something that would not have been feasible just a few years ago.

Spyder offset the opportunity cost of waiting by choosing Web services versions of its IT applications. "We used an ASP [OneNeck IT Services] from the beginning," Smith says, which reduced the risk of equipment investments while speeding up the implementation time. "You're leveraging the depth and breadth of expertise that the partner has." That also saved the company from a big investment in hardware, and it made the upgrade process much simpler. Smith and his staff never have to take the entire business offline to add an application or install a software upgrade. As long as the host provider has capacity, Spyder can expand the breadth of its system.

As part of the implementation, Spyder's team arranged its data in a logical, consistent style. Bhaskar says that this is a key to success. "You need to indicate what the architecture will look like from the front," he says. "The database should be set up in advance so that everyone knows exactly how a customer is defined and entered, and that each item in inventory has the same name in each application." Otherwise, the data can't be shared, frustrating staff members as they sort through the different statistics in different reports.

System Support

"One of the things SMBs can learn from large companies is that there are two ways to grow profits. One is by reducing costs and one is by growing revenues," Bhaskar says. "If you want to do it by growing revenues, you have to do it in such a way that every six months, you're not fixing IT." To meet that challenge, Amarr's management chose to go with an in-house infrastructure rather than outsourcing. It was a strategic decision, made in part because Crawford's staff had many years of experience handling IT for the company. Senior executives knew that their people were capable of system maintenance and upgrades. And, Amarr's shareholders were willing to make the internal investment. "You can do that as a private company," Crawford says.

At Amarr, part of the process is the IT department's attitude. Crawford leads an experienced team of IT professionals, split between the headquarters and the company's largest manufacturing facility. "We are an extension of the business," he says. "We can't just be programming or technical experts. We have to be a partner to the people on the shop floor and an extension to the accounting staff." That philosophy improves buy-in with everyone in the company, garnering benefits from the system sooner.

Operating and Upgrading

In addition to starting with a basic system, Smith is careful to add increased functionality when it could boost Spyder's growth—and not a moment before. For example, he says, Spyder could turn on advanced pricing features, but the basic pricing works well enough right now. Should more power be needed in the future, though, he can add it by turning on the module rather than reconfiguring the system, customizing it, or buying a new platform.

When the investment decision was made, Smith was Spyder's sole IT employee. "I did everything from fixing printer problems to writing code," he says. He now leads a team of seven people in Boulder and one in Spyder's Switzerland office. Other departments at Spyder have grown as well, and the company recently opened an office in Bangkok. That's why another feature of the IT system that Smith values is the ability to add new users to the system quickly, because a growing company adds new employees constantly. "I could give you access to the information system in 10 minutes," he says. The system's language capabilities have also been welcome at a multinational corporation with just 125 people on staff.

"We have to go through a justification up front on every major project," Amarr's Crawford says. "But there are some projects where the return on investment isn't obvious, but we do them anyway because it's part of doing business and positioning our company." For example, Amarr's management has noticed that they are now dealing directly with homeowners who view the garage door as a retail item where aesthetics matter, rather than with contractors who may have other needs. To reach homeowners and architects, Amarr has invested heavily in its Web site. Visitors can create custom configurations of different door styles, window styles, and colors to help them with their purchase decision. "Selling garage doors over the internet is a new concept, but it's the way things appear to be moving," Crawford says. The ROI may not show up for years, but those are years in which the company will reap a competitive advantage.

Keeping Up with the Growth

Crawford also struggles with giving employees access to the systems without measuring whether they have proper training. Hiring managers don't always think about IT competence when they are looking for accounting or marketing staffers. "They hire the person and want them to have immediate access, and assume they understand how the system operates," Crawford says. "In many cases, the new hires are not as knowledgeable as they might seem." One way that Amarr's IT staff helps get new hires up to speed is by running "train the trainer" sessions so the department managers can teach their employees what they need to know, rather than waiting until the IT staff can hold its own training sessions. Crawford's team then provides ongoing refreshers to the entire organization through periodic Webcasts and review sessions.

"If you are adding a lot of folks, you don't want something that requires a lot of training," says Prometheus' Fritsch. He says that the IT staff should think about the non-IT skills needed for a specific job, then make sure that the IT skills that would also be required match. In too many cases, he says, the IT skills are often greater than the other job functions, so companies end up hiring people with greater skills than they would otherwise need. This not only leads to increased payroll expenses, but it also adds to staff turnover when people get bored and quit.

An additional challenge at an SMB is keeping the IT staff engaged. There is a limited career path within the company given their expertise and ability to affect the business. Managers can help their staffers grow in their jobs by giving them new responsibilities. The good people will want to expand their skills along with the company's expanding information systems. "I have a fantastic team of people," Smith says. "A lot of my role has become making sure that they are challenged and they are happy."

What's Next?

It's tough out there for SMBs right now, especially with rising fuel and healthcare costs. And yet, it's always tough. And it's always a great time to be in business. There are always fabulous opportunities to slice through the problems on the way to new performance peaks. "This is a wonderfully transitional time," says IDC's Boggs. "Technology can alleviate some of the burden of higher costs now while helping companies plan for the long haul."

For More Information Oracle Solutions for SMBs JD Edwards EnterpriseOne and JD Edwards World

And what's next for an SMB that has mastered the basics of information technology? "The key to the future success of an information technology organization is not solely based on supporting the manufacturing applications," Crawford says. "The true value comes from giving senior management metrics that can drive the business forward. It's about business intelligence."

Presenting changes in the data in the management information system can help executives identify potential problems before they crop up. These tools can sharpen that critical competitive edge if the company's IT system is well structured and robust. "We've got major initiatives to make sure we're at the forefront of our industry," says Crawford. "We believe we have significant competitive advantages through IT."